The fact that Saudis want to control Yemen and the Chinese are increasing their presence in Myanmar is a preparation for the conflicts that may soon flare up. It is about securing the flanks.

The war in Yemen is being waged more and more brutally by the Saudis. The weapons of the Saudi army supplied by the USA hit the civilian population more and more often. The central bank moved from Sanaa to Aden by order of the Saudis prints money in heaps, so that the population cannot afford food due to galloping inflation. Why genocide? It is not about ideology, or religious differences between Huthis (Shiites) and the rest of the people of Yemen (Sunnis). One of the reasons can be oil. The reserves of black gold discovered in the northern province of Yemen, Al-Jawf, are said to be larger than the Saudi reserves.A bargain for Saudis. But the most important thing for them at the moment is to prepare for the direct conflict with Iran. If war were to break out, Iran would block the oil transit bottleneck in the Strait of Ormuz. Saudi Arabia therefore needs to secure access to the 27 miles wide strait between the Red Sea and the Gulf of Aden and thus its oil exports. The road is called Bab al-mandeb (Gate of Tears) in Arabic. If it is also blocked by enemies of the Saudis, there will certainly be many reasons for Riyadh to cry.

The end of the EU and the Balkans as China’s foothold in Europe

Though the end of the European Union is inevitable, the proponents of a further integrated or federal superstate are busy making a last effort to achieve their goal. The opposition against the project is mounting with every day. Europe is suffering from economic stagnation, and is facing a demographic calamity.

The pro-European establishment’s last hope was the newly-elected French President Emanuel Macron who was to revive the economy and integrate the European Union under French leadership. Gefira was of the opinion that all these expectations were misplaced. The once great nation is broken beyond repair. France’s problems are much worse than those of Italy. Though Italy has a higher debt-to-GDP ratio than France, France has a larger budget deficit, and the difference is that while Italy has a trade surplus France has a trade deficit, so the country cannot pay for its imports.

While the Italian “populist” Mateo Salvini is earning the nation’s respect, Emmanuel Macron’s popularity is at a historic low. All of France is engulfed by riots, civil unrest and looting. In city after city, village after village, protesters have been clashing with the police for weeks now while President Macron has nothing to offer to appease them, unless he violates the budget deficit boundary of 3%.

Like the Soviet Union once was, France is a sizeable social-multicultural experiment, and like the empty shops in communist countries, the demographic changes in France are visible in every section of the society, but nobody dares to name them. Once the whole world saw that the French team playing at the FIFA World Cup was made up of almost exclusively Africans, and even on Twitter Africans boasted about it. Yet, the French establishment insisted that those Africans were genuinely French. Dissenters were branded as racists or Nazis.

Academia as well as the political and business establishment deny what is clear to see for all. The French society has lost its economic strength and its spirit. The country was once known for its first high-speed-trains (TGV) and Concorde, but now it is notorious for social dystopia and Islamist attacks.

To prove that they are right, the French and European elites will push the multicultural society even further by signing the Global Compact for Safe, Orderly and Regular Migration. Also the report entitled: “Replacement Migration: Is it a solution for an ageing population” is the United Nations’ comprehensive plan for replacing the European population.

The Fifth Republic has come to an end, and we do not expect President Macron will finish his term. France’s socio-economic collapse will drag the European Union into the abyss.

Now that the heart of Europe is ungovernable, its peripheries will not fare any better. The multicultural and multireligious Bosnia is not sustainable. The borders in the region will be redrawn again, which will come with a price. A war between Muslims and Christians in the Balkans will reverberate in the suburbs of Paris, Amsterdam and Berlin because of the Muslim large minorities there. The European establishment has allowed Islam to grow in Europe, and, strange enough, they believed that European Muslims would feel grateful for such generosity.

From the point of view of non-European powers the Balkans are a bridgehead worth fighting for. In the nineteenth century it was the Europeans who were expanding into China, now it is the Chinese who are trying to gain a foothold in Europe. Chinese investments and influence are growing in the Balkans. For centuries this part of Europe has been the battlefield between (Orthodox and Catholic) Christianity on the other hand and Islam on the other. Now a new global player has emerged in the region: China. For many Europeans, this part of Europe seems of little importance, but we think that ignoring the Balkans is going to be a fatal error. The conflicts there are far from being solved and the West through its ignorance of the intricacies of the Balkans’ history is stoking the fire by the solutions it implements there.

Guest post: By André ten Dam and Jean Wanningen

Abstract

This article reviews an alternative option for Italy to devalue in order to deal with its economic problems, while keeping its EMU membership and the euro as its currency. Referring to the Keynes’ views, the crucial role of the rigid one-size-fits-none euro in the Italian economic malaise is analyzed. And the reason is explained why Italy needs a devaluation, in particular versus Germany. Because a euro-exit with re-introduction of the lira currency by Italy will be accompanied by several complications, disadvantages and risks, The Matheo Solution (TMS) is presented as a more suitable, simple, smart and elegant alternative. Via implementing a national unit of account for every individual euro country, the ‘lean & mean’ TMS model introduces monetary flexibility regarding exchange(value)-rate adjustment and interest rate differentiation on a national level within the Euro Pact. Keynes probably would have considered the TMS model himself, if he had the time to live. Although in 2010 intended for a Eurozone-wide implementation, Italy, then regaining the crucial parts of its monetary sovereignty, can implement the TMS model unilaterally as well. After devaluing the newly introduced Italian unit-of-account the Italian economy, employment and state finances will instantly improve.

Since the introduction in 1999 of the common European one-size-fits-all euro-currency in Italy, the third euro-zone economy is struggling. Instead of the promised growth and prosperity the common currency has thrown the country into a situation of stagnating economy, structural high unemployment and (as a consequence) deteriorating state finances. And the outlook for the future isn’t very bright either.

In this downward spiral well educated youngsters (the Italian human capital) move abroad, industrial production move to other countries with lower labor costs and the Italian banking system finds itself in a state of collapse.

Two relevant questions are:

1. What is the main cause of the Italian troubles?
2. What could Italy do to turn the disastrous tide?

Keynes lends a helping hand.

After the Second World War, many economists racked their brains to answer the question of how Hitler managed to finance his armament, boost the economy and reduce unemployment. Today his trick is well known. The economic miracle of Führer’s time became possible thanks to the so-called Mefo promissory notes. The notes were the idea of the then President of the Reichsbank, Hjalmar Schacht, and served not only to finance the armament of the Wehrmacht for the Second World War, but also to create state jobs, which would otherwise not have been possible through the normal use of the money and capital markets, i.e. the annual increase in savings in Germany.

The Reich thus financed the armaments industry by accepting notes issued by the dummy company Metallurgische Forschungsgesellschaft GmbH (hence the name Mefo) rather than paying them in cash. The creation of money was in full swing from 1934 to 1938 – the total amount of notes issued at that time was 12 billion marks. The Reichsbank declared to the German banks that it was prepared to rediscount the Mefo notes, thus enabling the banks to discount them.

Because of their five-year term, the redemption of notes had to begin in 1939 at the latest. This threatened with enormous inflation. Since Schacht saw this as a threat to the Reichsmark, he expressed his doubts about the Reich Minister of Finance. But it did not help, and Schacht was quickly replaced by Economics Minister Walther Funk, who declared that the Reich would not redeem the Mefo notes, but would give Reich bonds to the Reichsbank in exchange. At the time of Funk, the autonomous Reichsbank statute was abolished, the Reichsbank was nationalized, and inflation exploded in such a way that Mefo notes with a circulation of 60 billion Reichsmark burdened the budget in post-war Germany.

The Western world is heading for the next big social and economic crisis. America’s hegemony is waning and its establishment is fighting among themselves. To uphold American supremacy, President Trump and his administration are trying to reshape the nation into a neo-feudal society with a new relationship between the President (sovereign), the financial elite (fief holders, the privileged vassals) and the people (subjects performing socage). If the country is doing well, the population lives in relative stability and the leader is loved. The US is facing a demographic decline and a rapid replacement with migrants from Central America and Africa. This internal development will have profound effects on social stability and economic prosperity. The US can only be a superpower if the country is stable and the nation supports the establishment.

Jerome Powell, the head of the FED, is derailing Trump’s stimulus programme by increasing the interest rate and reducing the federal reserve balance sheet. The actions of the FED result in a drop in stock prices and the increase in the cost of debt servicing for the highly indebted US corporations. The US is now the world’s largest oil consumer and producer thanks to its shale oil industry. However even with the oil price around $70 the industry has lost more than it earned. A high interest rate and a low oil price make the industry vulnerable.

The president has said clearly that he does not like what the FED is doing. The FED has to revise its decisions, otherwise Jerome Powell will be dismissed as envisioned by Section 10 of the Federal Act. The FED will have to reconsider its policies so as to enable the stock market to make another push up next year. However, investors should be careful. The emperor has no clothes, and while the S&P is still at an all-time high, it may happen that soon distinguished brands like General Electric, once America’s most valuable company, will be on the brink of bankruptcy.

President Trump will not be able to reverse the social decline, the gradual impoverishment of the middle class and the exodus of factories. The tensions within the US establishment are spreading to Europe. On both sides of the Atlantic, there is huge discontent between the native peoples and immigrants, so ethnic clashes are more and more likely. Trust in national governments is eroding and the Western societies will slowly fall apart. While the US remains the world’s sole superpower, it has nonetheless lost the war against the Taliban in Afghanistan. Still, the Washington cabal is clinging to power by imposing more and more sanctions on companies and countries. The Western world and its financial system are breaking down and for that reason gold will again be a safe haven for investors.

Energy is pivotal. The conflict with Russia is about energy. As long as Russia is Europe’s main energy supplier, Moscow will wield power over the Old Continent. Operation Trident, NATO’s large military exercises held in Norway, is about energy resources. In Gefira 28 we discuss the future of the United States and give the reader an extensive analysis of the US shale oil industry, explaining why the FED will be compelled to change its policies.

Although Beijing is Moscow’s largest trading partner, while Russia only ranks in the second ten among China’s importers, the Kremlin is strategically the most important contractor because it supplies the most desirable product – oil – and Chinese demand for this raw material is growing. It appears that an increase in Russian oil exports to China will be at the expense of European consumers.

Chinese oil production has been falling since 2015, and yet enormous infrastructure investments and huge strategic petroleum reserves (SPR) boost the demand for it. No wonder then that in 2017, Beijing became the largest importer of crude oil, overtaking the United States. Currently, China’s consumption of product is approaching 13 million barrels per day. In the March Gefira we predicted that the PRC will have become the largest consumer of this raw material by 2025, accounting for 18-20% of the global consumption.And Russia has an important role to play because already in 2016 it became China’s most important oil supplier, replacing Saudi Arabia.

China has been buying more and more Russian oil in the last decade, even though the Kremlin does not increase its export volume, which is around 5 million barrels per day. In 2009, countries such as Poland and the Netherlands imported more Russian crude oil than Beijing, but in 2015 they were overtaken by China, which in 2017 had an over 20% share in the Russian exports of this raw material.