Just a few days ago, president Obama made the farcical claim Putin Hasn’t ‘Rolled Me,’ Economic Sanctions on Russia Have Worked.
In an interview with CNN, the president said economic sanctions on Moscow are working, crediting the American-led effort with a downturn in Russia’s economy and the decline of its currency. Even though Russia has yet to pull back from its aggressive posture in Ukraine, Mr. Obama denied that his policy has been ineffective, saying that his slow and steady course is better than the notion of “shooting first and thinking about it second.”
Worked How?
Is collapse of the ruble, more associated with the collapse of oil than sanctions, proof of anything? If so, what about the collapse of Ukraine? What about the collapse in European trade with Russia?
Does one measure pain in a one-sided manner? If Russia loses a leg and Europe an arm, is that winning or is it just plain stupid?
Let’s explore that question with a viewpoint from three sources:
- A Guardian article on the consequences of wrecking Russia’s economy.
- A Stratfor article “Viewing Russia from the Inside“
- A private email with a subject line of “Russia Under Attack” from David Lifschultz, CEO of Genoil to a small list of very prominent people.
Lifschultz forwarded his email to Jamie Dimon, CEO of JPMorgan Chase; William Harrison, Former CEO of Chase; and Stephen Schwarzman, CEO and Co-Founder of Blackstone.
Wrecking Russia’s Economy Could Spell Disaster for the West
The Guardian proposes Wrecking Russia’s Economy Could be a Disaster for the West
Like a rudderless ship running out of fuel and buffeted in an icy storm, the Russian economy looks as if it is heading for a crash. All the graphs – the rouble-dollar rate, the slump in GDP, bank interest rates, oil prices – look like menacing icebergs. The only question seems to be how long the ship can stay afloat.
As for the west’s sanctions, they were introduced with one explicit aim – to force Putin to change tack in Ukraine. At least, that was the stated aim. But since the measures show no sign of having any effect on his thinking, and yet the west is considering even more sanctions, there is obviously another goal – to punish Putin for his actions, regardless of whether he changes his mind. Sadly, it is not Putin who feels this punishment. It is the Russian people.
The west imposed sanctions on Putin’s “cronies” and Russian banks because of the invasion of Ukraine and annexation of Crimea; and Putin responded by banning the import of western foodstuffs.
To keep repeating the same mistake again and again and expecting different results is, as they say, a sign of madness. And if by doing so you punish only ordinary Russian people, then it is also cruel – and counterproductive. Twenty years ago the dream was to rescue the former communist world and bring prosperity and democracy to its people. What we are doing now is impoverishing and alienating the Russians.
We can, of course, stick to our guns and insist that “sanctions are having an effect”. But what will we gain if the only effect is to destroy the Russian economy?
The solution is clear. Abandon the missile shield. End the expansion of Nato. And think boldly about a new security arrangement for the whole of Europe – one that will bring Russia in rather than leaving it outside feeling vulnerable. If this were done, everything I know about Putin and Russia tells me the crisis over Ukraine would be solved – and the Russian economy would not end up being needlessly destroyed, causing woe and bitterness among its people. If it is not done, we will have to deal with a resentful Russia for decades – for Putin’s successors will also demand security.
Viewing Russia From the Inside
Stratfor writer George Friedman writes about Viewing Russia From the Inside.
Last week I flew into Moscow, arriving at 4:30 p.m. on Dec. 8. …
I thought the economic problems of Russia would be foremost on people’s minds. The plunge of the ruble, the decline in oil prices, a general slowdown in the economy and the effect of Western sanctions all appear in the West to be hammering the Russian economy. Yet this was not the conversation I was having. The decline in the ruble has affected foreign travel plans, but the public has only recently begun feeling the real impact of these factors, particularly through inflation.
The Russians pointed out that economic shambles was the norm for Russia, and prosperity the exception. There is always the expectation that prosperity will end and the normal constrictions of Russian poverty return.
Russians’ strength is that they can endure things that would break other nations. It was also pointed out that they tend to support the government regardless of competence when Russia feels threatened. Therefore, the Russians argued, no one should expect that sanctions, no matter how harsh, would cause Moscow to capitulate. Instead the Russians would respond with their own sanctions, which were not specified but which I assume would mean seizing the assets of Western companies in Russia and curtailing agricultural imports from Europe.
If this is so, then the Americans and Europeans are deluding themselves on the effects of sanctions. In general, I personally have little confidence in the use of sanctions. They are designed to cause pain that the West could not withstand. Applied to others, the effects may vary.
Reliable polling numbers show that President Vladimir Putin is still enormously popular.
I try not to be drawn into matters of right and wrong, not because I don’t believe there is a difference but because history is rarely decided by moral principles. I have understood the Russians’ view of Ukraine as a necessary strategic buffer and the idea that without it they would face a significant threat, if not now, then someday. The more important question was what will come next.
The Russians are stretched as it is. They must deal with Ukraine, and they must cope with the existing sanctions, however much they can endure economic problems. The West has the resources to deal with multiple crises. Russia needs to contain this crisis in Ukraine.
The Russians will settle for a degree of autonomy for Russians within parts of eastern Ukraine. How much autonomy, I do not know. They need a significant gesture to protect their interests and to affirm their significance. Their point that regional autonomy exists in many countries is persuasive. But history is about power, and the West is using its power to press Russia hard. But obviously, nothing is more dangerous than wounding a bear. Killing him is better, but killing Russia has not proved easy.
I came away with two senses. One was that Putin was more secure than I thought. In the scheme of things, that does not mean much. Presidents come and go. But it is a reminder that things that would bring down a Western leader may leave a Russian leader untouched. Second, the Russians do not plan a campaign of aggression. Here I am more troubled — not because they want to invade anyone, but because nations frequently are not aware of what is about to happen, and they might react in ways that will surprise them. That is the most dangerous thing about the situation. It is not what is intended, which seems genuinely benign. What is dangerous is the action that is unanticipated, both by others and by Russia.
At the same time, my general analysis remains intact. Whatever Russia might do elsewhere, Ukraine is of fundamental strategic importance to Russia. Even if the east received a degree of autonomy, Russia would remain deeply concerned about the relationship of the rest of Ukraine to the West. As difficult as this is for Westerners to fathom, Russian history is a tale of buffers. Buffer states save Russia from Western invaders. Russia wants an arrangement that leaves Ukraine at least neutral.
All of the good will in the world — and there is precious little of that — cannot solve the problem of two major countries that are compelled to protect their interests and in doing so must make the other feel threatened. I learned much in my visit. I did not learn how to solve this problem, save that at the very least each must understand the fears of the other, even if they can’t calm them.
Russia Under Attack
The subject matter of David Lifschultz’s letter to Jamie Dimon, William Harrison, Stephen Schwarzman, and two others is “Russia Under Attack”. Here are a few excerpts.
Stratfor as a close associate of the CIA doesn’t outline the implications of the steps that Russia will probably take so as to avoid a panic in the western financial markets. We will not avoid that.
It is important to note that this type of crisis is like the plague. It is contagious. A free falling ruble is essentially shutting out all exports from the EU and the west to Russia. If the currency goes down 2/3, then the price of western goods triples. Therefore, all EU exports to Russia and those of the rest of the west are stopped in their tracks. This Russian agricultural sanctions are as nothing compared to these new currency sanctions based on the concerted attack on the ruble. As the EU economies are in many areas in tribulation with 25% unemployment such as Spain, etc. and rising in most cases everywhere, the EU is suffering reciprocal damage for their attack on the ruble. The western attack on the ruble essentially blocks all imports into Russia forcing them into a German self-sufficiency as in 1933, or Russia under Stalin in 1937.
Russia has not been booted out of the SWIFT payment system as Iran as the international financial system will collapse if Russia unilaterally ceases to supply energy to Europe in the form of natural gas and oil. If Europe cannot buy Russian natural gas and oil, it will die. It will drag down the entire international financial system. This time as in Lehman the issuance of trillions of dollars of credits will not save it as that cannot overcome a shortage of natural resources. The supplies of natural gas and oil from the stans and central Asia between China and Russia are essentially under Russian control. If they decide to block it, that potentially could remove 24 million barrels a day from the world economy and huge amounts of natural gas if we add to the central Asian cutoff Russia itself. What will the EU and the United States do? Launch nuclear missiles at Russia?
If Russia moves to currency controls, the concomitant step would be to declare a moratorium on the payment of interest and principle on external debt. This in itself would deliver a massive shock to the western financial institutions holding the over 600 billion in debt. It must be remembered when this happened in 1998 during the Russian financial crisis, the financial weapon of mass destruction of Long Term Capital Management imploded with 1.3 trillion in derivative exposure. The quadrillion of derivatives according to Warren Buffett contain numerous financial weapons of mass destruction that can implode the entire western financial system. Stratfor does not want to talk about it but that is what is boiling under the surface. The west has raised the ante and risked their entire financial system in this crisis.
It is true that if Russia pulled the plug on the EU by stopping their natural gas and oil exports, it would have an adverse effect on Russia. But it would have a calamitous effect on the EU. It would trigger implosions in the quadrillion of derivatives. And Russian need only do this for three to six months to achieve the desired victorious counterattack as in war laying the west low as they are doing to them, and there is no doubt that this is war.
Economic war precedes military conflict as we saw when the United States, Britain and the Netherlands cut off 92% of the oil used by Japan through an embargo on July 25, 1941, which was a declaration of war on Japan as the west is declaring war on Russia. Anyone who does not realize this is acting like an Ostrich with his head in the sand. The west is hoping against hope that if they keep raising the ante when they have no cards, that Russia will throw their cards on the table. This will not happen. They also hope that they will be able to lower the temperature any time they want to avoid all out economic and or military conflict, but history shows that once the Pandora’s box is opened it is nearly impossible to put the evils back in the box.
The catalyst of the Ukrainian situation was nothing less squalid than the western financiers who were formerly looting Russia of hundreds of billion fearing that Putin’s move in the Ukraine would stop their looting operation in the Ukraine.
This fit into the Brzezinski goal of dismembering Russia, and the neocons allied with these London and New York financiers to move against Russia. Brzezinski was looking for his opening, and if it was not here, he would have found it elsewhere.
Foolish Pressure
No one knows precisely what to expect if Obama keeps pressuring Russia more and more, but whatever it is, it will not be any good.
The entire US history of foreign policy meddling has been disaster after disaster.
An Incomplete History of US Foreign Policy Disasters
- War reparations imposed by the allies gave way to German hyperinflation and the rise of Hitler.
- In 1953 the US and UK orchestrated the Iranian coup d’état in an operation called “Operation Boot” in the UK and the “TPAJAX Project” in the US. This in turn led to the US backed Shah of Iran overthrown in 1979. In August 2013, 60 years after, the American Central Intelligence Agency (CIA) admitted that it was involved in both the planning and the execution of the coup, including the bribing of Iranian politicians, security and army high-ranking officials, as well as pro-coup propaganda. The CIA is quoted acknowledging the coup was carried out “under CIA direction” and “as an act of U.S. foreign policy, conceived and approved at the highest levels of government.”
- The War in Vietnam started with an outright lie from president Lyndon B. Johnson regarding the Gulf of Tonkin Incident. A document declassified in 2005 shows the US fired first, on North Vietnam. In a second episode, the US fired on “Tonkin ghosts” (false radar images) and not actual torpedo boats as claimed.
- It’s pretty clear the US helped foment the overthrow of Ukraine’s president Viktor Yanukovych, but the US will probably will not admit that for another 30 years.
- Bush’s lies led us to invade Iraq with disastrous consequences including the evolution of ISIS.
- Finally, Bin Laden’s number one reason for the attack on the US was because the US had troops on sacred Arab soil.
Poking Sticks at Bears and Hornets
The US seldom if ever views things through the eyes of others. From US drone policy, to torture, to CIA-sponsored coups, to inane wars based on lies, we make mistake after mistake.
And yet, we keep poking sticks at bears and hornets.
In the case of Russia, I do not know how Putin will respond if we increase pressure.
But I do know that sanctions are war. And they don’t do any good. 52 years of silly sanctions on Cuba with zero results are proof enough. (For discussion, please see Pass the Cigars: US Lifts Some Restrictions on Cuba; Why Now?)
Blowback
As I have noted before, sanctions are a negative sum game. The very best the US can expect out of sanctions on Russia are as follows:
- Deeper European recession
- Political battles with various European leaders
- Loss of potential profit by US multinational corporations
- Ukraine in need of bigger bailouts
- Russia strengthens ties with China at expense of US and Europe
- Increasing resentment of Russian citizens toward the US, some of which may take hostile actions against the US, US citizens, or US corporate interests
Unfortunately, that is the very best that can happen!
Laughably, president Obama calls that “winning” on the basis Russia is suffering more than Europe.
With that ridiculous definition, let’s return to the questions I asked at the outset:
Does one measure pain in a one-sided manner? If Russia loses a leg and Europe an arm, is that winning or is it just plain stupid?
It’s difficult to contemplate the worst that could happen, but David Lifschultz mentioned one possibility in his letter to various CEOs: The wrong reaction could “trigger implosions in the quadrillion of derivatives“.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com