Democrats love Nato, sell more weapons, start proxy wars while they loot the citizens and impose their Bolshevik ideals….
dpy
1 year ago
This whole campaign to destroy Russia and “westernize” it’s natural resources seems to be mostly accelerating the interconnectedness and trading for ALL of the developing countries of the world. Interesting twist on the end of empires, unless we are mssing in our historical knowledge what was going on behind the scenes on the other side of the fence from the famous “empires” that we get taught about.
Christoball
1 year ago
Something is going to break soon.
BDR45
1 year ago
The West’s politicians have never understood the law of unintended consequences. Maybe, as Europe is collapsing, it doesn’t really matter any more, anyway. Ukraine is the center of the next world war, soon to be on our doorsteps it looks like.
effendi
1 year ago
Are the financial gurus who purchase bonds seeing the “default” as a real default (say an Argentina type default where the country can’t pay its bondholders) or just a load of nonsense to be ignored once the sanctions are lifted as Russia is solvent. Plus with the reserves that Russia is salting away I guess they will not need to borrow for years or decades. Also I presume that once Ukraine and the west capitulate Russia will demand its frozen reserves back and maybe even a few hundred billion reparations ( no pay then no gas and no peace).
Jackula
1 year ago
The Biden foreign policy plan: make Russia and the BRICS stronger while completely screwing the EU.
Sebmurray
1 year ago
These type of posts always remind me of your Law of Bad Ideas Mish. It seems to apply in spades these days
Anyone thinks that we can quietly have a war without some turmoil in the financial markets, and some economic pain on both sides is thinking far differently than me.
jfpersona
1 year ago
Even if you thought there was a lower than ‘average’ percentage chance of default, there still had to be a very significant chance of a Russian default baked into everyone’s (at least everyone paying any sort of attention) behavior. I would think that this doesn’t actually change anything very much – we’re only recognizing officially what everyone knew to be a probable outcome.
Long (as in decades) term outcomes may be ‘serious’, but we all can get used to them over time (although there is a ‘frog in the pot’ aspect to this). It is the shorter term reactions that cause the most acute pain – and this doesn’t seem to change much in the short term. The question this actually poses is whether there are significant knock-on effects that ramp up the short term pain – I guess we’ll have to see who’s clothed and who’s not as the tide moves out.
G7 Madness, These fools keep looking for the corner in the round room they’re in.
Dutoit
1 year ago
If there is not anymore trading between the west and Russia, I don’t see what is the problem for Russia to default. Will this perturb trading with China, India, South America, etc ? Maybe if the west threatens these countries by “sanctions” also ? Will the goal to “isolate” Russia end with the isolation of the west ?
This is all a business decision. We want natural gas to come from us or Qatar. Plus we want to have control over Ukrainian farming and the water. Sad times but that’s how the USA thinks. Our corporate benefit means your dead people
PreCambrian
1 year ago
Whatever you do, don’t throw me into the briarpatch.
MPO45
1 year ago
I find Timo’s point interesting in thinking that China and Russia want this global economic change. If that were the case, there was no need to invade Ukraine to accomplish it. China and Russia, or any nation for that matter can change whatever economic policy whenever they want to, they don’t need wars or defaults to do it.
Let me list some countries: Iraq, Libya, Afghanistan, Vietnam, etc. What do these countries have in common? They were invaded by the US on the premise that the US would land there, “liberate the oppressed masses” and presto chango democracy and free market economic prosperity delivered.
The same magical thinking occurred in letting China into the WTO, they were supposed to turn democratic and free. If you want to know what China and Russia want, just look at past history and the patterns of the culture. There is nothing magical here, people don’t like to change what they are used to for the past few generations. It takes centuries to make change. China and Russia want centralized power and control and the people of those nations seem content to give it to them.
You hit the nail in the head. Why would anyone start a war to disrupt the financial system in a fundamental manner? It does not make any sense!
Or does it? Here’s what I’m pondering: (Tinfoil hat mode: on)
Both Russia and China have demonstrated significant willingness to switch the global power system from a unipolar one to a tri-polar one. Would such change, that necessarily needs to weaken the US hegemony, be possible without firing a single shot? I don’t think so. The question is only about who shoots first and where. If you shoot first, you can do it outside of your borders and you can in a way control the flow of events and the response from your enemy. Maybe that’s what Russia was thinking. Maybe that’s what China is right now considering as well. Cross the Rubicon and don’t look back. Make the enemy overreact?
Russia and China have declared “collaboration without limits” in recent months. Therefore I’m assuming, that they are in this plot together. It was Russia’s role in it to start the conflict. Or maybe it was China who started the preparations of this conflict by making a mess of the global logistics and supply chains and thus starting the inflation?
As to how to weaken the US hegemony in the most efficient manner… just look at what’s happening in the financial system. Moreover, the energy crisis is already here, the food crisis is somewhat possible and a currency crisis may follow.
We westerners should be way smarter about how we confront Russia (and China). We have to do it to protect our way of life and we really can’t afford any further f*ckups. What weapons do we have available in this economic war?
It would be nice, if the switch from the current unipolar world order to a tri-polar one could happen without firing a single shot. I don’t think that’s realistic. It is only a question of who shoots first and where.
My theory is, that China and Russia have jointly decided, that now is the right time to start the change. I hope they’re wrong.
Interesting to see what has actually happened in Iraq since the US “liberated” it. Starting in 2019 there have been anti-government protests against corruption and poverty, and the government has killed over 600 protesters. The Iraqi people are poorer today than they were before the Iraq war. Still, all the big oil companies are now in Iraq making money and that’s the important thing.
JeffD
1 year ago
Dark Ages 2.0
8dots
1 year ago
Russia default increase US portion of the debt to gov debt, a small price for faking punishment Putin, uniting UK, France, Germany, Poland…
behind us.
Doug78
1 year ago
“Default is not a sign of strength by Russia, it’s a sign of stupidity by the West.
Instead of paying bills, Russia gets to keep reserves.
Instead of getting money, corporations, mainly in the EU, get nothing.
This is a really stupid thing for the West. Period.”
We are no longer in a transactional economic relationship with Russia. It has passed to the stage of confrontation. The economic ties are being cut so the question of Europe forgoing getting money from commerce with Russia has already been answered. They will do without because they no longer trust Russia in anything. The two sides have objectives that are mutually incompatible. It’s a raw power struggle now on all fronts and even if one does not want it and deplores it nevertheless that’s the way it is.
Considering that Europeans experienced the horrors of being invaded, occupied and having their countries destroyed in living memory they see what Russia is doing to Ukraine and say that could be me and they don’t want it. Not again. Europeans vote and have had ample opportunity to say they don’t care but they didn’t say that to their elected representatives. Quite the opposite. Most of them do care. They see the danger.
They were invaded by Germany. Russia helped liberate them. And only the most brainwashed or willfully ignorant believes there’s any chance Russia would invade western Europe.
Not quite so black and white. The Molotov–Ribbentrop Pact made Russia and Nazi Germany allies from 1939 till Germany invaded them in June 1941 after having conquered Western Europe with the help of Russia steel, oil, gas and natural resources. Strangely enough those countries “liberated” by Russia are all friends with Germany now and want nothing to do with Russia. The Russian liberation left very bad traces.
The West’s fate was sealed somewhere around 1936 when they let Germany re-arm against the treaty of Versailles and battle test their forces and develop the Blitzkrieg tactics in the Spanish Civil War. That enabled Austria, Czechoslovakia, Poland and finally the West to be over run. Had England and France done something in 36, none of what happened in 37 and beyond would have come to pass.
It goes back further than that. It is easy to argue that had Russia simply ended their mobilization prior to WW1, it would have never happened. They were afraid of technology and innovation making them obsolete then, just as they do now.
It is ever the goal of tyrants and priests to destroy progress.
Just that Stalin and Hitler were strong allies between 1939 and 1941 and split Poland between them. The West didn’t want to believe that Hitler wanted war. They believed him when he told them that all he wanted was a bit of Czechoslovakia and that was all. Churchill knew Hitler wanted war and he was right. We see the shades of the same thing today. Putin wanted war.
let me quote Churchills words, which you never heard but can verify ; “This war is an english war and its goal is the destruction of germany (1939) ” you must understand this war is not against Hitler or National Socialism but against the strength of the german people, which has got to be smashed for once and for all, whether in the hands of Hitler or Jesuit priests” Churchill (Emrys Hughes in Winston Churchill – His Career in War and Peace , page 145
Nop. It was Russias fault in 1941 and 1949 when Stalin moved >30000 people in Estonia from their homes into un-survivable conditions in the middle of nowhere in the east. No electricity, no transportation, nothing there. Half of them perished like my grand-relatives (only the young 17-25 survived) – weather on route or while “living” there. My grand-grandmother sold the ONE thing she could bring – a pillow made of feathers … to have some meat over the first christmas for her offspring (yes they were deported too if they were >14). No it’s not a fear story – she couldn’t tell it because she died there. The people who were 17 and came back they are not idiots like you and me – they lived to tell and are better than you or me for it.
Estonia, Latvia, Lithuania, Poland – they are now Europe. You might not like it but we are here and we are not going anywhere. And we have a different understanding of history than the “winners”. You better get used to it! Though luck you poor Americans, French, Englishmen, Swizz. It’ll be so hard to pay 1 more dollar for gasoline while people in Europe – yes Ukraine is Europe at least the continent, France just didn’t get the memo yet – are killed in war.
Instead of thinking you know history. What you SHOULD be worried about is Poland and all other big countries surrounded by Russia wanting to have nuclear weapons now. After all the threats from Russia of nuclear weapons every sensible country around Russia will want one. And in time they will get it.
Not now but when you see it happening next door you take measures to prevent it. The head of Finland described it well when he said the Russia is not the neighbour we thought it to be. When Finland and Sweden break their neutrality to join Nato you know that it is serious. When even Switzerland joins in with the sanctions you know they too are seriously worried about their security.
Switzerland ?! I am sure the fn US of A threatened this all time neutral nation with fn sanctions too if they did not abide by the rules of the Lord and Master of the universe….for the next couple of months anyway….Your fn ‘democratic’ (LOL) hegemony is coming to an end ….
Yeah sure , Russia wants Germany, France , Benelux, even the PIGS … Not all yanks are deluded like you…thank gowd…. That being said , as far as I am concerned, Russia can have the Balcans and the Baltics again….the world was still a better place at the time…. You wouldn t know of course, merely living the american dream….
….so why not let him have them….your fn nation wanted (and failed) to control the ME (and Russia)….POWER is what it is ALL about….we re only human after all, nothing gonna change that , unless you thought otherwise ….Btw, give him a like to Zardoz … poor lonely bastard
RonJ
1 year ago
“Politicians would rather do something counterproductive than do nothing at all”
Especially if it didn’t require a political response in the first place.
RonJ
1 year ago
“The problem with crossing the Rubicon is not only that you can’t go
back. It is that the best option at that point is often to double down
and go forward.”
Not yet. Major wars happen well after deep bear markets end. Russia is in a financial bear market. The West is just starting one. Russia and the US are more likely to have major civil wars.
prumbly
1 year ago
I thought that Russia can’t issue new bonds in the West anyway because of sanctions, so forcing an artificial default is unnecessary and only punishes Western holders of Russian debt. Super, super stupid.
KidHorn
1 year ago
Why can’t they un-default. If I held the Russian debt, I would accept an un-default at a later date. Has to be a lot better than a default.
As soon as countries stop prioritizing selling to the US market, USD will lose reserve currency status. By far, the biggest reason USD is held in reserve is because countries have been devaluing their currency relative to it. They buy USD in exchange for their currency to increase supply of their currency relative to USD. Looks like China and Japan have stopped doing this. Others will almost certainly follow. And once the ball starts rolling, countries will be dumping USD debt before it drops even more.
You can’t undefault because the Russian bond holders need the payment now to pay out to those who hold the bond. What are people who rely on those payments as their income supposed to do if this drags on for a couple of years?
Most bonds are insured so the bond holders will move to collect insurance. Thus insurance companies have to pay out now. That money can’t be paid back to the insurance companies in the future as an ‘undefault’ because the money will be long spent by bond holders.
Also the value of the bonds will drop dramatically. Many will be sold at a steep discount. There is no way to undo those sales and restore ownership in the event of an ‘undefault’ that restores the bonds to their original value.
As long as the dollar system is intact, they have no real alternatives. The minute you accept a dollar in payment, that dollar winds up holding Treasuries. And for now, if you won’t take dollars for your stuff, your economy will be ruined. As screwed up as it is, the system “works” for both sides. But if those dollars can be frozen and confiscated at will, it will come tumbling down. Not tomorrow or next month, but it’s going to happen.
JackWebb
1 year ago
Mish, have you written anything about both the pros and cons of being the world’s primary reserve currency? I know you’ve written what a burden it would for for China because it forces the issuer to run trade deficits, but aren’t there some pretty powerful advantages too? It looks to me like the U.S. is being cavalier with the dollar’s status. Russia obviously wants to service its debts. It baffles me that “the West” wants the debts not to be serviced. I’m truly scratching my head over this.
As for the dollar, I have to say that if I were, say, Brazil, the sanctions would make me pretty eager to look for alternatives to dollar suzerainty. I think of the Nazi askimark and how the dollar increasingly resembles it. But it also, for now, reminds me of what either political party says to its stalwarts when they get restless: “Where do you think you’re going to go?” Here we are, with the sanctions having powerfully unmasked the dollar as a chimera, yet it’s gone up and retains its safe haven status for now. “Where do you think you’re going to go?”
Reserve currency discussions get murky and circular, and frustrating. Not to mention being fodder for whackjob magical thinking, owing in significant part to the murkiness and complexity of the issues. It would be interesting to read a clear, concise, objective, methodical analysis of these issues. From where I sit, it seems pretty clear that the euro is not a worthy replacement. Gold has a major problem or three, starting with the fact that the supply grows by 1.5% a year but the world economy grows by 3%. Special Drawing Rights doesn’t look like it ever got off the ground. “Where do you think you’re going to go?”
One way to skin the analytical cat might be to sketch out a catastrophe that forces the issue. If, for instance, the U.S. implemented “modern moentary theory” on steroids, and we went the way of Zimbabwe right now or Germany in the early 1920s, and the dollar simply became unsustainable even in the short run, what would arise to replace it? How would a new system work?
Casual_Observer2020
1 year ago
I think this all misses the actual point which is to try and cause enough turmoil at higher levels of the Kremlin so that Putin is deposed and decapitated by the Russians themselves.
The Rubicon has been crossed but it isn’t an economic decision.
Even if Putin is deposed, there is ZERO chance that any Russian leader would be fine with NATO poking the Russian bear from inside Ukraine.
“In more than two and a half years of conversations with key Russian players, from knuckle-draggers in the dark recesses of the Kremlin to Putin’s sharpest liberal critics, I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests.” – William Burns, former ambassador to Russia and current CIA Director in the Biden admin.
Burns wrote that in a memo to Secretary of State Condoleezza Rice in 2008 so it’s fourteen years out of date. What was true then may or may not be true now. Putin’s performance lately has been less than stellar to say the least. Underperformance to this degree does cause some soul-searching within the power group. Even if Putin admires Stalin he doesn’t have Stalin’s absolute control. If he falls it will be from the FSB.
Bond defaults won’t cause anyone to be deposed because internally in Russia nothing has changed. Their access to financial markets was already frozen and remains frozen along with their foreign currency.
The only thing this does is far in the future it will affect Russia’s ability to borrow *after* sanctions have been lifted. No one knows when that is (peace could happen tomorrow but sanctions could remain for years or decades if the West doesn’t like the agreement). By then Putin could already be dead and your punishing some new leader in Russia + Russian people who have nothing to do with that’s happening now.
Then consider all those who hold Russian bonds. They may suddenly be worthless. Are we going to bail out those bond holders at 100% since they didn’t do anything wrong?
The only thing they did was make a bad investment and loaned to the wrong country. That has a cost. If they did a credit default swap then they may be covered. If not then that is how the cookie crumbles.
Yes, that corrupt oligarchy in Washington has really screwed over the bond holders by making the bond payments that Russia made in a timely fashion be not paid to the bond holders. Who will have anything to do with US issued bonds in future knowing that they can be screwed with at any time for political purposes.
Are you sure it is not economic? Western countries have chronic low to negative growth and high debt… What better distraction for the masses than a ‘controlled conflict’ with someone they’ve been told to hate?
whirlaway
1 year ago
Excuse me, but isn’t this forced default something like this – I have a mortgage and a savings account with the same bank. When I try to make my mortgage payment from my savings account, the bank tells me that my savings account has been frozen, forcing me to default even though I have the funds to pay my bills.
So, why would I patronize this bank in the future?
That’ll be your short-term move. Then you will look for a different banking system. In this case, it’s highly complicated, but no one will accept dollars they cannot use for very long. Bretton Woods was undermined in a big way when Nixon closed the gold window, but the dollar has been the substitute for 50 years because it has worked well enough. But for how long?
By analogy, I point to Darwin’s theory of evolution. It’s all to often collapsed into the stock phrase, survival of the fittest. That’s a fundamental error of understanding. Darwin’s theory says that a species that replaces itself will endure, and will thrive to the extent that it more than replaces itself, sustainably over time. If Darwin is reduced to a one-liner, it should be: survival of the fit, or better yet, survival of the adequate.
The post-Bretton dollar-denominated trading system has been adequate. This year’s events have shaken it to its roots. I am increasingly inclined to think that the dollar is on borrowed time. For how long is the issue, and the answer is above my pay grade. If I were China, OPEC, and the BRICs, I’d use some of those dollars to fund a deep inquiry into alternatives. Lots of tough questions revolving around the dynamics of reserve currencies.
The dollar system is supported by U.S. dominance of the sea lanes + the U.S. consumer being the de facto guarantor of employment within the rising non-Western economies. From the point of view of the BRICs: How to escape the dollar without wrecking our own economies? They shouldn’t spend a whole lot of time consulting the West about this. The U.S. and its allies are showing themselves to be economic imbeciles, so any alternative will have to come from the outside.
You didn’t default to the bank. You defaulted on your bondholders who then tell all their friends that you couldn’t pay the interest. The bondholders as a group do not care why you defaulted, only that you defaulted and will avoid dealing with you in the future as a credit risk. As a bondholder default opens up legal possibilities seize some of your assets like your car for example.
How will bond holders seize assets in Russia? If they connive with western governments to seize Russian assets overseas the what is to stop Russia returning the favour and seizing Western assets in Russia?
I mean. . . give me more information. Did Russia not just annex Crimea? I mean, it seems like everyone agrees on it. Did a missile not hit a mall yesterday? It seemed like everyone agreed on that as well.
I’m fine to only review information that everyone agrees on assuming that when the lying begins I get to have more first hand data.
Hold yourself to the same standard though, lets hear new information that everyone agrees on.
Even the Ukrainians have admitted that mall was not hit by a missile but by debris from a munitions dump next door that was hit by a Russian missile. Why anyone would have munitions stored in a residential suburb in wartime is something that needs an explanation (stupidity, incompetence or hiding behind women and children are the 3 possibilities).
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Are the financial gurus who purchase bonds seeing the “default” as a real default (say an Argentina type default where the country can’t pay its bondholders) or just a load of nonsense to be ignored once the sanctions are lifted as Russia is solvent. Plus with the reserves that Russia is salting away I guess they will not need to borrow for years or decades. Also I presume that once Ukraine and the west capitulate Russia will demand its frozen reserves back and maybe even a few hundred billion reparations ( no pay then no gas and no peace).
Instead of paying bills, Russia gets to keep reserves.
Instead of getting money, corporations, mainly in the EU, get nothing.
This is a really stupid thing for the West. Period.”
back. It is that the best option at that point is often to double down
and go forward.”
“In more than two and a half years of conversations with key Russian players, from knuckle-draggers in the dark recesses of the Kremlin to Putin’s sharpest liberal critics, I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests.” – William Burns, former ambassador to Russia and current CIA Director in the Biden admin.
… according to Goebbles, anyhow…
So, why would I patronize this bank in the future?
By analogy, I point to Darwin’s theory of evolution. It’s all to often collapsed into the stock phrase, survival of the fittest. That’s a fundamental error of understanding. Darwin’s theory says that a species that replaces itself will endure, and will thrive to the extent that it more than replaces itself, sustainably over time. If Darwin is reduced to a one-liner, it should be: survival of the fit, or better yet, survival of the adequate.
The post-Bretton dollar-denominated trading system has been adequate. This year’s events have shaken it to its roots. I am increasingly inclined to think that the dollar is on borrowed time. For how long is the issue, and the answer is above my pay grade. If I were China, OPEC, and the BRICs, I’d use some of those dollars to fund a deep inquiry into alternatives. Lots of tough questions revolving around the dynamics of reserve currencies.
The dollar system is supported by U.S. dominance of the sea lanes + the U.S. consumer being the de facto guarantor of employment within the rising non-Western economies. From the point of view of the BRICs: How to escape the dollar without wrecking our own economies? They shouldn’t spend a whole lot of time consulting the West about this. The U.S. and its allies are showing themselves to be economic imbeciles, so any alternative will have to come from the outside.