Tag: NATO

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BRICS vs. Trump

There are now ten official members of the BRICS alliance.  The five founding nations are Brazil, Russia, India, China, and South Africa.  Thus, the acronym BRICS.  Six additional countries are now official members: Saudi Arabia, Egypt, Ethiopia, Iran, United Arab Emirates, and Indonesia.  Ten more countries are in the “partner state” category: Belarus, Bolivia, Cuba, Kazakhstan, Malaysia, Nigeria, Thailand, Uganda, Uzbekistan, and Vietnam.  Algeria and Türkiye were invited to become partner states but have not confirmed their status.  Its eleven official members represent 39% of global GDP and 49% of the world’s population.

The 2025 BRICS Summit was hosted by Brazil in Rio de Janeiro on July 6-7.  The host country sets the agenda for discussion at the annual summit.  This year, the stated goal of the Brazilian Presidency was to “continue to seek reforms in the global governance system, always in favor of greater participation of emerging and developing countries and greater legitimacy and efficiency of existing international organizations.”  The agenda focused on six areas:

    • Cooperation in global health
    • Trade, investment, and finance
    • Climate change
    • Governance of artificial intelligence
    • Multilateral peace and security architecture
    • Institutional development of BRICS

Military cooperation and artificial intelligence are now getting more attention.

The BRICS alliance has developed alternatives to SWIFT (Society for Worldwide Interbank Financial Telecommunication) to reduce transaction costs and reduce reliance on the US dollar for international trade.  SWIFT is a cooperative headquartered in Belgium that was established by member banks in 1973 for messaging between banks about international monetary transactions.  Most SWIFT transactions are denominated in US dollars.

BRICS Pay is an initiative for a decentralized payment system that would allow all member countries to trade using their national currencies and digital assets.  It utilizes blockchain technology to provide transparency, security, and faster settlement.  It enables transactions in local currencies rather than defaulting to the US dollar and connects with different national payment platforms such as China’s UnionPay or AliPay, Russia’s Mir, Brazil’s Pix, and India’s UPI.  BRICS Pay is currently operational in pilot mode but should be fully operational in BRICS member states and selected partner countries in 2026.

The introduction of BRICS Pay will reduce the role of the US dollar for international trade settlement.  Central banks and foreign investors will soon find themselves holding too many dollar-denominated assets.

These developments have not gone unnoticed by the Trump Administration.  Earlier this year, President Trump announced that 10% tariffs will be imposed on all countries that fail to reach a bilateral agreement with the US by August 1.  While the BRICS Summit was taking place in Rio de Janeiro, President Trump announced an additional 10% tariff on countries that align themselves with the “Anti-American policies of BRICS.”  President Trump also threatened to impose 100 percent tariffs against the BRICS nations if they make any move to undermine the dollar.  It’s a subjective standard, but BRICS Pay will undoubtedly reduce demand for US dollars.

The BRICS nations quickly issued a joint statement in response to President Trump’s threats, saying that the tariffs are “inconsistent with WTO rules” and threaten to “reduce global trade, disrupt global supply chains, and introduce uncertainty.”  While the full impact of the new tariff regime remains to be seen, the United States has become an unreliable and unpredictable trading partner for many other countries.

Donald Trump and Dmitry Medvedev, Deputy Chair of Russia’s Security Council and former President (2008-2012), have exchanged barbs on social media.  On July 28, Trump informed Russia that they had 10-12 days to cease the war against Ukraine.  A portion of Medvedev’s response said, with “Each new ultimatum is a threat and step towards war – not with Ukraine, but with his own country.”  He ended his post with a direct message for Trump: “Don’t go down the Sleepy Joe road!”  Escalating the situation further, Trump ordered two US nuclear submarines to positions closer to Russia.

On July 17, General Chris Donahue, Commander of US Army Europe and Africa, also made a direct threat against Russia by stating that NATO forces could rapidly take control of Kaliningrad.  Kaliningrad is a highly militarized Russian exclave on the Baltic Sea between Poland and Lithuania.  It covers only 5,830 square miles, but it is the home of the Russian Baltic Sea Fleet which has missile systems and nuclear weapons.  Leonid Slutsky, head of Russia’s foreign affairs committee, warned that any attack on Kaliningrad would trigger “retaliatory measures, including the use of nuclear weapons.”

While it is estimated that 1.2 million or more Ukrainian soldiers have lost their lives, the Russians are well aware that the US and its NATO Allies are providing the weapons, satellite intelligence, and personnel with the technical capability to target many of the missiles used by Ukraine.  Countries in the Middle East also have no illusions when they see planes provided by the US dropping American bombs using Israeli pilots.  The US may soon be more involved in wars if Russia and Iran no longer choose to ignore the US role in military actions against them.

Alex Krainer is a former hedge fund manager, commodities trader and author based in Monaco.  He is the co-founder of TrendCompass.net.  His academic background is in business, but he is well-versed in geopolitical developments.  He was born in the former Yugoslavia and served in the Croatian military.  He had this to say in a recent interview:

We are witnessing the clash of two systems, generally, which makes the conflict in Ukraine the same conflict that we are witnessing in the Middle East, the same conflict that might happen with China in the future.  The logic of this conflict is such that … you have to be on one side or the other.  The two sides, the two systems of governance are the Western oligarchic, neo-colonialist, imperialistic system of governance versus pretty much the rest of the world.  And now it so happens that there are powers in the world that are willing and able to resist the dictates of the empire.  These powers, being primarily Russia and China, and also Iran.

The question is then, what side did the Trump administration take in this conflict?  My conclusion, based upon the past six months of activities is that Trump has taken the side against the empire.  So, very often Trump makes these statements which are, I think, largely psyops.

You know, he makes these statements for certain audiences.  And he’s in the UK now (July 28).  And the UK is in the most desperately war-mongering side in this conflict with Ukraine.  The empire that we have in the west today is still headquartered in the City of London.  That’s still its strategic, spiritual… it’s still the main headquarters.  The United States has been mainly the financial and military muscle for the empire.  And I think that Trump has been trying to extricate the United States from this imperial role but this is a very complicated task because the groups and interests that have benefitted the most from the United States being the empire’s enforcement arm are the most powerful groups in the United States, being the banking cartel, the military-industrial complex and certain other groups.  So, he is in the UK now, he is meeting with Starmer.  I think that he has to give them the impression that he is still game for being the enforcement arm for the empire.  But I think, in reality, he has no intention of doing this.

So, is Trump crazy like a fox?  Time will tell.

If you have any questions or comments, please contact me.

Robert G. Kahl
CFA, CPA, MBA

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The Shifting Multipolar World

Looking at the website for ForeignPolicy.com, a nexus for foreign policy wonks, there is still much debate about the nature of relative power around the world.  Here is a sample of some of the opinion titles:

      • “Yes, The World is Multipolar;”
      • “No, The World is Not Multipolar;”
      • “America is Too Scared of the Multipolar World;”
      • “The GOP Plan to Bring Back a Unipolar World.”

Emma Ashford and Evan Cooper, senior fellow and research associate, respectively, with the Reimagining US Grand Strategy at the Stimson Center provide some background.

Polarity typically takes on one of three forms: unipolarity (in which one state is by far and away the most powerful), bipolarity (in which two states are about equally powerful), and multipolarity (in which power is more diffused among several states).  It’s a common misconception that multipolarity must involve many states of roughly equal capabilities (i.e., that it must be balanced).  But in fact, multipolar systems are often unbalanced, with two or three big powers and several middle powers all jockeying for position.

For the last 30 years, the United States has been the undisputed global leader.  But today, opinion is divided.  Some argue that the United States will remain the global hegemon for the foreseeable future, others say we’re headed for a new bipolar competition with China, and still others believe that a multipolar era is dawning.

The Stimson Center’s conclusion regarding where we stand: “The United States simply does not hold the level of military and economic power it did during the early decades of the Cold War.  Nor does today’s China match the Soviet Union at its peak.”

In August, the BRICS summit was hosted by South Africa in Johannesburg.  The five founding states are Brazil, Russia, India, China, and South Africa.  While 40 countries expressed an interest in joining BRICS, 23 officially applied for membership (including 7 of 13 countries in OPEC) prior to the meeting in South Africa.  Six of the applications were accepted and will become effective on January 1.  The new members are Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE).  However, Argentina President-elect Javier Milei who will be sworn in on December 10, plans to withdraw Argentina’s commitment after he takes office.

The current five countries of BRICS represent 42 percent of the world’s population and 33 percent of the world’s GDP on a purchasing power parity basis.  The G7 (Canada, France, Germany, Italy, Japan, United Kingdom, and United States), by contrast, account for 10 percent of the world’s population and 30 percent of GDP.

At the initial summit in 2009, the BRIC nations (South Africa had not yet joined) announced the need for a new global reserve currency which would be “diverse, stable, and predictable.”  While the BRICS alliance has not yet established an alternative global reserve currency, they continue to make progress towards that goal.  At the 2014 BRICS summit, an agreement was signed to create and fund the New Development Bank with $100 billion.  A reserve currency pool was also established with over $100 billion.

Another example of the diminished influence of the United States occurred in Africa earlier this year.  On July 28, the final day of the Russia-Africa Summit in St. Petersburg, Russian President Vladimir Putin announced that Russia had signed agreements for military cooperation with over 40 African countries.  The agreements included a broad range of weapons and technology, some for free “with the aim of enhancing the security and sovereignty of the countries.”  In addition, President Putin reiterated that Russia would continue to be a reliable supplier of grain to African countries.

Ukraine seemed to demonstrate the limits of US/NATO military support.  The US Government has spent $113 billion on Ukraine, appropriated in 4 spending authorizations, since the war with Russia began in February 2022.  In October, President Biden requested a supplemental bill for national security of more than $100 billion, which would include another $61.4 billion for Ukraine and $14.3 billion for Israel.  Congressional negotiations have stalled despite a warning by the White House that the US will “kneecap Ukraine on the battlefield” if funding is not approved.  Colonel (Retired) Douglas Macgregor frequently offers his opinions on a variety of YouTube and Rumble channels.  On a December 4 interview with Cyrus Janssen, he had this to say about Ukraine and US involvement.

The Ukranian nation is destroyed….  I don’t know how many civilians have been killed.  I don’t know exactly how many wounded, but I know that you’re looking at 500,000 dead Ukranian soldiers…. You’re looking at World War I scale of losses on the human side that we just can’t begin to comprehend it.

He continues:

What’s clear is it’s over because the United States government, and American media, and finance committees have all changed the topic.  It reminds me of what happened in Vietnam.  What happened at the end of Vietnam?  We left.  People stopped talking about it.  It was over….  We are preeminently a maritime and aerospace power.  We are not a land power anywhere in the world except in the Western hemisphere.  So, what this means is at the end of the day, if things don’t go our way, we don’t like what happened, it doesn’t suit us, we fly away, we sail away.  We’re finished.  But for the Chinese, the Russians, the Iranians, for the Arabs, for whomever, the Africans, wherever your go – they live in the region.  They’re stuck with it.  And they’re stuck with the consequences of our intervention.  And our interventions have always distorted the dynamics of the region.

Israel has always relied on US support.  Perhaps in deference to the United States, countries such as Turkey, Jordan, Saudi Arabia, and Egypt maintained a peaceful coexistence with Israel.  However, after the Hamas attack on October 7, the Israeli response has united Muslims around the world.  Yemen is the only country to declare war on Israel and so far, their attacks have been limited in nature.  But there is now popular support in many Muslim countries for military action against Israel.

How the conflict in Israel/Palestine resolves itself remains to be seen.  But the decline of US economic and military power, and influence in recent decades is clear.

If you have any questions or comments, please contact me.

Sincerely,
Robert G. Kahl
CFA, CPA, MBA

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Next Moves for the Fed and BRICS+

The Federal Reserve’s Open Market Committee (FOMC) meets Tuesday and Wednesday of this week.  The FOMC meets approximately every 6 weeks and releases their policy statement at the end of their two-day meetings.  The consensus expectation is that the FOMC will announce an increase in the fed funds target rate of 75 basis points this week.

When Chairman Jerome Powell gave testimony to Congress on June 23, he noted that inflation remained “well above our longer-run goal of 2 percent” while the “labor market has remained extremely tight.”  Not much has changed during the last four months regarding both inflation and employment.  The rationale for higher interest rates remains in place for now.  Interest rates remain far below the level of inflation as measured by the government.  However, in the future, there are limits to how much the Fed can raise rates.

As of September 30, 2022, the US Treasury has $30.9 trillion of debt outstanding, reflecting a debt/GDP ratio of 123%.  In December 1980, when Fed Chairman Paul Volcker raised the fed funds rate as high as 22%, the US Government had $908 billion in debt, which represented 32% of GDP.  Since the US debt to GDP ratio has nearly quadrupled during the last 42 years, the Fed will eventually have to consider the impact of higher interest rates on the interest expense of the US Government, as well as businesses and households.  Higher interest rates raise the risk of debt defaults.  It remains to be seen where the tipping point of financial pain is due to higher interest rates.

Meanwhile, in the rest of the world, the dynamics of international relations are changing rapidly and the United States is losing its leadership role.  ZeroHedge described the recent protests in Europe:

Tens of thousands of people have marched across metro areas in France, Belgium, the Czech Republic, Hungary, and Germany – many of them are fed up with sanctions on Russia that have sparked economic ruin for many households and businesses – but also very surprising, support for NATO’s involvement in Ukraine is waning.

There has been increasing awareness and dissent among Europeans about their countries’ leaders prioritizing NATO’s ambitions in Ukraine over their own citizens.  The prioritization has been in the form of sanctions against Moscow, sparking energy hyperinflation and supplying weapons to Ukraine, which has made Moscow displeased with any country that does so.  Some Europeans are now demanding NATO negotiate with Moscow to end the war so that economic turmoil can abate.

There is also increased interest by many countries in joining BRICS+ (an economic alliance started by Brazil, Russia, India, China, and South Africa).  The original five BRICS countries seek to expand their influence by establishing principles of “inclusive and equal cooperation” for international trade and financial regulation.  Among the countries being considered for admission to BRICS+ are Argentina, Egypt, Indonesia, Iran, Kazakhstan, Kenya, Mexico, Nigeria, Saudi Arabia, Senegal, Tajikistan, Thailand, Turkey, and United Arab Emirates.

Saudi Arabia’s intention to join BRICS+ is significant.  Mohammed al-Hamed, President of the Saudi Elite Group in Riyadh, told Newsweek: “China’s invitation to the Kingdom of Saudi Arabia to join the BRICS confirms that the Kingdom has a major role in building the new world and became an important and essential player in global trade and economics.  Saudi Arabia’s Vision 2030 is moving forward at a confident and global pace in all fields and sectors.”  Thus, Saudi Arabia’s snubs of President Biden are no surprise as the country realigns its economic and geopolitical interests.

As Saudi Arabia is the largest exporter of oil in the world, there is serious doubt about the longevity of the “petrodollar” (use of the dollar for payment of oil deliveries).  Fed Chairman Jerome Powell acknowledged this in June when he said, “rapid changes are taking place in the global monetary system that may affect the international role of the dollar.”

If you have any questions or comments, please contact me.

Sincerely,
Robert G. Kahl
CFA, CPA, MBA