People stand in line to use an ATM money machine in Saint Petersburg (REUTERS)
The Atlantic: Russia’s Looming Economic Collapse
The war in Ukraine is being fought on two battlefields. The first battlefield is geographic. It is the land Russia is tearing up with tank treads and pounding with missiles.
The second battlefield is made up not of physical particles, but rather of relationships—contracts and promises between nations, banks, companies, and individuals. This is the economic arena.
While Russia holds the military advantage over Ukraine on Battlefield One, it is getting destroyed by a Western alliance on Battlefield Two. In the past few days, the United States and several major European countries have declared a series of financial penalties and sanctions against Russia that are without modern precedent for a major economy. These policies are triggering a financial catastrophe in Russia.
Read more ....
WNU Editor: JP Morgan is predicting this .... JPMorgan said on Thursday it expected Russia’s economy to contract 35% in the second quarter and 7% in 2022 with the economy suffering an economic output decline comparable to the 1998 crisis (link here).
As someone who lived through the collapse of the Soviet Union and the economic crisis that it spawned in Russia in the early 1990s, as well as the 1998 crisis, I have a certain insight.
It will be tough in the beginning. It is in fact tough now. But Russia will survive.
Gas will still be cheap. Electricity will still be cheap. People will be fed. The phones will work. Most people own their homes/condos/dachas. Some have problems with debt, but not at the levels that exist in the Western world (see Russia mortgage debt levels here).
Because of sanctions Russia has learned to manufacture many essential goods and products. While the Western media focuses on Russian oligarchs and Russia's large companies, the backbone of the Russian economy is small businesses and people's side hustles. Most of these small enterprises will continue.
And while I know it will be difficult to get foreign goods, people will adjust. What will hurt are people's expectations, and their confidence of having a better life.
But I think we are missing the bigger picture.
The question that needs to be asked is .... what will happen to the global economy?
What will happen when the world's largest exporter of energy is no longer able to export. When a quarter of the world's grain supply cannot be shipped. When many of the strategic metals necessary for manufacturing are unavailable.
What will be the impact on supply chains, global monetary policy, global inflation, and every country's fiscal budget?
When I game this out using my experience on how all of this works, I am lost for words. This is unprecedented. To say that I am scared about this is an understatement.
Maybe the title of The Atlantic piece should be .... "World's Looming Economic Collapse".
Update: A friend who is a senior executive for a major international bank text me this earlier today, and she is right ....
.... For those on who are giddy about the plummet of the ruble and a collapse of the Russian economy, a word of caution: the severity of this will create forces beyond everyone's control. It could get very scary and not have the outcome you suspect.
9 comments:
"When I game this out using my experience on how all of this works, I am lost for words. This is unprecedented. To say that I am scared about this is an understatement."
Doesn't that make you break out into a cold sweat? You gamed it out.
What about Biden or his staff? What about the State Department, Pentagon, Federal Reserve or Bureau of Labor Statistics? Have they gamed it out or ran computer simulations?
One reason the US put up with Mobutu Seko is because the US needed cobalt for high performance aircraft. Toward the end of the Cold war Zaire became persona non grata.
What will it be this time. Will the US treat Zaire as well as it does India? As a poor cousin or an afterthought?
Priced a low end coffee maker. Price was up 33% and it was out of stock. Store employee was mad as hell about country of origin of said coffee maker.
We'll survive, unlike many of the Ukrainians who won't. Something has got to give
https://blogs.lse.ac.uk/politicsandpolicy/exposing-the-myth-of-western-betrayal-of-russia/
Good luck getting spare parts for the western cars. Good luck replacing the mobile tech with old Russian military radios. Good luck with being betrayed by China. Well, actually Putin betrayed China by taking his delusional adventure to unimaginable inhumane levels. China will dictate the energy prices for Russia like they did with Venezuela. This was the last post I read from you. Your insigts on Russia are deeply emotional.
I say give ukraine the 10B, and cut Russian oil. Tyranny must be fought. We all have to do our part. Putin is only emboldened the more he can get away with.
# those who would trade liberty for safety...
Welcome to a world war.
Who says sanctions last? Europeans won’t tolerate the pain like Russians. Russia isn’t going anywhere and we shall see how eager Europe is for a new Cold War, this time with China in the mix.
"Your insigts on Russia are deeply emotional."
Really? The man has family there! The fact he updates this blog as often as he does, to keep us informed with real news, and excellent "insigts" that I for one am grateful, is selfless. Thank you WNU
Your friend is wise. It's a pity we don't have people like him/her in important positions in government. From the text, it appears that he/she is not necessarily saying don't pursue the current policy regarding Russia but to be very, very circumspect about it
Our policy hinges on certain assumptions that I've detailed elsewhere. If these assumptions prove false or less than 100% accurate, this likeky ends in unmitigated disaster for us.
The editor is well versed in Russian culture and life. I am not. If bis analysis is correct, the end result of the current approach may well be Russia being strengthened and America weakened which would be the exact opposite of what our leaders intended.
Prior to the invasion Putin was ranked by Forbes ad either the most powerful person or second most powerful person on earth depending upon which year's analysis is consulted. In my considered opinion, this analysis is sound and it could be accurately be extended to the country he leads making Russia arguably the most powerful country on earth.
Part of the unprecedented nature of this is how do we isolate arguably the most powerful country and person on earth. Thus far, while it's been choppy in spots, the execution of this seems to have been remarkably good and seems to be getting. If the assumptions prove accurate, the policy is likeky a sound one. If they prove inaccurate, this probably ends in unmitigated disaster for us.
The editor's friend is wise. I wish there were more like him.
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