"Putin Can’t Bully or Bomb a Recession"

[applegrove]

Putin Can’t Bully or Bomb a Recession

by Daniel Gross at the Daily Beast

http://www.thedailybeast.com/articles/2014/12/16/putin-can-t-bully-or-bomb-a-recession.html

"SNIP....................



Vladimir Putin has finally encountered two foes he can’t bully or bomb: the global currency and capital markets.

In a humiliating turn of events, the ruble has lost about half its value against the dollar so far this year. In Tuesday trading alone, it plunged by more than 20 percent against the U.S. dollar. The ruble’s sinking value comes despite a series of increasingly desperate moves by Russia’s central bank to bolster its currency, including a sharp increase in interest rates on Monday night.

Russia’s economy was already suffering, thanks to sanctions imposed by the West after Moscow annexed Crimea and invaded east Ukraine, and thanks to the plummeting price of oil (Russia’s chief export and source of hard currency). Now, with overnight lending rates hitting 17 percent and inflation rising, Russia’s economy is likely to be thrown into a deep freeze. Russia’s central bank Tuesday said the $2 trillion economy may shrink 4.5 percent next year.

What a reversal. For the last several years, the global economy, international institutions, and powerful countries have generally provided little resistance to Putin’s Russia as it sought prestige, power, wealth, leverage, and other people’s territory.



......................SNIP"

[Thinkingabout]

1. Perhaps he could sell enough of his topless shots to make up the difference, Sarah will

buy some.

[LittleBlue]

2. No, but he can instruct Russian companies to default on their debt

Debt held by American and European institutions. Guess who takes the loss? That's called financial contagion, our worst nightmare.

Russian debt-to-GDP is only 10%, so he's got a long way to go before public debt is maxed.

This could well be the dumbest stunt Obama has pulled since he got office. It's an economic bomb we've created and given Putin the fuse. Our economic welfare isn't something that should be wagered on a geopolitical move. Feels like the logic behind the Treaty of Versailles.

[stevenleser]

4. Those same institutions he knows he will need help from eventually?

Not much of a strategy there, and I am guessing Putin may have had enough brinksmanship to last him a while seeing how badly this has turned out for him.

[LittleBlue]

5. How do you know he will get help from them?

Money in China is available and cheap.

With sanctions on Russia in the US/EU, it was never likely our institutions were going to loan him money anyway.

[joshcryer]

7. So, on one hand, the companies defaulting would hurt the US.

But on the other hand the US/EU won't loan them money anyway.

The IMF would be happy to loan Russia all the money in the world. Just like the world bailed Russia out in 1998, we'd do it again.

With the small caveat that Russia stop, you know, invading and occupying Ukraine.

[LittleBlue]

8. China's global lending is far larger than the IMF

To give you an idea, the IMF has around $760bn in loans to all countries. China has $1.2tr just to us.

Why loan from something small like the IMF when China is a vastly larger and more accessible lender?

That's assuming Russia actually needs loans. James Rickards was on Bloomberg earlier pointing out that Russian government debt is minuscule. It's Russian corporations who will feel the pain, and their debt is owned largely by US and European lenders. Here, watch this. He's an expert who negotiated the first LTCM bailout. He thinks this is stupid, Kasparov thinks this is stupid. It's stupid.

Watch:
http://www.bloomberg.com/video/ruble-crisis-is-russia-s-economy-in-a-tailspin-9_mYnW6NQtiQmSlmLCVHIQ.html

[joshcryer]

14. The US has never defaulted on its debts.

The whole reason the ruble is collapsing is that Russia is looking like it's not a safe investment. Why would China save Russia before Russia's reserves were at least largely depleted? The lower they go, the better the deal China gets to have. And if you think the IMF sets up bad deals, just look at the deals they gave Venezuela.

[joshcryer]

6. Oh my, people have been saying this every time.

Every time Russia falls further into shit, people say it's the US making a mistake, the US fucking up.

It just flies in the face of all reason.

Russia is 2.7pc of global GDP. A lot of that is oil. Most non-petro states are loving the cheap oil. Ergo, fuck it, let Russia burn. That's how the world community will view Russia's slide downward.

[LittleBlue]

9. What percentage of world GDP was Lehman Brothers?

You know, the catalyst of the 2008 global financial collapse? By the boldness of your replies, I assume you realize how contagions work. All it takes is a calamity at one institution to begin a worldwide collapse as inflated asset prices are questioned.

Putin is actually probably afraid of doing this because it won't just affect us, just as it spread across the globe in 2008. Obama's acting like the drunk guy at the bar who got punched and retaliates by burning the bar down with everyone inside. Our livelihoods are not his pawns to use in a geopolitical game.

[joshcryer]

15. Of course, that's why he's talking to Germany and France today.

He knows that if he really plays chicken with the United States that it will not end will for himself or his legacy. Or his people, for that matter.

But oh, wait, he can just not care, throw caution to the wind, and hope for some nice Chinese loans...

[pampango]

16. Anyone who thought that economic sanctions were painless was an idiot. "American and European

institutions" know this and have consistently lobbied to delay and weaken sanctions.

Sanctions on South Africa were quite painful for the apartheid government but also for corporations that had made money dealing with South Africa in the past. Sanctions can be an effective way to impose pain on an offending government but they are not painless to the countries imposing them. At the very least sanctions restrict trade and other dealing that were profitable in the past.

Many institutions and corporations would prefer that any punishment directed at Russia be done militarily. Why? Money, of course. There is plenty of money to be made in any military confrontation. There is no money to be made with economic sanctions. Indeed, there is the potential to lose a lot of money if you are a big institution or corporation.

Some of the pain endured by Russia will bounce back on "American and European institutions". The latter seem to know this which is why many institutions have opposed these sanctions. Most of us do not feel too sorry for the impact on large US and European institutions although we may worry about the long term impact on our economy.

The issue is how does one respond to one country annexing part of another country? (Let's say Turkey takes advantage of the chaos in northern and eastern Syria to annex territory that belonged to the Ottoman Empire until 1918.) One option is to just ignore it. Another would be to make some speeches, file some diplomatic protests, hope that the furor about it blew over and grudgingly accept the new reality. Economic sanctions are another possibility as is a military response.

The first two are "painless" at least in the short run. (The German Anschluss was an example of avoiding pain in the short run.) Economic sanctions involve pain on both sides, though the point is to impose more pain on the offending country. Military action has obvious pain involved and is totally unrealistic in the Russia-Ukraine relationship. Thankfully, the US and EU have never seriously considered a military response against Russia with regard to the Crimea annexation.

[kelliekat44]

3. Where are all the Putin lovers now? "He's such a leader." nt

[eridani]

10. Nope. And we can't either

Especially since Congress just put us all on the hook for their derivatives gambling.

[LittleBlue]

11. This!

It's like people forgot that congress and Obama set us on a course for a repeat of 2008 last week.

[CJCRANE]

12. I feel like we're in a reboot of the Bush Neocon Era

but everything is bigger and better this time.

The terrorists this time are Al Qaeda on steroids.

So maybe the crash will be an even bigger humongous financial implosion. And maybe the wars will be bigger too.

[MFM008]

13. lets hope

Putin doesn't get desperate enough to accelerate his reuniting the old Soviet Union. Were duty bound to protect fellow NATO members if attacked.
This could be a disaster.

[Nuclear Unicorn]

17. I think you mean he would be liberating Eastern Europe from the evil sway of

Victoria Nuland's cookies.

[Gothmog]

18. Putin is in real trouble here

The Russian Ruble is failing like a brick and this will hurt the Russian people