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Monday, August 11, 2014

Ron Paul says US Sanctions on Russia May Sink the Dollar





US Sanctions on Russia May Sink the Dollar

by Ron Paul



The

US government's decision to apply more sanctions on Russia is a grave

mistake and will only escalate an already tense situation, ultimately

harming the US economy itself. While the effect of sanctions on the

dollar may not be appreciated in the short term, in the long run these

sanctions are just another step toward the dollar's eventual demise as

the world's reserve currency.



Not only is the US sanctioning

Russian banks and companies, but it also is trying to strong-arm

European banks into enacting harsh sanctions against Russia as well.

Given the amount of business that European banks do with Russia,

European sanctions could hurt Europe at least as much as Russia. At the

same time the US expects cooperation from European banks, it is also

prosecuting those same banks and fining them billions of dollars for

violating existing US sanctions. It is not difficult to imagine that

European banks will increasingly become fed up with having to act as the

US government's unpaid policemen, while having to pay billions of

dollars in fines every time they engage in business that Washington

doesn't like.



European banks are already cutting ties with

American citizens and businesses due to the stringent compliance

required by recently-passed laws such as FATCA (Foreign Account Tax

Compliance Act). In the IRS's quest to suck in as much tax dollars as

possible from around the world, the agency has made Americans into the

pariahs of the international financial system. As the burdens the US

government places on European banks grow heavier, it should be expected

that more and more European banks will reduce their exposure to the

United States and to the dollar, eventually leaving the US isolated.

Attempting to isolate Russia, the US actually isolates itself.



Another

effect of sanctions is that Russia will grow closer to its BRICS

(Brazil/Russia/India/China/South Africa) allies. These countries count

over 40 percent of the world's population, have a combined economic

output almost equal to the US and EU, and have significant natural

resources at their disposal. Russia is one of the world's largest oil

producers and supplies Europe with a large percent of its natural gas.

Brazil has the second-largest industrial sector in the Americas and is

the world's largest exporter of ethanol. China is rich in mineral

resources and is the world's largest food producer. Already Russia and

China are signing agreements to conduct their bilateral trade with their

own national currencies rather than with the dollar, a trend which, if

it spreads, will continue to erode the dollar's position in

international trade. Perhaps more importantly, China, Russia, and South

Africa together produce nearly 40 percent of the world's gold, which

could play a role if the BRICS countries decide to establish a

gold-backed currency to challenge the dollar.



US policymakers

fail to realize that the United States is not the global hegemon it was

after World War II. They fail to understand that their overbearing

actions toward other countries, even those considered friends, have

severely eroded any good will that might previously have existed. And

they fail to appreciate that more than 70 years of devaluing the dollar

has put the rest of the world on edge. There is a reason the euro was

created, a reason that China is moving to internationalize its currency,

and a reason that other countries around the world seek to negotiate

monetary and trade compacts. The rest of the world is tired of

subsidizing the United States government's enormous debts, and tired of

producing and exporting trillions of dollars of goods to the US, only to

receive increasingly worthless dollars in return.



The US

government has always relied on the cooperation of other countries to

maintain the dollar's preeminent position. But international patience is

wearing thin, especially as the carrot-and-stick approach of recent

decades has become all stick and no carrot. If President Obama and his

successors continue with their heavy-handed approach of levying

sanctions against every country that does something US policymakers

don’t like, it will only lead to more countries shunning the dollar and

accelerating the dollar's slide into irrelevance.



--

Please

note Dr. Paul made an error at the very end with the website address.

The site ronpaul.org is NOT an official Ron Paul site; rather, he meant

to say RonPaulInstitute.org





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