Bank Run Against U.S. Begins After Talks About Ukraine Between Russia and US Fail

Bank Run Against U.S. Begins After Talks About Ukraine Between Russia and US Fail Print

... Excerpt

Saturday, 15 March 2014 05:42

March 15, 2014 -- (TRN) -Russian companies are pulling billions out of western banks, fearful that any US sanctions over the Crimean crisis could lead to an asset freeze, according to bankers in Moscow.  In addition, sovereign countries themselves have begun selling-off their US Treasuries in the single biggest weekly dump in history.  A financial meltdown is now underway in the United States; will banks survive?

 

Somebody is a selling a fistful of US Treasuries. It could be Russia, or China, Turkey, South Africa, or Indonesia, or all frantically selling bonds at the same time for different reasons. We don’t yet know. All we know is that the US Federal Reserve’s custody holdings on behalf of foreign central banks plunged by $106bn in the week ending March 12, the biggest one-week drop on record.

 

Russians are getting the hell out of the West in what can only be called a bank run which appears to have been underway for possibly the entire week. CNBC shockingly covered this as the opening story on Larry Kudlow’s program.

 

Russia’s central bank is undoubtedly liquidating reserves at a breakneck pace to prevent a collapse of the Ruble, as foreign companies scramble to get all their spare cash out of Russian accounts before the G7 guillotine comes down on the Putin clan next week. It is certainly trying to remove its assets beyond the jurisdiction of the US authorities – though that will not be easy. The SEC takes no prisoners. In the end, the world is more frightened of US regulators than it is of Putin's tanks or his polonium. Soft power can trump hard power.

 

Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.

 

The flight comes as last-ditch diplomatic talks between Russia’s foreign minister and the US secretary of state to resolve the tensions in Ukraine ended without an agreement.

 

Making matters worse, this story from the Federal Reserve via Bloomberg indicates sovereign countries themselves have begun dumping their US Treasury holdings as revealed in the Federal Reserve custodial holdings report:

 

A record drop in U.S. government securities held in custody at the Federal Reserve is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.

Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, according to Fed data released yesterday, as the turmoil in Ukraine intensified. As of December, Russia held $138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 percent of the $12.3 trillion in marketable Treasuries outstanding, according to data compiled by Bloomberg.

 

This matches warnings from last week, Russia’s Financial Nuclear Option against America, which warned that indeed Russia could start a financial run on American assets in the event that political and military action caused a destabilization in Russia, they would return the favor to the United States and perhaps their European trading partners.

 

The final threat that has been running through the pits as a wild rumor is that for selected nations in Europe and allies of North America, for those goods such as petroleum products or rare earth metals that are to be purchased from Russia, payment would only be accepted in Rubles or gold as the dollar peg would be permanently removed in retaliation for US and EU sanctions. Such a move would cause a boomerang effect on all world markets and a mad scramble for physical gold which may or may not exist in the vaults of the Federal Reserve and its member banks. Add in the fact the Russians have support from the Chinese government in their current course of action and the West might bite off more than it can chew if they elect to start an economic conflict with Russia.

 

The international order is unravelling. Russia is of course smashing the post-Cold War order by seizing Ukraine, and blowing up the global architecture of nuclear non-proliferation. Let us not forget that Ukraine agreed to give up its nuclear weapons – the world’s third biggest arsenal at the time – in exchange for a guarantee by the great powers in 1994 that its territorial integrity would be upheld. Russia was one of the signatories.

 

China is laying claim to large parts of the East China and South China Seas, and has established an air identification control zone over the Japanese-controlled Senkaku islands.

 

China and Japan are one blow – or misjudgement – away from outright military conflict. The battle on the Pacific Rim is ultimately even more dangerous than the West’s clash with Russia over Ukraine.

 

Whether or not the wheels really are falling off the Chinese economy remains to be seen, but the discussion has crept into the market. You can smell the beginnings of fear.