The Russian bear bites back
Sanctions bring unintended consequences that the West will not like
Last week the rouble rose nearly 7% against the dollar when Russian president Vladimir Putin demanded that “hostile states” pay for Russian energy imports in roubles. Natural gas and oil prices soared on the news. What’s going on? Let’s take a guess.
The West, led by the US, sanctioned Russia’s dollars. Russians who had no part in Putin’s war suddenly found their money was no good. They couldn’t access their foreign bank accounts. They couldn’t go about their business as usual – even as they were offering valuable goods and services to overseas buyers. Financially, they were cancelled. It was inevitable Russia would consider its options.
Economist Michael Hudson comments: “If you sanction a country, you force it to become more self-reliant and, across the board, from agriculture to dairy products to technology, Russia is forced to become more self-reliant and at the same time to depend much more on trade with China for the things that it is still not selfreliant in”. In other words, the US is bringing about the opposite of what it intended. Sanctions are driving Russia and China together. The US goes to China and says please don’t support Russia or we will sanction you. China says, fine. And so the decline of the US empire continues one blunder at a time. The US feds are actively undermining the dollar with inflation and reducing its reliability further with sanctions. It is only a matter of time before a replacement is found. Cryptos? A gold-backed rouble? The yuan? We’ll see.
Meanwhile, fixed-income investments – in dollars – are taking a beating. The Bloomberg Global Aggregate index, a benchmark for government and corporate debt total returns, has fallen 11% from a high in January 2021. That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008.
In the 1970s, investors thought they could protect themselves from inflation by buying stocks. Stock prices held more or less steady throughout the decade. But inflation steadily reduced real values. By the end of the decade, adjusted for inflation, investors were down about 60%. But in an inflationary period, bonds get killed even deader than stocks. In the 1970s, bonds were called “certificates of guaranteed confiscation”.
And now, over the last 14 months, $2.6trn has been confiscated… but from whom? Well, from savers, retirees, people with fixed-income investments. And consumers. Consumer spending is said to be 70% of US GDP, which puts it at about $15trn. At today’s inflation rate, consumers will have $1.21trn “confiscated” this year. The inflation rip-off continues. Who benefits? The confiscator: the elite that controls the US government and uses it to shift wealth from the public to itself.
“The decline of the US empire continues one blunder at a time”