https://thesaker.is/quick-interlude-with-a-few-quick-comments/
War is on, writes:
"War Russia Ukraine economic and financial consequences:
Apparently, as I write these lines, I learn that Europe and the USA will freeze Russian foreign exchange reserves in Euros and dollars. This is a declaration of economic war that should cause Russia to stop exporting energy to Europe or the USA, which could trigger a global crash.
Starting a war is easy and everyone who embarked on this adventure was convinced that the conflict would be brief and that they would emerge victorious.
The reality is often different as the examples of the conflicts initiated by the USA since the fall of the Berlin Wall prove it.
As I knew that Putin was a good student of History with a capital H, I was therefore surprised to see him embark on a military adventure whose outcome would be fatal to him if it were to be a disaster for Russia .
But what’s done is done, and now we have to integrate this new element into the analyzes that I have to do.
My goal is not to pass a moral judgment on this decision of Putin, but to understand the economic and financial consequences of this decision on the balances of the world.
For this, I must first make assumptions about the goals that Putin is pursuing:
Hypothesis number one: The goal is to destroy the military potential of Ukraine by “targeted” strikes on all Ukrainian territory, for, this goal achieved, to withdraw into the disputed areas and whose independence it has recognized. In this case, the conflict could be short-lived and things will settle down fairly quickly.
Assumption number two: Putin is, and always has been, a supporter of a greater Russia that includes Ukraine and his goal is the outright annexation of the country to the motherland. In this second case, this is a case that is likely to last militarily, diplomatically, economically and financially.
I would like to say here that less than 200,000 men to implement the second hypothesis seems to me quite insufficient, which seems to confirm that the Russian troops do not give the impression of wanting to conquer the cities or capture Ukrainian power.
But as Clausewitz has shown, the “climb to extremes” can happen quite quickly without anyone being responsible, as we saw at the beginning of the First World War, all the combatants thinking that they would be in their homes for Christmas.
Having posed my hypotheses, I then have to integrate the sanctions that will be taken by the “good side” against Russia and against its government.
Apparently, they do not have much interest except one: to prohibit the Swift payment system from Russian banks. It means wanting to cut Russia off from international trade, not so much with Asia and China with which alternative payment systems have been set up, but certainly with Europe, which trades a lot with Russia unlike USA. These sanctions will therefore be a certain victim, the European economies.
Which leads me to ask the following question: is Russia in an economic and financial state that will allow it to resist without suffering too much from the sanctions to which it will be subject?
Let’s look.
Russia has a balanced budget, has substantial current account surpluses, very low foreign and domestic debt, real interest rates on 10-year bonds above 5%, has a surplus in energy, agriculture (wheat in particular) and raw materials. Finally, Russia has foreign exchange reserves (only 15% in US dollars) that literally cover two years of imports, which is gigantic.
To sum up the reality, the world in general and Europe in particular need Russia much more than Russia needs them.
To use a historical analogy, Mrs. Thatcher, before entering into a “death” conflict with the miners’ union in Great Britain, had started by accumulating immense stocks of coal. Everything seems to indicate that Mr. Putin has done the same and that he has prepared for a long war, and that he seems to be entering this war better prepared than were the miners’ union and Mr. Scargill, its leader at the era.
Let’s see how his opponents prepared (need we say his enemies?)
I have no special information on Ukraine, which, apart from wheat and light armaments, does not seem to produce much.
The destruction of Ukrainian ports would undoubtedly lead to a considerable increase in world wheat prices, which would suit Russia well.
What is more, for the moment, a large majority of the Russian gas exported, passes through Ukraine. Blowing up the pipelines in Ukraine is guaranteeing the country’s bankruptcy, with the government collecting billions of dollars in rights of way.
And Ukraine, a badly managed and corrupt country, has so to speak
no foreign exchange reserve, which means that if its ports are destroyed and its pipelines cut, then Europe and the USA will have to pay the bill for the “humanitarian” subsidies to the local populations, which will enthuse the American people , French, Germans, Italians etc… whose standard of living will be collapsing due to insane price increases in energy and food…
Let’s come to Europe and the Euro.
Europe is in an impossible situation.
State debts are gigantic, budget deficits uncontrollable if interest rates return to normal levels, external deficits inevitable if energy prices continue to rise, real interest rates on 10-year bonds deeply negatives.
Europe’s economic and financial situation is literally the opposite of what Russia enjoys, which is to say that Europe is in dire straits and should in no way get into a conflict with Russia. Because, if Russia cuts off its gas and oil exports, Europe will immediately fall into a very strong inflationary recession, a little like Great Britain in 1976-1977 and the Euro will disappear before the fury of the people, which will cause another crisis.
Let’s move on to the USA, and the hilarious Biden, whose son was one of the beneficiaries of Ukrainian corruption.
It is the US that for years has insisted on punishing Russia for its annexation of Crimea. It seems to me that the new sanctions proposed by the USA against the Russian Central Bank are likely to lead us very quickly to a shortage of wheat and energy in Europe and in the rest of the world. Difficult to pay for imports from Russia in euros or dollars if the Russians have their euro or dollar accounts blocked.
That could help American producers.
But the United States has no excess production capacity to fill the holes, neither in agricultural raw materials, nor in gas, nor in oil, nor in industrial raw materials.
The American policy of sanctions against Russia therefore risks triggering a huge recession in Europe, and they will not be able to do anything to help us.
Which is to say that American governments are ready to fight to the last European, but not beyond.
As soon as inflation exceeds 10% in the USA, we will see them return to the negotiating table with Russia, but between then and now, a large part of Europe’s industrial potential will have disappeared.
Perhaps it will then be bought cheaply by the American companies with which these European companies were competing?
Or more likely by Chinese companies.
We bet that the next elected officials in Europe will want to leave NATO, as American military protection is really very expensive.
And the rest of the world?
Two conclusions stand out
The construction of a Chinese monetary zone in Yuan appears to be increasingly justified given the abuses of rights of which the Americans are guilty. The safe store of value is therefore now a 10-year Chinese bond, the Bund and the T Bond being no longer legally safe (risk of confiscation).
Gold, on the other hand, does not need to be deposited in another central bank where it could be stolen by the US under US law. The simplest is for each central bank to keep its gold in its own vaults, which implies that gold is slowly but surely monetizing.
In conclusion, I would like to remind readers of three facts
Charles de Gaulle’s phrase: “the sword is the axis of History”, which Putin has just reminded European nations. The time of the lawyers is over, the time of the sword is back.
Raymond Aron’s sentence on Giscard d’Estaing: “he does not know that History is tragic”. All the supranational constructions in Brussels found their source in one far-fetched idea or another of Giscard. Putin has just dealt a mortal blow to all this nonsense. Brussels is a non-being.
Another sentence of de Gaulle on the Russian Nation: “Russia will absorb communism like blotting paper ink”. The Nation is a reality."