Economics and Business [i]
Russian Deposits in Europe, Germany’s dilemma, and OpenAI (ChatGPT)
There are a few interesting events taking place in economics as we speak, and I’m going to offer my opinion on them. Moreover, I want to review a problem that is not entirely new but still not well enough evaluated. So, let’s start.
Russian Deposits in Europe
Back in April 2022, I wrote an article for another outlet regarding the Russian €300bn deposits in Europe. Yes, the frozen deposits. Since April, the other outlet closed down and my article was deleted. I decided to re-write it for BMA.
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When Russia decided to invade Ukraine in February 2022 to protect the Russian speaking regions from imminent Ukrainian attack, the West unleashed the so called “sanctions from hell” against Russia. As we all know, the goal was to trigger a regime change in Russia by destroying it economically and cause an endless stream of casualties from the battlefield in Ukraine. Things have turned out quite differently.
One part of these sanctions from hell was the freezing of approximately 300bn Euros.
There are several questions about that, of course. Why did Russia deposit money in the West, when planning an attack on Ukraine? What does the West want to achieve by freezing this money? And where on earth is that money? And what has the West actually achieved?
Let’s go through these questions.
What did the West want to achieve by freezing Russia’s deposits?
Russia imported a lot of technology and other technologies from the Western economic sphere. To pay for these purchases, Russia has been forced to use Western-controlled currencies. Especially the Dollar and the Euro. By freezing these deposits, the West calculated that Russia wouldn’t be able to access these deposits, and thereby would lose a huge amount of money. This would hinder further Western imports into Russia.
However, the West did not anticipate that Russia has been preparing for import substitution since 2014. This preparation was, by the way, one of the responsibilities of then prime minister Dimitry Medvedev. Russia prepared well and has been able to switch to indigenous products pretty quickly. What it couldn’t produce on its own, either due to technology or capacity, it procured from partners like China. Russia and China are able to trade outside of the Western system, using their own currencies. This is because Russia expected to be cut off from SWIFT, and trade in Dollars and Euros didn’t make much sense anymore.
Why did Russia deposit its money in the West, when planning an attack on Ukraine?
As described before, Russia knew it would be cut off from the Western trade system and SWIFT. There was no point in maintaining these reserves in Dollar and Euro. But what to do? Simply gift this money back to the West, hard-earned money for its natural resources? Obviously, No.
However, getting rid of the money in advance would be suspicious. The solution was to buy most of the Western industrial assets in Russia. What does that mean? There were a lot of Western industrial enterprises in Russia before the war. They invested in Russia’s economy by building factories and employing people.
It was pretty clear, when the war began, that the West would force its companies to leave Russia. To “unemploy” as many people as possible, thus creating protest potential in Russia. Well, the Western employees (managers) can leave the country, and they can close down the factories. But they can’t put a factory on a plane and take it with them. And they can’t take the machines and technology with them.
A perfect target for Russia? Nationalize everything and use it on its own? No. For Russia, that would be a fatal signal to BRICS and the multipolar world in terms of investment security. Russia definitely wants to establish ownership of these assets to use them or to give access to them to BRICS partners for further investment. But the process needs to be carried out in a legal fashion, as opposed to the illegal and arbitrary way that the West is threatening with Russia’s deposits and reserves.
Russian money deposited in the West is no longer usable by Russia (therefore the contingency plan), and Russia predicted that the West would be idiotic enough to freeze and confiscate it. The freeze has taken place, but the West has not yet had the fortitude to seize the assets.
The freeze already bestowed a huge benefit to Russia and the multipolar world. It exposed the Western currencies as Western weapons that can be used against anyone in the multipolar world who doesn’t want to comply with the West’s “rules-based order”. The West-imposed freeze was the “kick-off” of the end of the Dollar. A chain-reaction is now in full swing, and will conclude with the end of the US-Dollar as a reserve currency. I’ll explain that in detail in Economics and Empires 6.
However, seizure of the money by the West has not taken place. The European leaders have smelled the bait. They are circling around the money like vultures, and they are trying to find justification to seize it. But they know that this is a trap. If they seize it, the credibility of Western currencies would vanish much faster than it is diminishing already. And that is not the only problem. It would be in fact a trade-off, which Russia is willing to accommodate. Russia is waiting for it. If we take the major western investments (factories) in Russia, the value of the most important assets can be assessed somewhere around the value of the Russian deposits in Europe.
Russia won’t seize them. It would be poison for further investments into Russia from the BRICS countries. It would be theft. Essentially what the West is threatening; blatant theft. If the West actually seizes the Russian deposits (not yet out of the question), then Russia will legally seize the Western assets in Russia. And make them available to Russian businesses and to foreign (BRICS) investors. It is a legal trade-off. How much longer will the leaders in the West be able to refrain from following their natural instincts and to steal what is not theirs?
Where on earth is the money?
There are a lot of reports that the West can’t find the frozen Russian reserves. I consider those reports to be bullshit, and a technique to delay decision. As long as people pretend that they don’t know where it is, they won’t be able to be forced to seize it. And seizing the assets should be avoided because it would have devastating consequences for the West.
But where is the money? Actually, I don’t know.
Nevertheless, based on the information that I have received, the EU authorities at least should be in a position to find it very quickly. I don’t mean to say that the EU knows. I am saying that it COULD know if it would honestly do the investigation.
Well, according to the information that I received, it can be assumed that the monetary deposits (there are other forms of reserves as well) have been scattered into small pieces (a few Euros or even Cents here and there) and have been put on their way across the European banking and clearing system. And parked in between two banks on specialized transit accounts. Right, European. Not solely EU. Since I can’t/don’t know, I will stop speculating here so as to not get into trouble. But I assume that people knowledgeable about banking transactions understand which direction the information is pointing.
To be fair, searching for these scattered pieces is a huge pain for those “poor” people who would be tasked with it. 😊
What did the West eventually achieve with the freeze?
Well, the West has damaged the credibility of the Dollar in the rest of the world. The refusal of many leaders of countries worldwide to conform to dictates of Western leaders and diplomats is clear evidence. This is in addition to the ever-growing transactions in currencies other than the Dollar. The seizure of Russia’s deposits would, of course, be a huge nail in the Dollar’s global currency coffin. That’s why the West is avoiding such action, even if they really want to do it ASAP.
Well, the last thing I’d like to add here is that the total loss to Russia will not equate to €300bn. Why?
It is to be assumed that the money will stay frozen for a few years. Due to the economic downfall of Europe, it can be assumed that inflation will increase in the (near) future. There is already an unusual high inflation in certain EU countries. Since I expect that there will be an energy crisis at some point in time in some important EU countries, inflation could increase dramatically, between 8% and 30%. We can call that “imported inflation”. (More about that in a separate article). The real value compared to gold or compared to a potential BRICS trade currency is declining as we speak. At the end, the value could be… 0. (In years).
As already explained above, it was a very juicy and nice investment. Or in other words, a legally justifiable trade-off. Reserves, generated with Western money in Western currencies for deliveries of Russian resources traded for most of the Western abandoned assets in Russia. I personally assume that the money will be eventually seized by the EU if its economic problems escalate. Hence, I assume that this asset trade will eventually take place. And the physical assets will be divided between Russia and its partners. Think about that. When you grasp that, you will understand that Russia stands to make the business deal of its life…
Even though the West will be somehow able to artificially maintain the value of its currencies in trade between Western countries, the currency value is ALREADY dropping in international trade. Especially with the BRICS country. We can also talk about its purchasing power parity. Hence, it makes sense for countries outside of the West to dump their reserves of Western currencies gradually. Not all at once, but gradually. Having traded its Western reserves (generated for Russian Oil and Gas) for Western assets within Russia will be a good deal, I guess. At least for Russia…
First of all, I would like to encourage you to re-read Economics and Empires 2. I analyzed Germany’s economy there. Since it was a strategic analysis, it is still valid even though I wrote it a year ago.
Well, in short, I said there that Germany and its businesses LOST (already done) its industrial competitiveness on world markets due to the loss of cheap energy. Loss of cheap energy by abandoning Russian resources and its own Nuclear Power Plants as well. To keep Germany’s business afloat, Germany launched a massive subsidy program. Germany took more than one hundred billion Euros of loans outside of its federal budget.
The point here is that this is unconstitutional. I mentioned all of this in the abovementioned article.
There is a paragraph in the constitution that allows extra spending in case of certain disasters. Self-inflicted pain is not a disaster covered by the constitution. Even though it IS a disaster.
The German constitutional court judged the spending to be unconstitutional. As far as I can tell (but things are still developing), Germany lost access to €60bn.
Germany’s plan was to use the money for subsidizing businesses and for the transition to green energy, away from nuclear energy and natural gas. For some unknown reason, Germany’s green party still “endorses” coal fired plants, but that’s another story.
Well, even though it is not yet reported in this severity, we can say that this is a major problem. Let me repeat, €60bn is missing in Germany’s federal budget.
Please forgive me that I don’t explain this in more detail here. The €60bn deserves far more explanation, but that would be a whole article on the order of an “Economics and Empires” in size. So, please, just accept this number for the time being. I will write more about it in the future.
The point is not the exact number, nor is it what this missing money was to be spent on. The point is that the spending won’t be made. In short, it is mostly about the transition to green energy, and to make Germany’s energy system mostly independent from fossil and nuclear energy. And thereby (theoretically) ending the need for subsidies.
Even though this goal is laudable, it is fictional, and now this fiction won’t be financed. That is a serious problem. I mean… It is a SERIOUS problem for Germany, one which many Germans don’t grasp yet. Why do I write about it? Because it has major implications on geopolitics. I will explain this later.
But what are these serious problems that could materialize for Germany?
The federal budget is now no longer feasible. Important spending won’t be made. Important spending on energy and technological transition. Now one could say, who cares? Then we won’t do the transition. Right. In this case Germany would need to subsidize its industry forever to make its products competitive on world markets. [Editor’s note: Green energy will require even more subsidies, as many countries are finding]. The question is, how to subsidize it? It would be with the very same mechanisms. Extra-constitutional spending, which is reserved for disasters such as natural disasters or war. As the constitutional court just ruled, this is impossible.
What I want to say is that Germany will neither be able to do any kind of transition to alternative energy (fiction) nor to subsidize its industry for much longer. What does that mean? It means that all kinds of price shocks on the energy market, which are determined by foreign powers, would make Germany’s businesses suffer massive cost increases. Which eventually, as explained, leads to the loss of competitiveness and in consequence, to insolvencies.
How to solve that problem? Well, one way is to let it happen; let the market mechanisms play out, with unpredictable consequences. Or, cannibalize the federal budget to be able to further subsidize businesses (or drive transition). The biggest parts of Germany’s federal spending are by far social programs such as pensions and unemployment benefits. There are other programs, such as military spending, but they are smaller.
To find a substitute for the blocked €60bn, Germany will most likely be forced (still developing, we need to wait and see) to cannibalize its social spending. This could cause major social problems within German society.
I will stop here, because, as I said, things are developing as we speak.
Why am I mentioning all of this? Because it has geopolitical implications. Germany is one of the biggest European contributors of financial and hardware assistance for Ukraine.
I guess this sentence should be enough to describe everything I wanted to hint about. 😊
But still, let’s highlight the obvious. The big question will be whether Germany will be able or willing to further assist Ukraine or not. I have no idea whether Germany will continue it or not, but both variants have geopolitical implications:
If Germany stops funding Ukraine then Ukraine will lose a major source of income. And it could cause a chain-effect in Europe where more European countries would withdraw their funding. This would accelerate Ukraine’s collapse by several months, even though It will happen eventually anyway.
If Germany continues the funding in spite of missing federal funds for its own citizens and social benefits, then this would most likely cause problems within German society; in one of the major European countries. This also has major geopolitical, or let’s say “EU”ropean consequences.
As soon as there is some clarity about Germany’s direction, I will write an update.
Mutiny at OpenAI (ChatGPT)
Currently we are witnessing a truly fascinating event. Some kind of mutiny at OpenAI. OpenAI is the company that is developing the AI tool ChatGPT, a highly capable AI chat tool that is being used in ever more businesses. In fact, it is already assisting hundreds of thousands of employees worldwide.
Nota Bene: AI = Artificial Intelligence.
The original intent of the founders of OpenAI was to provide AI technology for all people worldwide. Initially, the development was based on a non-profit scheme. Later, to attract investors, the company and board opened up slightly for profit. Nevertheless, the top priority still has been to provide AI technology to all people. First and foremost, SAVE AI technology.
Maybe we should mention, for context, that Elon Musk has been one of the funders of OpenAI.
Before we go into the details, I want to recommend that you re-read Economics and Empires 3. It essentially gives the context to what I’m going to write next.
The board of OpenAI has been tasked to ensure the development of ChatGPT for the common good of human kind and also to ensure the safety of the product. Well, in fact we can say that half of the board has been composed of people who should ensure the safety and the common good of the tool, and the other half of the board represents the business and investors. In fact, the “safety” part of the board was responsible for slowing down and controlling the development and scientific research of the product. Slowing down to ensure, again, the common good and safety. The other part of the board, including CEO Sam Altman, pursued an accelerated research, development, and deployment of the tool, including monetization.
I need to mention at this point that Microsoft is a big investor in OpenAI, uses OpenAI’s products in its own products (e.g., Bing), but has no seat on the board. Hence, nominally it doesn’t have any influence on OpenAI’s policies. Factually, it has a major influence. Technically, ChatGPT is running mainly on Microsoft servers for instance.
Well, two weeks ago the board somehow managed to get a majority to fire the CEO, Sam Altman. On November 17, a Friday, he got fired. Over the weekend he already got a new job at Microsoft. Microsoft promised to give him every freedom he needs to conduct further research on AI and develop the necessary tools. Nevertheless, Microsoft and many other influential investors, and the employees as well, demanded from the board to reinstate Sam Altman as the CEO of OpenAI. Sam Altman also agreed to that but under the condition that the board members responsible for the mutiny would step down.
I will spare you all the details that followed. The point is, Sam Altman has been reinstated as the CEO of OpenAI on November 22 and the responsible board members stepped down. He won the struggle. Did he?
I guess it is slightly more difficult than it seems.
What was the official reason for dismissing/firing Sam? There is no official information. Only hints, by people in the know, that it had something to do with the safety of the newest generation of ChatGPT (5) and the pace of development. The risks were apparently (we can’t know) too high with this pace of development.
Is this the real reason? I guess and I can’t know, it definitely is part of the reason. Let me offer my point of view. I assume we are witnessing, live, a coup and takeover of OpenAI by the United States of America. Or at least by its governmental structures. Conspiracy? No. Completely common practice. I will explain that later.
The new board members of OpenAI are business people and former politicians. Larry Summers, for example, has been a former Secretary of Treasury of the United States, during Bill Clinton’s term. This is only information for context. The board is now broadly represented by the American corpocracy.
We can assume, that the development of the AI tools of OpenAI will now accelerate exponentially and that new business models for its monetization will occur in the near future.
Is this now a good or a bad development? Well, it depends. 😊
As we learned in Economics and Empires 3, every technology or service that reaches a certain number of users is of public interest. The mutiny at OpenAI is the first evidence for Economics and Empires 3, after the release of the article.
OpenAI grew and became of public interest because of:
Millions of users worldwide. Remember? Single point of influence, and collection of data.
National security. We can assume that OpenAI is at the forefront of AI development, both in business and in government institutions. Providing the full potential of future tools, that will grow ever stronger, to potential adversaries such as China, is unacceptable. The American government wants to have influence over the development and distribution of this technology. Moreover, it wants to dedicate the most potent tools or functions solely for US National Security agencies.
According to my information, the next ChatGPT version will be able to solve real mathematical problems— dynamically. The current iteration can only guess results according to probabilities. But it can’t actually calculate. ChatGPT 5 probably will be able to actually solve mathematical problems dynamically. At least, certain mathematical problems. Why is that important or dangerous? Cryptology is based solely on mathematical theories. If an AI gains the ability to adapt dynamically to a given mathematical problem (an encryption/firewall) it will be able, over time and with some experience of deep learning, to adapt to all available firewalls.
In other words, it will be able to burn dynamically through every present static firewall and thereby gain access to all computers that are connected to the internet worldwide. I want to highlight here the word “worldwide”. That is a national security issue and also a huge advantage over the adversaries. Don’t get me wrong. I’m not saying that ChatGPT 5 will be able to do that. Most likely not. And especially such a function would not be available to the public. But it can be the start of a development in this direction. And especially the start of a learning program of such algorithms. AI today is slow. It needs years to learn with millions of terabytes of data to achieve excellence.
Well, I consider this as entirely understandable and justified. Such “weapons” should be in the hands of the state and not of a company. Now we can talk about the question whether THIS state is “mature” enough to handle such a weapon. That is another question entirely 😊. But essentially, something happened that needed to happen according to the usual playbook. I explained that in detail in Economics and Empires 3.
What impact will that have for the users?
I guess the development of ChatGPT will most likely accelerate, and also the release cycle.
There will be ever more business models and business products to monetize ChatGPT. But a “safe” version? At least, we can hope so. 😊
Safety will play a lesser role. But which safety? The safety against a “Terminator” scenario where the machines take over? The so-called AGI (Artificial General Intelligence)? On the other hand, the safety against misuse of the technology by foreign governments will increase.
I think the United States, from a viewpoint OF the United States and its people, did the right thing. All other major competitors are doing the very same thing, but in secrecy. If my assumptions are right, the Russians and the Chinese have extremely well-developed AI technologies, but solely for governmental and military issues. Well, China for business issues as well. Remember the cryptography issue? I guess the race has opened for the creation of the first AI version that is going to remove automatically all firewalls worldwide and make all information of the competitor available instantly. And also, the development of AI defense strategies. Hence, dynamical mathematical models that adjust to the attacker. Very interesting. And dangerous.
In fact, we can say it is an investment in the near- and mid-term future. We will gain a lot of positive effects of a fast development of AI. In the long term… Well, let’s say there are risks. 😊
I will write a lot about that issue. But I will explain that (BMA) strategy next week in a separate article.
[i] Edited by Piquet (EditPiquet@gmail.com)
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