A Gold Bloc For Iran, Russia, And Turkey...Oh My!
Thursday, August 30, 2018 at 10:07PM
Gold Prices

How will Iran, Russia, and Turkey react to the plethora of financial sanctions being placed on them by the United States?  Well, they will do what anyone being beaten with a stick would do: they will try to escape.

An escape is always available. That is one reason why sanctions are weapons used only by losers. Indeed, the escape has been dubbed, by my good friend, mentor, and Nobelist Robert “Bob” Mundell, as the “Afghan Effect.”  Following the Soviet Invasion of Afghanistan, the United States imposed a grain embargo on the Soviets in January 1980. With that, American farmers were prohibited from selling grain to the Soviets who had a huge grain deficit. President Jimmy Carter, on the ill-conceived advice of his National Security Advisor Zbigniew Brzezinski, weaponized grain.

In response, the Soviets looked for an escape. They found one in Argentina. Indeed, the Argentines were delighted to cut a deal with the Soviets. The Argentine farmers sold large quantities of grain, the Soviets obtained a good price, and American farmers were left out to dry. The icing on the cake (read: Bob Mundell’s Afghan Effect) was the fact that the Argentine military junta was handed an enormous benefit on a silver platter.

This brings me to today’s favorite weapon of war: financial sanctions. With each passing day, the U.S. Treasury rolls out, or threatens to roll out, more sanctions. We all know about the sanctions that cover Iran like a wet blanket. We also recently witnessed the imposition of sanctions on Turkey, where the pretense for imposing them was a U.S. pastor who was allegedly not tending his Turkish flock properly. When it comes to Russia, new U.S. sanctions are an almost daily affair.

The weight of sanctions has clearly created great difficulties for the Iranian rial, Russian ruble, and Turkish lira. Indeed, even in the best of times, these are all half-baked currencies with long troubled histories. They are all vulnerable to sanctions. Indeed, their vulnerability should be viewed as threats to national security.

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