Monday, February 27, 2023

Is the West escalating the Ukraine war?


Barely a day had gone by from Ukraine’s successful request for German Leopard-2 tanks when the government in Kyiv called on Nato countries to yet again prove their solidarity by supplying it with US-made F-16 fighter jets. While military experts doubt these vehicles will significantly alter the situation on the battlefield, Kyiv touts them as important symbols of Western political resolve.

“War is a continuation of policy with other means,” wrote Clausewitz in 1832. A year into the Russo-Ukrainian War, what is that policy where Ukraine is concerned? Or America, Germany, and other Nato allies? Are Ukraine’s repeated calls for more support and the West’s accommodating response a case of leveraging “strategic publicity”, performative diplomacy, alliance solidarity, or something else entirely? After all, as much as the Ukrainians are fighting Russian forces and suffering massive casualties to protect the territorial integrity of the Ukrainian state, today Nato is openly engaged in a proxy war that risks spiralling into a catastrophic conflict between the West and Russia.

Although foreign policy realism can help sketch, even predict, the general contours of the war and explain policy in Moscow and Kyiv, this mainstream realist position, as represented by the likes of John Mearsheimer, provides an incomplete account of the behaviour of most Western allies, especially the United States. To understand Western decision-making and the peculiar inter-alliance dynamics of Nato, we need a more radical realism that takes seriously the non-physical, psychological, and “ontological dimensions” of security — encompassing a state or an organisation’s need for overcoming uncertainty by establishing orderly narratives and identities about its sense of “self”.

Still, “structural” realist accounts — centred on systemic anarchy, physical security, the balance of power, and political dimensions of strategy — can help explain aspects of Ukraine’s strategic decision-making. In a recent study for the Institute for Peace & Diplomacy, which I co-authored, we investigated the structural reasons that drive Ukraine’s strategic calculus. We suggested that, as a “regional balancer”, Ukraine took a massive risk in defying the Russian redlines about Kyiv explicitly rejecting Nato overtures and stopping any military integration with the West. This was a maximalist gambit that presupposed Western military support and risked actively provoking Moscow to its own strategic disadvantage.

In choosing the riskier, zero-sum strategy aimed at thwarting the historical and geopolitical sphere of influence of a neighbouring regional and civilisational power, Ukraine was perhaps imprudent — but by no means irrational. As we wrote:

“Practically all of America’s security alliances today are asymmetrical arrangements between the United States and regional balancers — a class of smaller, more peripheral regional states seeking to balance against the dominant middle powers in their respective regions. As a great power, America possesses an inherent capacity to encroach on other regional security complexes (RSCs). In this context, it is reasonable for regional balancers to attempt to coax and exploit American power in the service of their particular regional security interests.”

Setting such a lofty objective, however, effectively meant that Kyiv could never succeed without active Nato intervention shifting the balance of power in its favour. By virtue of its decision, Ukraine, along with its closest partners in Poland and the Baltic nations, became the classic “trojan ally” — smaller countries whose desire for regional clout against the extant middle power (Russia) is predicated on their ability to persuade an external great power and its global military network (here, the US and, by extension, Nato) to step in militarily on their behalf. As we noted in our study, “this comes at great risk to the regional balancer and at great cost to the external great power”. For ultimately, the arrangement depends on “the threat of the use of force and military intervention” by that external great power, without which the regional balancer would fail.

Ukraine’s strategic ambition is to overcome Russia once and for all and break away from Moscow’s historical control. Putting aside the specious and facile Russian justifications for the invasion that seek to lampoon Nato’s military intervention in Yugoslavia, it is crushing this larger Ukrainian ambition that motivates the Kremlin. This explains Moscow’s 2014 annexation of Crimea, its aspirations for the Minsk agreements, and this final resort to military action.

Once the Russian invasion began, Kyiv’s goal of thwarting Moscow andkeeping intact its territories became impossible without Western military intervention. Ukraine’s future as a sovereign state would now hinge on its ability to successfully engineer an escalation. From Ukraine’s perspective, therefore, the desire for supplies of ever more sophisticated weaponry from the more powerful Western nations is not primarily motivated by their immediate practical and tactical impact — after all, the delivery of and training for these systems will still be months away. No, Ukrainian demands largely stem from what the introduction of these weapons would represent politically, as well as their long-term geostrategic consequences for the next phase of the war.

For it is in Kyiv’s interests to steer Nato into becoming more closely entangled in the war. Ukraine has resorted to a combination of tactics — including information warfare and exploiting historic Western guilt — to instigate an informational and reputational cascade among Nato members that would assure accedence to Ukrainian demands. Given its clear long-term weaknesses in quality manpowerartillery, and ammunition, the Zelenskyy government has shrewdly fought a hybrid war from the start, knowing that Ukraine cannot defeat Russia without Nato fighting on its side. The question now is whether the West should allow itself to be entrapped into that war and jeopardise the fate of the entire world in doing so.

In the materialist framing of security offered by most realists, there is little upside for America and western Europe, and certainly no genuine national or strategic interest, in getting dragged into what is essentially a regional war in Eastern Europe involving two different nationalistic states. From an ontological standpoint, however, an Anglo-American foreign policy establishment that strongly “identifies” itself with US unipolarity has been heavily invested in maintaining the status quo, and preventing the formation of a new collective security architecture in Europe, which would be centred on Russia and Germany rather than the United States. As geopolitical analyst George Friedman observed in 2015: “For the United States, the primordial fear is… [the coupling of] German technology and German capital, [with] Russian natural resources [and] Russian manpower.”

Perhaps following a similar logic, the US establishment has worked to destroy any possibility of a Berlin-Moscow axis forming by aligning itself with the Intermarium bloc of countries from the Baltic to the Black Sea, repeatedly opposing (and openly threatening) Nord Stream gas pipelines, and deliberately rebuffing Russian insistence on a neutral Ukraine. In relation to Ukraine, the initial objective for an ideological Western alliance that is skewed toward “shared values”, as Nato has become with the dissolution of the USSR, was to turn that country into a Western albatross for Russia, to bog down Moscow in an extended quagmire to weaken its regional power and influence, and even to encourage regime change in the Kremlin.

If one were to accept the logic of this strategy, then a limited Western military support of the Ukrainian war aims — directed towards creating an attritional, frozen conflict — seems plausible. Yet, even in such a scenario, any expansion in scope and degree of that support to include advanced weapon systems, such as F-16s or long-range missiles, is not only unwise but increasingly suicidal in any cost-benefit calculation. Such explicitly hostile support could escalate the proxy war into a direct, conventional war — a World War III scenario, which President Biden insists he wants to avoid. Moreover, in the unlikely event that such expansive military assistance is successful in driving Russian forces out of the Donbas, let alone Crimea (where Russia holds a large naval base), it would dramatically increase the likelihood of a nuclear event, given how Moscow regards protecting its strategic stronghold in the Black Sea as an existential imperative.

Why, then, does the West continue to oblige Ukraine and give in to reputational pressure and arm-twisting from Nato’s newest members in the Intermarium corridor? There are a number of causes, ranging from the private and institutional interests of the liberal internationalist establishment to the spread of a Manichaean worldview in the alliance. Most important, however, is the phenomenon of group compulsion toward escalation aggravated by ontological insecurity — which happens when abrupt and tragic world-historical events such as the Russian invasion disrupt one’s unified sense of order and continuity in the world.

Exacerbated by Nato’s enlargement and transformation into an institutional behemoth of some 30-odd nations with differing perceptions of threat and security, this compulsion has shaped and reinforced a unified “identity” among Western nations — a narrative of us against them. Under the condition of ontological insecurity, socio-psychological and emotional undercurrents enable reputational cascades, enforce conformity in the name of Western unity, and empower “group polarisation” around the riskier choice, which ensures the more extreme and escalatory policies are ultimately adopted. And, crucially, trojan allies understandably use these dynamics to advance their very real national and security interests from within the alliance, giving them a far more prominent role in decision-making than their relative power might suggest.

A closer inspection of the inter-alliance discourse within Nato also reveals an activist psychology lurking beneath the political and ideological signalling. Given that ideology — namely liberal humanitarianism and democratism — plays a key role in the maintenance of the alliance, its decision-making process is predisposed to the action bias fallacy: the idea that doing something is always better than doing nothing. This sort of reciprocal, mutually reinforcing mentality among alliance peers who profess an activist “ethic of care” reflexively interprets responsibility as taking action, while rebuking hesitance and restraint as inhumane. The dynamic recalls Nietzsche’s observation in TheBirth of Tragedy that “action requires one to be shrouded in a veil of illusion” — here, that “veil of illusion” is provided by the ontological process of identity-formation and the shared narratives of “collective responsibility” and “Western unity”.

Within the context of inter-alliance decision-making, such an ethic cannot help but indulge any demands put upon it, especially since the loudest peers can dress up this compulsion under the allegedly moral imperative of advancing Western unity, defending “our values”, and fighting reactionary evil. The ontological security-seeking of a global and hegemonic great power such as the US foregrounds the need for an ideology that can offer it a sense of coherence, make its actions appear to itself meaningful and justified. The same phenomenon applies to Nato, which — despite not being a state but an institution — is today practically an alter-ego of the US.

Now, this may seem to indicate an inherent tension between the desire for an anchoring tale about “who we are” and the more traditional material security that is based around physical self-preservation. But while this is true in some cases, especially in relation to ideological great powers such as the US, whose idealistic self-narrative of American exceptionalism often collides with its real interests, ontological and physical security-seeking are more congruent in smaller and middle-tier states for whom both interests and identities are more rooted, localised, and real.

In the Anglosphere, perhaps owing to the legacy of imperialism and the historical reality of unipolarity, there is currently a disconnect between authentic national interests, narrowly and concretely defined, and the behaviour of its liberal internationalist foreign policy establishment that prioritises ontological security-seeking with global ramifications. This fact needs rectifying. Thankfully, there are early signs that President Biden and at least some of his advisors, including the chairman of the US Joint Chiefs of Staff Gen. Mark Milley, have sensed this dreadful reality and its potentially dangerous fallout, and are now beginning to speak of the need for negotiations and diplomatic settlement in Ukraine.

As we begin the second year of the war, it has finally dawned on many in Washington that the likely outcome of this tragedy is stalemate: “We will continue to try to impress upon [the Ukrainian leadership] that we can’t do anything and everything forever,” one senior Biden administration official said this week. For all the talk of Ukrainian agency, that agency depends entirely on Nato’s commitment to continue to support Kyiv’s war effort indefinitely. Such a maximalist desire for “complete victory” is not only highly attritional and suggestive of yet another endless war, but it is also reckless; its very success could trigger a nuclear holocaust.

Moscow has already paid a high price for its transgressions in Ukraine. To prolong the war at this point in an ideological quest for total victory is both strategically and morally questionable. For many liberal internationalists in the West, the clamour for a “just peace” that is sufficiently punishing to Russia suggests little more than a thinly-veiled desire to impose a Carthaginian peace on Moscow. The West has indeed wounded Russia; now it must decide if it wants to let this wound fester and conflagrate the entire world. For unless Moscow is provided with a reasonable off-ramp that recognises Russia’s status as a regional power with its own existential imperatives of strategic and ontological security, that is the precipice towards which we are heading.




X22, And we Know, and more- Feb 27

 





No End in Sight

While Americans and Europeans are more convinced than ever of the justice of their cause, Russia and its key global partners see events in Ukraine in a completely different light.


Joe Biden’s victory and self-congratulation tour of Kyiv notwithstanding, there is no sign of impending triumph as we enter the second year of the Russia-Ukraine War that we helped to precipitate. Russia continues to build up its forces for renewed offensives, while Ukrainian counter-offensives have stalled. A long, grinding war of attrition is looming.

The total cost of the war so far is incalculable, but it would have to include the $113 billion in aid the United States has committed, over $50 billion in assistance from EU countries, the roughly 100,000 military casualties on both sides of the conflict, 8 million refugees, a staggering amount of damage inside Ukraine itself (valued at $350 billion +), tens of thousands of civilians killed and injured, tens of millions of people worldwide facing increased food insecurity, and trillions in lost economic production globally, due to sanctions, higher energy prices, and other disruptions.

These are the costs easiest to enumerate, but what is more intangible, and undoubtedly more serious in the long run, is the gathering sense of doom and menace that now haunts most of the world, as Russia and the West drift ever closer to a resumption of the Cold War, at best, and to World War III and universal Armageddon, at worst.

The West has been shockingly cavalier about assuming these risks, and inflicting these burdens. Crude depictions of Vladimir Putin as the reincarnation of Hitler cannot hide the fact that aggression and inhumanity have been practiced on much grander scales in recent memory (think “the African World War” in the Congo, for instance), without the United States and EU/NATO countries demonstrating even a fraction of the outrage that they have focused on Putin and Russia, and sometimes without the West even showing cursory interest. What’s more, before the war started Ukraine was a poor country, wracked with corruption, on the far fringes of Europe’s geopolitical core, and universally judged to be ineligible for both EU and NATO membership. It was and is a curious choice, therefore, as the casus belli for what may become World War III, given how little demonstrable importance it has or had for either the West or for Russia, except as an occasionally profitable backwater trading partner, on par with Bangladesh and Nigeria.

Despite the seeming irrationality of the massive military and economic commitments that Russia, the United States, and Europe have made to the present conflict, the tendency has been for both sides to raise the stakes inexorably, and for any and all peace feelers or suggestions of compromise to be shrugged off. Western propaganda assures us that the Russian army is close to obliteration, that the Russian economy is teetering, and that Vladimir Putin is sure to be overthrown by his own people. In other words, the war cannot but end with complete victory for the good guys, i.e. us (and, secondarily, our obedient proxies). The imminent exhilaration is so palpable that it can already be seen on the self-satisfied faces of many Western politicians and talking heads. The rather sensible objection that, if all or most of this did come to pass, Russia would have little to lose by nuking Ukraine, elicits yet more hand-waving and self-assurance. “Well, then we’ll make ’em pay!” And where does that lead?

Propagandists have been at work in Russia no less than in the West. The most recent evidence we have indicates that Russian support for the war is more or less unchanged since it began, despite the fact that Russians now realize the war will be longer and more costly than first assumed. What’s more, Putin’s approval rating is up—not down. Are a small number of Russians protesting the war, at great personal risk? Yes, and just as notable is the vicious public scorn that ordinary Russians pour on these dissidents, as the country rallies around the flag and girds itself for what their leader describes as an existential struggle against Western “imperialism” and “fascism.”

That Western policymakers and opinion leaders are unable to dictate public opinion in Russia is perhaps not surprising, but their failure to accurately gauge, or intelligently manage, world opinion is ultimately more telling. In China, for example, 79 percent of those polled in December/January view Russia as an “ally” or as a “necessary partner,” and just 20 percent see Russia as a “rival” or an “adversary.” The equivalent numbers in the United States are 14 percent and 71 percent, respectively: a near perfect reversal. 

Our failure to propagate our preferred narrative about the Russia-Ukraine War goes far beyond China, however. Elsewhere, 80 percent of Indians view Russia as an “ally” or as a “necessary partner,” as do 69 percent of Turks (fellow members of NATO). The same poll finds the international community deeply skeptical of Western claims that it is fighting (indirectly) in Ukraine for “democracy.” Instead, the prevailing view is that obsessive U.S. and Western engagement in the conflict is generated by self-interest and a desire for “dominance.” Even the notion that the current war has exposed Russian weakness, an almost universal view in the West, is not shared internationally.

The key takeaway here should be that, while Americans and Europeans are more convinced than ever of the justice of their cause and of the inevitability of their victory in Ukraine (combined, of course, with their ironclad determination to do none of the fighting themselves), Russia and its key global partners see events in Ukraine in a completely different light. As long as they continue to do so, and as long as they continue to possess the means to resist the Western onslaught, we can expect that this war will grind on—relentlessly consuming the military and economic resources of Russia, Ukraine, and the West, and just as steadily eroding the credibility and legitimacy of the Western elite on the world stage.

In the end, we will be lucky if only the Western-dominated global order is extinguished by the Russia-Ukraine War. The greater danger is that a wider conflict could imperil the very existence of Russia and the West, not to mention countries like China and India, which for the moment are merely watching the antics with a jaundiced eye, and believing little or nothing of what they hear about the conflict from us. They have yet to turn unambiguously against us, true, but we should be under no illusion that they are, or ever will be, “with us,” either. 

Instead, it is we, and we alone, who will have to beat back the rampaging hordes of barbaric Russians, or, perhaps, sit down with them and talk, as we did in days of yore?


Read more from thejapantimes:


COVID Aftermath: When Science Fiction Becomes Reality

COVID Aftermath: 

When Science Fiction Becomes Reality



Aaron Kheriaty.  The New Abnormal: The Rise of the Biomedical Security State.  Washington, D.C.: Regnery, 2022.  278 pages.  $29.99.


Science fiction is a quintessentially guilty (Anglo-) American pleasure.  Like horror, crime fiction, and spy novels, sci-fi has yet to be recognized as "high literature" by many (especially conservative) literary critics.  This is not, however, to say that science fiction has had no impact on American and broader world culture — quite the contrary.  Elon Musk, the current billionaire bête noire of the left, has cited Isaac Asimov's classic Foundation series as inspiration for his own creation of Tesla and SpaceX.  MIT scientist and popular YouTuber Lex Friedman recently included a number of science fiction tomes in a list of books that most influenced him.  Peter Thiel, another powerful figure on the rights, draws his political inspiration from The Lord of the Rings series, a work of fantasy, sci-fi's generic cousin.

Whether or not science fiction is haute couture, it is nonetheless extremely popular and immensely influential among some of the most powerful people in the world.  Science fiction is so powerful because it shows humankind the greatness of what men are able to achieve.  Robert Heinlein's novels captured the "can do" spirit of the American Century.  Asimov himself and Gene Roddenberry of Star Trek fame projected quasi-utopian visions of how science and education would enable a tolerant and prosperous future.  At the same time, science fiction shows how an advanced technocratic society can go awry.  George Orwell's 1984 and Aldous Huxley's Brave New World are the most obvious examples of these, but there are also several other works that project dystopian fiction in which the world is ruled by a totalitarian system of some kind.

Totalitarian governments, implanted microchips, artificial intelligence, and digital passports seemed the fare of science fiction — and wide-eyed conspiracy theorists — even up until the first decade of the twenty-first century.  It was always assumed that the love of liberty in the Anglo-Saxon world, the lessons of communism and fascism from the twentieth century, and the West's Christian moral inheritance would keep any encroaching totalitarianism from reaching England or the United States.  COVID, however, changed all of this.

In his new book from Regnery Press, The New Abnormal: The Rise of the Biomedical Security State, former University of California Irving medical school professor Aaron Kheriaty chronicles how he went from being at the frontline of COVID lockdowns in California to the tip of the spear in resisting what he believes is the increasingly totalitarian system that has been implemented over the past three years in the name of biosecurity.

As Dr. Kheriaty notes, the notion that the government could seize control over the bodies of an entire population and heavily regulate and discipline the bodies, minds, and souls of their citizens had been tried during the totalitarian movements of the twentieth century.  Kheriaty further notes that the cutting edge of science in the United States once supported eugenic measures that included such activity as forced sterilizations of those deemed unfit to reproduce.  During the early twentieth century, eugenics measures were funded by major institutions such as the Rockefeller, Carnegie, Ford, and Kellogg foundations and were supported by intellectuals at the nation's elite universities.  Forced sterilization in Virginia was upheld by the Supreme Court in 1927, with Justice Oliver Wendell Holmes, Jr. famously stating, "It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind."  Kheriaty's point is that the medical, educational, judicial, and political establishment even in America has trampled on the rights of its citizens in the past and has assumed ownership of the bodies of those citizens deemed "unfit."  To argue that similar events happened in the twenty-first century is, in Dr. Kheriaty's view, not to give in to conspiracy theories.

Kheriaty argues that a similar violation of the privacy and rights of individuals is occurring during the current COVID emergency.  Kheriaty provides his own experience as professor of psychiatry and head of the medical ethics program at the University of California, Irvine.  While he was at U.C. Irvine,  the university implemented a program for dealing with COVID known as the "ZotPass," which was, in Kheriaty's words, a "system of digital surveillance" that monitored students' location and regulated their movement on campus.  Kheriaty notes that this practice was not unique to U.C. Irvine.  Throughout the country, systems were implemented to monitor and control students.  These systems of control were complemented by steady propaganda (Kheriaty's word) from university administrators as well as pressure for students to snitch on each other for not following COVID protocols.

Kheriaty argues that such regimented and controlled systems on university campuses during COVID are microcosms for a proposed system of control to be implemented worldwide in the name of safety.  In The New Abnormal, Kheriaty provides the further example of Amazon warehouses in which nearly every movement of workers is controlled and monitored by an algorithm called the "Associate Development Performance Tracker," otherwise known as (the Orwellian) ADAPT.  ADAPT is accompanied by near total surveillance of Amazon warehouses by cameras.

These measures, however, are only temporary, for, as Kheriaty argues, during what has been called the "Fourth Industrial Revolution" by World Economic Forum figure Klaus Schwab, both blue- and white-collar workers are themselves being replaced by robots and other forms of artificial intelligence.

These seemingly "futuristic" events are not part of a science fiction plot; they are occurring and have already occurred.

Kheriaty sees the 2020–present COVID response as being an experiment on the world's population.  He argues that vaccine passports are forms of social exclusion, and what was considered the citizen's right is now a reward for compliance.

Kheriaty further points out that even mainstream medical professionals such as the New England Journal of Medicine had by early 2022 noted that some vaccines were ineffective against some variants of the virus.  He chronicles the tremendous psychological and emotional toll the lockdowns and COVID safety precautions took on billions of people across the world, who were, in some cases, not able to bury their family members or visit friends and family, or who were too scared to see a doctor for genuine health needs.

Believing that the university hospital at which he worked was violating the rights of his patients, Dr. Kheriaty protested and was eventually fired from U.C. Irving.  He continues his fight today working for a variety of conservative think-tanks, such as the Ethics and Public Policy Center, fighting what he believes to be an emerging totalitarian system.

The New Abnormal ends with a humorous but unsettling dystopian fictional short story called "Seattle, 2030" in which a future Microsoft worker is caught up in a world of drugs, sexual immorality, and spycraft courtesy of the biosecurity state.  

Some readers may object to Kheriaty's dystopian vision and may even scoff at his cri de coeur for resistance to biosecurity state.  Indeed, in fairness to both Dr. Kheriaty and his critics, no one can predict the future, and the incredible leaps in technology around the world are often matched by the increasing ineptitude of the ruling class — especially in the West.

Perhaps one potential future for us is predicted in The Blade Runner series, which begins with Philip K. Dick's campy 1968 novel Do Androids Dream of Electric Sheep?, continues with Ridley Scott's 1982 masterpiece Blade Runner, and reappears in the twenty-first century with Dennis Villeneuve's brilliant but flawed (and very risqué) Blade Runner 2049 (2017).  Especially in the latter films, the future world is a combination of utopia for the ultra-rich and a dystopia for the working class and poor.  The wealthy live "off world" in a clean and harmonious environment, while the 99% are stuck living a subsistent life on Earth.  While robots, A.I., flying cars, and other forms of high technology are part of everyday life, the reach of the ultra-rich and the government is not all-encompassing.  A lot of the technology is broken or malfunctioning, and humans have formed a small cyber-punk version of Rod Dreher's Benedict Option, living outside the system.  Totalitarianism in the Blade Runner world does not work because even with the support of a fleet of robots and flying cars, governments are still run by all too human humans.

In The New Abnormal, Aaron Kheriaty provides a frightening vision of the future as well as strong case for resisting the new biosecurity state.  Whatever may have happened during COVID, the future is still unwritten, and what will happen is something that only God knows.


From: https://www.americanthinker.com/articles/2023/02/covid_aftermath_when_science_fiction_becomes_reality.html


Is the United States Really Ready for Any Disaster, Whether Man-Made or Natural?

Is the United States Really Ready for Any Disaster, Whether Man-Made or Natural?

posted by Duke at RedState 

Good morning from the ever-so-frigid and blue state of Michigan.

The temperature here in this part of the United States on this Sunday morning is a brisk 31° with a potential high of 40 later in the day. I’m labeling it as “brisk” because, while it’s not the bone-chilling cold we can get here, that temperature grabs your attention when you walk out the door.

However, that is not describing the BLUE part of Michigan. That part I’m referring to is reserved for things like this in previous articles that I have written. One Week After the Michigan GOP Convention, I Have These Fun Observations. Michigan is truly a DEEP BLUE state even when the temps are in the mid-’90s and opposite of the weather outside today.

I’m sure most people reading this article are not very interested in the weather report of the state that I reside in other than possibly a passing curiosity. That is the natural order of things and even when weather events occur anywhere in the United States, we all just usually give a passing glance to it.

However, something got me thinking this past week after the latest snowstorm breezed across the country and in my part of the world produced not snow but ice. Michigan is not unaccustomed to having weather systems that cause freezing rain and ice to land on our roads, homes, and power lines. Yet this storm hit us in my hometown a little bit differently because those of us who usually don’t lose power did.

So, like most Americans, it took something to happen to me to get me to start thinking about how this has affected other people in the past. Now, this is not the first time that I’ve ever lost power but as you get older, you tend to look at things much differently and ponder different outcomes. Also, as a caregiver, that shines a totally different light on relying on the most simple and basic things — like assuming when you flip a switch, a light will come on.

So, when I read a story today in my local paper that a million people in Michigan were left without power for some amount of time since Wednesday, it grabbed my attention.

From Detroit News

DTE Energy reported that just over 91% of customers had power at 12 a.m. on Sunday. President and CEO Jerry Norcia previously promised to have approximately 90% of its customers back with power by the end of Friday.

Around 230,228 DTE and Consumers Energy, customers remained without power by 12 a.m. Sunday after Michigan’s worst ice storm in 50 years left over a million people without power. In some areas over half an inch of ice coated everything from trees to wires, bringing down branches and utility poles across southeast Michigan.

DTE Energy Co. and Consumers have been working to clear downed wires and restore power to most affected clients by the end of the day Sunday.

DTE reported 180,551 customers without electricity at 12 a.m. Sunday. This is the second-largest storm in terms of the number of DTE customers impacted in the utility’s 120-year history, Matt Paul, executive vice president of Distribution Operations at DTE, said in a virtual press conference Saturday.

Now, I can attest to seeing the repair crews out and about over the past two days, seemingly almost everywhere, 24/7, working as diligently and fast as possible to restore power to all of the people who have been affected by this. They did an excellent job here in my area and I’m incredibly thankful for those people who have been working non-stop to get the power restored.

Yet, with some of the man-made disasters, like in Ohio with the train derailment or here in Michigan with the Flint water debacle, we see the government’s slow and sometimes inept response. Seeing this in real-time and up close does not inspire confidence in my overlords.

So, what if the United States were to have a large electrical blackout like the one that affected the east coast in August of 2003? Thankfully, that happened in the summer and in most places lasted no longer than 18 hours. What would happen if 50, 60, or 70 million people on the east coast were all of a sudden left without electricity in the middle of winter, like in the summer of ’03 — but for a longer period of time?

I sincerely doubt the United States government would be able to mobilize quickly enough to help citizens stranded without a basic tool that we take for granted each and every day like electricity. Without electricity you can’t keep food cold, medicine that needs to be refrigerated will go bad, and the gas that is needed to fuel cars to move around will be stuck in the ground because pumps won’t operate.

I’m not trying to go all doomsday Mad Max scenario here, but it is something that I was forced to wonder about while looking over my neighborhood that had no power and wondering how everyone was going to get by while waiting for the power to be restored.

The craziest solution and yet the most simple one that I was able to come up with was this.

Take advantage of the time that you have now, while the lights turn on easily and surround you, to come up with some sort of plan that does not rely on our federal and state government to be there smiling with a helping hand. Be prepared to take charge for yourself and others, because Joe Biden is not going to be leading the charge to help out his fellow Americans.

Just ask the people of East Palestine, Ohio how willing he has been to help them. That will tell you all you need to know.




Biden Denies the Russians a Choice


It is said that President John F. Kennedy gave the most important speech of his presidency before the graduating class at the American University in Washington, D.C., in June 1963.  The occasion was five months before his death and eight months after he had confronted Russian premier Nikita Khrushchev over the deployment of Russian nuclear missiles in Cuba.  The Cuban Missile Crisis would later be seen as a defining moment in U.S.-Russian relations.  It was the closest approach of the two Cold War antagonists to a nuclear confrontation.

After the crisis subsided, Kennedy thought deeply about how to avoid a situation like that again and how the two great nuclear powers could find a way to live together.  He wanted to say something about it publicly.  In his speech, Kennedy signaled U.S. readiness to join with Russia in banning the future tests of nuclear weapons and he opened the prospect for peaceful coexistence.  The speech is admired for Kennedy’s eloquence and for the initiative he took in conceiving it, but there is a passage in it that is relevant today as we look at the war unfolding in Ukraine. 

Nuclear powers, Kennedy said, “must avert those confrontations which bring an adversary to a choice of either a humiliating retreat or a nuclear war. To adopt that kind of course in the nuclear age would be evidence only of the bankruptcy of our policy -- or of a collective death-wish for the world.”

Kennedy was 47 years old when he passed along that wise counsel to those who would manage America’s future relations with other nuclear powers.  Today it is not taken as a maxim for guiding current American policy towards Russia.  President Biden refutes Kennedy. His foreign policy team would hold that Kennedy raised a false dichotomy, and that it is not the case that the only alternatives in an American confrontation with another nuclear-armed power is either a “humiliating retreat” or nuclear war.  Rather, they would say, it is possible to calibrate a vigorous response within a range of policy options short of approaching a nuclear show down.  This is the great game the United States and its NATO allies are now playing with Russia.  It is a game where the bid is being continually raised. 

“Ukraine will never be a victory for Russia. Never,” President Biden said in Poland on February 21.  The words are confrontational and far removed from the spirit in Kennedy’s speech.  They are part of a long record of American words and deeds showing that Washington is willing to risk a direct military confrontation with Russia.  Today’s policy hawks would have to admit that Kennedy got the part about avoiding humiliating another nuclear power wrong.  They are not shy about talking about humiliating Russia.  Humiliation is seen as an aspect of policy.  That stems partly from the West’s sense of maddened outrage over Russia’s behavior and partly from deliberate calculation.  Humiliating Russia is built into the logic of NATO’s military response on the battlefield.

NATO wants to keep the Ukrainian army up and fighting.  Its escalatory moves are aimed at raising the costs Russia must pay while denying it tangible gains.  The fight in Ukraine goes on but neither the United States nor its allies have made an explicit announcement about their war aims.  In fact, there are no concrete war aims, apart from the abstract notion of victory itself, which is presumably defined as a battlefield check on Russian military advance, brought about by a combination of NATO weaponry and Ukrainian manpower.  Victory is the war aim, and not something else. When it’s achieved, it would be evident to all parties; we would know it when we see it.  It might be accompanied by a Russian change of heart, an acknowledgment of war guilt, and offers to make amends.  Swapping out a whole new set of leaders in Moscow, which has long been a policy hawk dream, would be in the cards.  Sum up these things and the logic of NATO’s battlefield gambits amounts to a “humiliating retreat” for Russia.

French president Emmanuel Macron sometimes says things that put him at odds with the more hawkish voices in Europe.  Apparently wanting to have it both ways, he said a few days ago that Russia must be “defeated” in Ukraine, but not “crushed.”  That may sound like a distinction without a difference, but Macron was signaling his opposition to allowing the desire to humiliate Russia from commandeering the course of NATO war policy.  He has also ruled out “regime change” in Russia.

Kennedy’s caution against humiliating another nuclear-armed power in a dispute does not exactly equate to the U.S. and its allies finding an “off-ramp” for Russia.  The expression “off-ramp” pops up in talk about Ukraine.  Typically, the speaker means that Russia is in over its head, it’s looking for a way out, and the collective West ought to respond with an accommodative gesture.  Kennedy’s intent was different.  From the context of the speech, he puts the burden on American behavior before a crisis arises, and not merely on creatively helping our opponent find a way out during the heat of a crisis.  Kennedy meant that restraint should be the proscriptive guide to policy-making, and not merely an expedient for defusing tension.  From this it would follow that the United States should never follow a course where temporary and imperfect solutions are removed from the table, leaving behind the residual choice of humiliation or nuclear war. The U.S. has done exactly that in Ukraine. Looking at the chain of events in the run-up to the war, it is hard to see how restraint shaped America’s whole-hearted support for NATO’s bold expansion right up to Russia’s fence; nor is it evident how restraint plays in the gambler’s game of war by proxy.

If the reader wants a take-away from this dismal state of affairs, then let him take some comfort in the thought that Divine Providence foreordained from all eternity that not one of the practitioners of American policy towards Russia today was in the White House cabinet room when John Kennedy drafted his responses to Nikita Khrushchev sixty-one years ago.



China's Central Bank Likely Owns 4,309 Tonnes Of Gold, More Than Double What Is Officially Disclosed

China's Central Bank Likely Owns 4,309 Tonnes Of Gold, More Than Double What Is Officially Disclosed


By Jan Nieuwenhuijs, of Gainesville Coins

According to my analysis, the Chinese central bank owned 4,309 tonnes of gold on December 31, 2022, which is more than double than what is officially disclosed. My estimate would make China the second largest gold reserve country after the US. The Chinese private sector holds 23,745 tonnes, bringing the total amount of gold in China to 28,054 tonnes.

China and European countries are in agreement to equalize their ratios of monetary gold relative to GDP in order to prepare for a global gold standard.

Introduction

For estimating the true size of the gold reserves of the Chinese central bank (the People’s Bank of China, PBoC), we first need to make a clear distinction between monetary gold (owned by a central bank) and non-monetary gold (owned by the private sector). Without getting into the exact mechanics of the Chinese gold market here, suffice to say that only non-monetary gold imports into China are publicly disclosed. These imports are required to be sold first through the Shanghai Gold Exchange (SGE), and for tax and liquidity reasons virtually all other supply (mine and recycled gold) in China is sold through the SGE as well. On the demand side, private market participants acquire gold at the SGE. It’s unlikely the PBoC buys at the SGE.

Any analysis about the PBoC’s gold reserves based on known import numbers and domestic mine supply is flawed, therefore. It’s true that in the past the PBoC was the primary gold dealer in China—being the monopoly wholesale buyer and seller—but this has changed since the Chinese gold market was liberalized with the launch of the SGE in 2002.

These are the reasons why the PBoC doesn’t buy gold on the SGE:

  1. The PBoC wants to diversify its foreign exchange reserves—worth more than $3 trillion at the time of writing—by buying gold mainly with US dollars. Gold on the SGE is exclusively quoted in renminbi: not suitable for the PBoC.
  2. As we shall see the PBoC prefers to buy gold covertly. If it buys gold abroad with US dollars, the monetary gold is exempt from being reported in international customs data when crossing borders (non-monetary gold is not exempt). Buying abroad allows the PBoC to purchase and repatriate gold without leaving a trace in the public realm.
  3. Gold on the SGE often trades at a premium. The PBoC is more likely to buy gold that is priced lower abroad.
  4. In 2015 I was in contact with a precious metals trader at a large Chinese state owned bank. He told me that the PBoC buys gold through Chinese proxy banks, such as the one he worked for, in the global OTC market from bullion banks and refineries in, for example, South Africa and Switzerland. Not at the SGE.

Another person I had the opportunity to converse with in 2015, let’s call him Mister-X, worked at one of the big consultancy firms. He was well connected in the industry. Somewhat similar to my Chinese source, he told to me the PBoC uses proxies to purchase gold in the London OTC gold market.

Early 2017, author and gold commentator Jim Rickards met with three heads of the precious metals departments of large Chinese banks. Rickards stated in the Gold Chronicles podcast published January 17, 2017 (25:00):

What I don’t know is about the Shanghai Gold Exchange sales, they’re pretty transparent, how much of that is private and how much of that is the government [PBoC]. And I was sort of guessing 50/50, 70/30, whatever. What they told me, and these guys are the dealers, it’s 100% private. Meaning, the government operates through completely separate channels. The government does not operate through the Shanghai Gold Exchange. … None of what’s going on on the Shanghai Gold Exchange is going to the People’s Bank of China.

Lastly, in 2014 the President of the SGE Transaction Department said in interview:

The PBoC does not buy gold through the SGE.

Until I bump into evidence convincing me of the opposite, my conclusion is the PBoC doesn’t buy gold on the SGE and thus all known supply in China (import, mine output, recycled gold) must be eliminated from our analysis for estimating the PBoC’s true holdings. Most likely, the PBoC buys gold abroad and from there ships it to vaults in Beijing.

Estimating PBoC Gold Reserves

Let us first have a look at what the PBoC has disclosed in the past.

We often see long periods of no purchases and then a sudden large increase in reserves, which suggests they mostly buy by stealth. In June 2015 the Chinese central bank disclosed to have 1,658 tonnes, up from 1,054 tonnes a month prior. Obviously, 604 tonnes weren’t bought in one month.

On one hand the PBoC wants to show the world they are buying gold to catch up with the West, support renminbi internationalization, and move away from the dollar. On the other hand, they don’t want to disclose too much, or they would rock the gold market and drive the price up, which is not in their interest, yet. The Chinese central bank’s interest is to accumulate gold for itself, but it also has a policy of “storing gold among the people” to strengthen China’s economic security (source, page 27). If the price rises, China as a whole can buy less gold.

In March 2013, deputy Chinese central bank governor Yi Gang told the press:

If the Chinese government were to buy too much gold, gold prices would surge, a scenario that will hurt Chinese consumers.

We will always keep gold in mind as an option in reserve assets and investments. 

We are able to import 500-600 tons a year, or more, but we will also take into consideration a stable gold market.

Some analysts have interpreted the “500–600 tonnes a year” as what the PBoC buys every single year. It’s more likely, though, Yi referred to the weight imported in 2012 by the Chinese private sector and the PBoC in aggregate. Global cross-border statistics show countries net exported 590 tonnes in non-monetary gold to China in 2012. Add whatever the PBoC bought, and you get “500–600 tonnes a year, or more.”

Another argument why the PBoC doesn’t buy 500 tonnes every year is because the gold market is in constant flux. If the price goes up the PBoC can’t buy much for reasons just mentioned. If the price goes down the PBoC can purchase hundreds of tonnes on sale.

In a previous article I have explained that for at least 90 years the gold price is set in the West. The East dampens volatility by ramping up purchases when the price declines, and lowering purchases when the price rises. Many countries in Asia, like Thailand, even turn into net sellers when the price goes up. This analysis rhymes with Yi’s remarks from 2013: the Chinese don’t set the gold price. (In late 2022 and January 2023 Chinese buying was strong while the price went up, but it’s too soon to confirm a trend reversal.)

After having researched the true size of the PBoC’s gold hoard for some years now, I conclude there is but one approach to get close to what they actually have: through intelligence from those dealing with the PBoC: bullion bankers and people at refineries and secure logistics companies around the world. The following analysis is solely based on industry sources.

Every quarter the World Gold Council (WGC) publishes the Gold Demand Trends (GDT) report, which contains statistics provided by Metals Focus(MF) on mining output, scrap supply, newly fabricated jewelry sold, retail bar demand, ETF hoarding or dishoarding, etc. In these reports there is a single sum divulged for the official sector: a net purchase or sale by all central banks and international financial institutions, such as the Bank for International Settlements (BIS), International Monetary Fund (IMF), and European Central Bank (ECB), combined. This is an estimate based on MF’s field research and doesn’t necessarily align with what central banks openly declare. From the WGC:

Central banks

Net purchases (i.e. gross purchases less gross sales) by central banks and other official sector institutions, including supra national entities such as the IMF. Swaps … are excluded.

A … vital source is confidential information [by MF] regarding unrecorded sales and purchases.

For example, when MF—a consultancy firm in close contact with bullion bankers and people at refineries and secure logistics companies around the world—judges the PBoC bought 50 tonnes in Q1 2023, this tonnage will be attributed to official sector activity in its respective GDT report.

By comparing MF’s official sector estimates to what the official sector publishes, we can deduct what’s bought surreptitiously. People familiar with the matter, but prefer to stay anonymous, told me that the majority of these clandestine acquisitions can be ascribed to the Chinese central bank. Saudi Arabia is also known for buying in secret. Let’s say 80% of the difference between MF’s data and the official numbers released by the IMF are PBoC acquisitions.

Since 2010, when MF’s estimates started, the gross difference has mushroomed to 1,945 tonnes, as can be seen in the chart below.

For the data “reported by the IMF,” I added the holdings of all central banks, the ECB, IMF, and the BIS’ total holdings, as the noted in the WGC’s “Quarterly times series on World Official Gold Reserves since 2000.” Of this total I subtracted the gold swaps (taken from the annual and monthly reports) of the BIS, because MF doesn’t consider these when estimating official sector buying. The resulting series differs from the IMF’s “World” series.

The PBoC thus holds at least 1,556 tonnes (80% of 1,945 tonnes) more than what they disclosed last December (2,010 tonnes), which totals 3,566 tonnes. But how do we know what happened before 2010 when MF’s data begins?

Mister-X told me in 2015 that it was very difficult for his company to go on record with what they truly think the Chinese central bank owns. The PBoC is very influential and upsetting them would make his company’s operations in the mainland impossible. Though he told me that when the PBoC announced to have 1,658 tonnes in June 2015, his firm estimated that in reality they held twice as much (3,317 tonnes). I’m tempted to believe Mister-X because this tonnage would make more sense than the official number relative to, i.e., China’s vast foreign exchange reserves. If we assume the PBoC held 3,317 tonnes in June 2015, and we add 80% of the furtive investments trailed by MF since then, we arrive at 4,309 tonnes on December 31, 2022.

How much gold did the PBoC buy covertly before 2010? According to my math they did 1,700 tonnes in unreported procurements from the 1990s, when the PBoC held 395 tonnes, until 2010*.

The further back in time the more interesting it gets. After China’s hardline communist leader Mao Zedong died in 1976, a more market oriented economy was structured under the guidance of Deng Xiaoping. Individual gold prospecting was allowed in 1978 (source, page 97), though all output was required to be sold to the PBoC.

In 1983, the Bank of China—the PBoC’s commercial arm that handled overseas operations (source, page 98)—exported 120 tonnes of the PBoC’s gold, sourced from domestic mining, to London to exchange for dollars.

China’s new economic model soon bore fruit. Instead of having to sell domestic mine output to raise foreign exchange, the PBoC was buying gold in London from the Dutch central bank (DNB) in 1992. An article in Dutch Newspaper NRC Handelsblad from March 27, 1993, about a 400 tonnes gold sale from DNB is profoundly informative:

for traders in the international gold market there is no doubt that the People’s Bank of China (PBoC) has bought a part of the 400 tonnes of gold,… which DNB has sold late last year [1992] in utmost secrecy.

“With 99 percent certainty we know that the People’s Bank of China has been one of the buyers of the Dutch gold”, said Philip Klapwijk from Goldfields Mining Services… Also other London bullion dealers have a strong suspicion that China was involved in the gold sales of DNB. “We have noted that the Chinese central bank has bought gold in recent months”, said John Coley of the London bullion dealer Sharp Pixley and spokesman of the London Bullion Market Association.

On 29 September Duisenberg [DNB President] sent a letter to Kok [Dutch Minister of Finance] in which he explained that the sale was intended “to equalize our gold holdings relative to other important gold holding nations.” 

Kok agreed on 2 October and in the fall several sales transaction followed in the London forward market. The Bank for International Settlements (BIS) acted as an intermediary.  

Duisenberg expanded on the gold sales at a BIS meeting on January 12, 1993. The sale had already taken place, only the gold had yet to be delivered. Not all members of the BIS welcomed the Dutch move, nor were they consulted for its decision. 

It’s impossible DNB entered the gold market itself because this would immediately leak in the closed world of gold trading. The few remaining Dutch players in the gold market are tiny. In London, there are four major gold traders: Sharps Pixley, Samuel Montague, Mase Westpac and Rothschild. According to John Coley, spokesman of the London Bullion Market Association, it was obvious that DNB would use the BIS as an intermediary. Duisenberg is very well known in Basel because he was President of The Board of the BIS from 1988 to 1990.

“Part of the sale was handled off the market”, says Philip Klapwijk… He says he came to this conclusion because the price of gold last year, although slightly down, should have shown much greater fluctuations if 400 tonnes had been sold in the market…

The BIS probably contacted the People’s Bank of China as the buyer. Why the People’s Republic of China? “The Chinese love gold,” says an expert, and he refers to the huge Taiwanese gold purchases in 1987. Second, China has large dollar surpluses as a result of spectacular economic growth. And third, China announced that it is working to build up its reserves in order to bring it more in line with the size of Chinese GDP.

Presumably, the increase in China’s gold reserves will never be visible. The statistics produced by the IMF for China record the same amount of gold for a decade [395 tonnes] …. China experts, however, know that the People’s Bank has additional secret gold reserves, which are held outside the statistics … If part of the gold reserves of DNB have been added to these, as many suspect, no one will ever officially know.

NRC Handelsblad is a respected newspaper in the Netherlands. Knowledge by industry insiders with respect to covert PBoC acquisitions as early as 1992, may explain how the Chinese central bank had accumulated a total of 3,317 tonnes by 2015. To give you an idea, DNB sold 400 tonnes in 1992 and an additional 700 tonnes in the following years. Other European central banks sold another 3,000 tonnes over this period (“to equalize … gold holdings relative to other important gold holding nations”). Not all could have been bought by the PBoC, but still. In the 1990s the gold price was declining so there were more sellers than buyers: a situation the PBoC has likely exploited.

The PBoC had the opportunity to buy substantial amounts of gold, in and off the market, for decades. It’s not evident all this gold was added to secret monetary reserves, though. Liberalization of the Chinese gold market, initiated in 2002, wasn’t completed until 2007. Chairman of the SGE Shen Xiangrong stated in 2003:

Although four large domestic banks were granted approval to import and export gold back in 2002, they have not yet started these cross-border activities, and the PBOC still remains the only bridge connecting the international bullion market with China.

Any shortfall in domestic mine and scrap supply to meet private demand in the mainland, from 1982 when jewelry sales were first allowed by the Communist Party, up until at least until 2003, was supplemented by gold imports by the PBoC. Even if we knew exactly how much the PBoC imported since 1992, we would only know the amount it accumulated for itself after offsetting those purchases against supply shortfalls in the domestic market.

Estimating China’s Private Gold Reserves

How the Chinese populace has accumulated 23,745 tonnes.

China became a net importer of gold somewhere in the 1990s, according to the China Gold Market Report 2010 that was co-authored by the PBoC. This means Chinese domestic mine production hasn’t crossed a border afterwards.

Precious Metals Insights (PMI) estimates that 2,500 tonnes of gold where held by the population in the mainland in 1994, which is the “jewelry base” we will start off with.  

By 2004 the formal prohibition on bullion possession for Chinese people was lifted and private investment took off. In 2007, the Chinese gold market functioned as was intended by the PBoC, as total supply and demand went through the SGE that year for the first time. The China Gold Association (CGA) Yearbook 2007 states (page 39):

2007年,上海黄金交易所黄金入库量394.855 吨,即我国当年的黄金实际供给量

In 2007, the gold storage volume at the Shanghai Gold Exchange was 394.855 tonnes, that is, the actual supply of gold that year …

2007年,上海黄金交易所黄金出库量363.194 吨,即我国当年的黄金需求量,

The amount of gold withdrawn from the warehouses of the Shanghai Gold Exchange in 2007, the total gold demand of that year, was 363.194 tonnes …

因而2007年出现了31.661吨未能交割的库存,

Therefore, there was 31.661 tons of undelivered [SGE] inventory in 2007…

Before 2007 not all supply and demand moved through the SGE, according to CGA Gold Yearbooks, indicating the PBoC was still be involved in the allocation of metal. We shall assume that starting in 2007 the PBoC was no longer interfering in the market.

To calculate private reserves, I have added annual mine production and non-monetary import since 1994 to the jewelry base. From this total I have subtracted openly declared additions by the PBoC from before 2007, because these were presumably sourced, in part, from domestic mines. My methodology is not perfect, but it will do.

The chart below is the result of my calculations on China’s official and private reserves from 1994 through 2022. All shades of blue are private reserves; red is central bank reserves.

Conclusion

All in all, 4,309 tonnes for China’s official gold reserves is the best estimate I can come up with. Not unrealistic, because from the moment China’s economy started expanding in the 1990s, and it ran a persistent current account surplus, it had sufficient foreign exchange reserves to buy gold with, and there was a drive to catch up with other large economies.

There is no doubt in my mind the PBoC bought gold from DNB in 1992. In addition to the evidence in NRC Handelsblad, it’s cited in DNB’s Annual Report 1992 that “demand in the Far-East was strong” when they sold 400 tonnes.

Previously, I have demonstrated on these pages that European central banks have been preparing for a global gold standard since the 1970sthrough equalizing their monetary gold to GDP ratios. Balanced gold to GDP ratios will smooth the transition to a gold standard (or gold price targeting system) if the current international monetary system is stretched beyond its limits. The Chinese were in on this plan since the 1990s.

China communicated in 1993 (source, NRC Handelsblad) to “build up its [gold] reserves in order to bring it more in line with the size of Chinese GDP.” The significance of this statement is that it can’t be viewed in isolation. Gold is an internationally traded commodity, and its price is the same in everywhere. The Chinese didn’t say, “we aim to have gold reserves worth [i.e.] 10% of our GDP,” because they can buy gold and grow their economy, at the end of the day the gold price is what determines their gold to GDP ratio. What China implicitly said was that it’s aiming to bring its gold to GDP ratio more in line with other countries.

DNB’s Annual Report 1992 states (emphasis mine): “Within the EC [European Community], the Netherlands was and is, when gold reserves are compared to GDP, one of the largest gold holding countries. On this basis, the Bank [DNB] lowered its gold stock from 1707 tonnes to 1307 tonnes in the fall of 1992.” We know DNB eventually lowered its reserves to 612 tonnes, brining it close to the European average (currently 4% of GDP).

In the early 1990s, both the Netherlands and China were candid about equalizing their gold reserves relative to GDP internationally. However, when I asked DNB in 2020 about the reason for past gold sales, they evaded the subject. My question:

Is it true that DNB wanted to achieve a more balanced distribution of official gold reserves worldwide with the sales of its gold since 1992?

Answer:

De Nederlandsche Bank (DNB) weighs several factors in forming an opinion on the total amount of gold in its possession .... We believe that … the current amount [is] balanced at this time. Furthermore, we have no insight into the motivation of other central banks to be able to make statements about their gold reserves and gold policy.

A nonsensical answer because we know gold sales were coordinated in Europe and the overarching policy was balancing reserves.

Why did this become a secret? Duisenberg must have agitated the US when he expanded on DNB’s sales to China at the BIS meeting on January 12, 1993. In NRC Handelsblad we read: “Not all members of the BIS welcomed the Dutch move…” Major economies balancing gold reserves, ready to be deployed during a dollar crisis to transit to new monetary system, is not in America's best interest to say the least. It’s feasible the countries that agreed on balancing gold reserves silenced themselves to avoid conflict with Uncle Sam.

Because we know about an international effort of equalizing reserves, DNB selling gold to China in 1992 made sense as the Netherlands had too much gold (1,707 tonnes) and China too little (395 tonnes), both of their Gross Domestic Product being roughly the same.

On the non-monetary side, China wants private gold reserves to be proportionate to its peers too. Sun Zhaoxue, President of the China Gold Association, wrote in 2012 in Qiushi magazine (the main academic journal of the Chinese Communist Party’s Central Committee):

as an important part of China’s gold reserve system, we should also encourage individuals to invest in gold. Practice has proven that private gold reserves are an effective supplement to official reserves and are very important for maintaining national financial security. World Gold Council statistics show that Chinese individuals possess less than 5 grams of gold per capita, a significant difference to the global average of more than 20 grams.

Multiplying 5 grams by 1.3 billion people (the Chinese population in 2012) equals nearly 7,000 tonnes, which matches my estimate of Chinese private reserves held at the end of 2011. My estimate for Chinese private reserves in 2022 is nearly 24,000 tonnes, divided by 1.4 billion people (the Chinese population in 2022), equals 17 grams per capita. China’s non-monetary gold reserves are close to the global average.

China’s monetary gold to GDP ratio (computed with 4,309 tonnes) is 1.5%, which is still lower than 2% in the US and 4% in the eurozone. It’s clear that now is the time for the PBoC to speed up buying. One, China is still behind in its relative gold holdings vis-à-vis Western powers. Two, Russia’s dollar assets were frozen due to the war in Ukraine and the Chinese don’t want to suffer to same fate. Three, the Chinese population has accumulated enough already. Remember Yi Gang was considering private hoarding when he deliberated on how much the PBoC was able to buy in 2013? That doesn’t have to be an issue anymore. Tellingly, the PBoC bought a staggering 522 tonnes in 2022 (based on MF data), which was supportive of the gold price. I think future PBoC procurements, mostly from Russia I suspect, will be supportive of the gold price as well.

*According to MF’s data the PBoC bought 1,556 tonnes from January 2010 until December 2022. Meaning, in 2010 the PBoC held 1,556 tonnes less than 4,309 (my estimate for 2022), which is 2,754 tonnes. Officially, the PBoC owned 395 tonnes in 1982. From then until 2010 the PBoC bought 659 tonnes, according to public records. The difference between my estimates and the official data on purchases over this period is 1,700 tonnes.

It