Will Lagarde & The ECB Survive This Inflection Point In Geopolitics?
Recently, ECB President Christine Lagarde shocked markets with surprisingly hawkish talk at her monetary policy press conference.
Lagarde didn’t make any sudden moves in policy or anything. The ECB has yet to end any of its bond-buying and internal debt-transfer alphabet soup projects, and won’t until Q3 at the earliest.
Markets were not prepared by her previously that she would set such a hawkish tone. Say what you want about FOMC communications policy, at least under Jerome Powell, they tell you what they are going to do and then do it.
But Lagarde needed to do something dramatic because capital markets were moving quickly against her.
Traders stopped trying to disbelieve the illusion of Fed hawkishness and finally accepted what Powell was saying. For better or worse (and that debate was lively in this podcast I did with Peter Boockvar last week) the Fed will raise rates in March.
This isn’t an article about whether the Fed is making a policy error or not. This article isn’t even really about Christine Lagarde and the ECB. The actions of these two figures are downstream of the rapid changes occurring in the geopolitical landscape.
Those changes forced Lagarde to jawbone the euro higher and stave off a collapse in credit spreads.
So bear with me as I link the new gas deal between Russia and China to the the splits within the Anglo/Euro political hierarchy. Because once I’m done I hope you’ll see the inflection point we now find ourselves in the geopolitical Great Powers game.
So, back to Lagarde.
Central to Eurasia
In short, it is a manufactured crisis to engineer the independence of the European Union from the US/UK traditional forces which have pushed the world to its current state. Biden will get to look tough staring down the Russians with sanctions threats and the Germans will finally get their shiny, new natural gas pipeline which will solidify their political control over the EU.
Despite ham-fisted propaganda and diplo-speak to the contrary, NATO is an aggressive alliance designed to further Anglo/European hegemony over Eurasia. The policy is informed by the writings of Halford Mackinder more than 100 years ago.
He who controls the world island of Eurasia controls the world. If you can’t control it, stop anyone else from doing so. That simple maxim drives so many people within Western foreign policy and military circles.
It’s an idea dying a little more with each generation but since Davos refuses to let the next generations take control in the U.S. and Europe, the policy persists with whatever energy a bunch of octogenarians can muster.
However, while Mackinder still dominates Western thinking about Russia and China, over the past couple of decades there has been a subtle but very real shift in the internal power balance of between Europe and the US, to the US’s disadvantage.
Europe wants to control Western foreign policy, supplanting the US/UK axis which has dominated since WWI or earlier.
This is at the heart of my theory of Davos — Old European money wants to take back control of Western economic and foreign policy from the Yanks and the Colonies after two centuries of subordination.
And what has become clear to me is that, post-Trump/post-Brexit, there are sincere faults within the cozy relationship between these two culturally very different tribes — the Anglosphere of the US/UK and the traditional European colonial powers.
As the USSR fell, when Russia was weak, it was easy for them to be united in common cause: Destroy the USSR, strip the resultant Russian Federation of its assets, take over the country from within, centralize control over Europe in Brussels, elevate the post-WWII Institutions to enforce a New World Order.
This is the essence of the Bill Browder story and all of the subsequent NATO expansion eastward.
Out with Brzezinski, in with Putin
This dynamic shifted when Putin came to power, but was really felt for real when Russia intervened in Syria in 2013, stopping Obama’s invasion plans, after the Tories refused David Cameron to follow Obama. Putin used diplomacy to pull things back from the brink.
Russia’s reward for this was the Maidan uprising in late 2013/14 and the ouster of Ukrainian President Viktor Yanukovich, which led to the current situation: The Donbass in limbo, Crimea now a part of Russia and the West fuming mad over having been stymied as Putin successfully played for time.
He planted a flag of defiance then and began making a stand. He’d make that stand stick in October 2015 when Russian armed forces began supporting Syrian Arab Army forces retaking territory from US-backed ISIS and Al-Qaeda forces.
At the same time, Russia built an edifice of relationships (with China, with India, with Turkey, etc.) which chipped away at the relationship between the US/UK and Europe. It exposed the fault lines between them using Europe’s growing dependence on energy imports and its ideological desire to raise itself above the US/UK and replace them; feeling their new Empire, the EUSSR, was inevitable.
Putin and Xi have exploited this European hubris and British/American ‘contrariness’ to deepen the divides between them, quite successfully over the years.
But now let’s look seriously at Ukraine. Europe wants out of the conflict. The Anglos are desperate for it. France’s Macron and Germany’s Scholz have tried to defuse the situation. Biden and the Brits have done nothing but enflame it with insanely hysterical propaganda.
They’ve even gone so far as to telegraph a false flag event to get the war they want while Russia steadfastly denies it has expansionist designs on Ukraine. Russia doesn’t want Ukraine. It’s now an albatross, economically, politically and socially.
Russia already has what is truly valuable about Ukraine — the coal deposits and industry of the Donbass and the ports of Crimea. The rest of the country is a failed state courtesy of western meddling where everyone, including the EU, bear a lot of responsibility.
But if, as I’ve posited for over a year now, the Biden White House is controlled by Davos who absolutely do not want war with Russia. Why would he, of all people, be ginning up the biggest geopolitical standoff between nuclear-armed powers since 1962?
The conventional wisdom citing incompetence doesn’t cover it.
It’s too convenient an explanation.
Biden is a fall guy. He’s a puppet. Even those that run his White House are order-takers, not order-makers. This strategy doesn’t achieve anything if Biden is forced to back down, other than humiliation of the US.
So, if incompetence isn’t a good answer (which it isn’t, since it doesn’t fit the incentives of the people involved), we get more mileage out of it being a deliberate policy with a very definite goal. A game-changing goal. Big goals require big operations after all.
And the biggest geopolitical event since the Russians put missiles in Cuba meets that standard.
To me it looks like the best outcome for Davos is exactly this. Biden and the UK back down over Ukraine but get to save face in the process. Speaker Nancy Pelosi came out today and said exactly this, stopping Russia through threats Putin couldn’t handle.
It means that this whole crisis was engineered. To what end? To finally allow Germany and France to take control of European foreign policy for the first time since the end of World War II. To do that you have to create a situation where the US, as the dominant member of NATO, is revealed to be a paper tiger when confronted by an immovable opponent, in this case Russia.
Sure Pelosi and Biden will sell it as “Oooh, Biden so strong! Vote for us this fall.” But that’s just talk.
The longer this standoff went the worse the US and UK look in the eyes of the world. Don’t think for a second that wasn’t the whole point of this whole pointless exercise. It’s not a bug, but a feature.
The US and UK lose a tremendous amount of status, Biden gets a domestic policy “win,” and Europe gets its independence.
The Road Signs
So, when it comes to this Anglo/Euro split, it also means tying events in Ukraine back to monetary policy and Lagarde’s finding religion in rate hikes:
JP Morgan refused European banks’ collateral all throughout 2019 after Powell cut rates to stave off a market crash in January 2019, which set off the 2019 Repo Crisis in SOFR in September.
The Coronapocalypse was timed perfectly with Martin Armstrong’s ECM and the expectation of the Fed’s ‘goodwill’ for intervening after that event ran out, March 2020.
It was touched off over the OPEC+ meeting where Putin refused to cut production sending oil into the mother of all tailspins.
US banks are even more hostile today to European banks than they were in 2019.
I’ve received personal notes from European and American patrons that COVID relief loans cannot be repaid even though the people never spent the money, i.e. inflating assets of the banks.
The banking system in March 2020 was on the verge of collapse. Something had to be done. And COVID-19 was a perfect excuse to run a massive money printing operation to force the Fed back to the zero-bound.
Then Lagarde, just hours after the Bank of England (!!) raises rates a 2nd time, comes out hard in her rhetoric, sending the euro flying alongside euro-bond yields.
But it was this tweet from Zerohedge that made me stand up and take notice:
JPM crushed on EUR short. Comment from before the ECB today “we’ve actually been quite happy to carry a short in the Euro and resell it just in recent weeks. We refer to Lagarde as a perma-dove and it will be a test going forward for her”
— zerohedge (@zerohedge) February 3, 2022
As Rorschach would say, hrm.
Nothing Lagarde said was particularly noteworthy. The policy statement was nearly identical to January’s. But the euro spiked on the news and J.P. Morgan gets crushed in the currency space? Yeah, and there’s no coincidence there.
So with that in mind, let’s take this Anglo/Euro split thesis as real and widening.
Here are just some of the recent headlines which connect a bunch of dots:
Russia and China add to their energy cooperation, 10 more bcm/yr and will settle in euros, not dollars.
Former German Chancellor Gerhard Schroeder is nominated for the Board of Governors of Gazprom, an upgrade over being on the board at Nordstream 2
Macron meets with Putin and both France and Germany sabotage the UN Security Council meeting called by the US/UK to isolate Russia, as explained nicely by The Duran.
AP reporter going after the State Dept. Spox for refusing to give ‘proof’ of a “Russian false flag” event, which went viral last week. Who ordered that bit of truth into the open?
The Biden Admin two-stepping on the ‘imminent invasion’ rhetoric while limiting all threats of sanctions contingent upon Russia ‘invading Ukraine.’
The UK pulling all of its troops out of Ukraine, after putting them there as tripwires for a NATO intervention.
Thanks to the Canadian Truckers most of Europe is lifting COVID restrictions, but it’s only in places that will drive ‘growth’ numbers.
Now they are being lifted all across the US as the Dems fear a complete wipeout in November.
Italy is further ground under the German bootheel, thanks to Draghi.
Undisclosed “breakthroughs” after nearly a year of no movement in JCPOA discussions in Vienna.
Biden lifted sanctions on Iran’s nuclear program last week. Europe needs Russia and China to be happy and get access to cheap Iranian gas/oil.
Biden let’s it slip that the real goal of the Ukraine operation is to “diminish Russia’s standing” worldwide during this weekend’s phone call with Putin, echoing Pelosi’s statements on the Sunday talk show circuit.
Germany refusing to go along with NATO’s troop buildup across Eastern Europe.
All of these things point to the split being not only real, but engineered. Macron tried working the peace angle to get himself re-elected in April/May. Boris Johnson in the UK is under pressure to resign over PartyGate, which is nonsensical.
The lame attempt to get Putin to throw the first punch in Ukraine has failed. The US just sent its premier fighters, F-22s to Abu Dhabi, not Berlin. All talk of a war has been nothing more than theater to create the opportunity for the Europeans to stand tall and look like the peacemakers.
The impetus for the final resolution here was Putin calling French President Emmanuel Macron out last week. He told Macron there will be no splitting hairs over NATO’s actions. Action by one member, according to Putin, is an action by all of them. So, if you don’t want a war that engulfs all of Europe, then you better get your American and British colleagues to realize this.
It has been a bare knuckles fight to the finish between the US/UK Neocons and the EU Globalists here. And to those who are confused by Russia and China settling energy deals in euros, it is easy to work through.
Neither wants a disorderly collapse of the EU, just like Russia really doesn’t want a disorderly collapse of the US. This is a carrot to Lagarde and Schwab to deal with their own messes and leave them owing both Russia and China a favor. Also, remember, that Russia is looking to cleave Germany fully from the Anglosphere and what better way to do that then build up reserves in Germany’s currency to hold over them in the future if they get uppity again.
The Biden administration and the EU have backed off of all talks of the worst sanctions, i.e. SWIFT expulsion, which Europe never wanted despite some tough talk from Green ankle-biters. Those threats were always a bluff, as the boomerang effect would have been devastating for Europe.
Putin smartly hedged his bets with the duplicitous Europeans by cutting a deal with Hungary which is the model for more gas deals with smaller, peripheral buffer countries. Because once the US/UK fail to stop Nordstream 2, in light of their failure with Ukraine, new pipeline deals into Eastern and Southern Europe can commence.
Think now about Iran’s massive field in the Caspian and you can see where this is headed.
It’s a very different board now. The only thing keeping it from playing out as I’ve laid out here is the Brits pulling a false flag in the Donbass and forcing Russia to respond militarily.
And if that were a serious threat now the Brits wouldn’t be pulling all of their troops out and the EU wouldn’t be offering the UK the leadership role in Europe’s new security architecture. Oh, by the way, this means NATO is also on the outs.
This tells me that the Ukraine crisis is already over, that Biden and the US have been properly humiliated. If the UK wants to survive it should side with the winners of the conflict, the EU.
Which brings me all the way back to Lagarde and the ECB. Hers was a Hobson’s Choice to go hawkish. Europe’s victory over the US/UK may wind up being a Pyrrhic one. While they still have allies in the Biden administration, those allies have almost no real power to affect US policy now. I asked the question at the end of January, “Who’s Afraid of Jerome Powell?“
The answer, Christine Lagarde is.
Wed, 02/16/2022 – 05:00