Posted on 03/23/2014 12:52:12 PM PDT by Kaslin
resident Obama has ramped up his second round of economic and financial sanctions on Russia, and on Vladimir Putin in particular. Some of this is already working. But if anybody believes it will be easy to financially deflate Russia, they better think again.
Russia holds $132 billion of U.S. Treasury securities. That's a big number, and it could be sold in the event of financial warfare. That won't kill the United States. But it will undoubtedly cause interest rates to rise.
Would Putin spend it all? Who knows? His central bank just spent $50 billion to defend a sinking ruble, which is off about 10 percent year to date. But that still leaves about $400 billion in foreign-exchange reserves that could be called upon to defend the Russian homeland in an emergency.
But as I noted, the initial rounds of sanctions seem to be working.
Just this week, after he was put on the U.S. sanction list, Putin pal Gennady Timchenko, a billionaire Russian oil tycoon, cut and ran by selling his 43 percent share in the oil-trading Gunvor Group. Putin is accused of being an investor in that group and of having access to its funds. Other Putin billionaire cronies hit by the Obama sanctions include Vladimir Yakunin, the chairman of state-owned Russian Railways, and Yuri Kovalchuk, allegedly Putin's personal banker.
And the favorite bank of these folks, Bank Rossiya, has been sanctioned, too. Foreigners probably won't do business with them. Visa and MasterCard are pulling out of Rossiya. And reports are that Rosneft, the big state-owned oil company, has been delisted on the London stock exchange. If true, that would be a significant development.
Undoubtedly, future Obama sanctions will go after all the big oligarchs. For example, oligarchs who own U.S. basketball teams, Pennsylvania coal mines and steel mills, the Lukoil chain of U.S. gas stations and various high-priced condominiums in New York. Russian oligarch property in Europe is even greater, including football clubs, large industrial complexes and airlines. And bank accounts. (Hat tip to Holman Jenkins of the Wall Street Journal.)
Will Britain come on board in a big way? In recent years, Russia has raised $400 billion in stocks and bonds on the London stock exchange. Roughly 70 Russian companies are traded as depository receipts, and numerous IPO's have been sold there. So if Britain closed its financial markets and its banks to Russia, the blow would be huge. Huge. The question is, will Prime Minister Cameron do it?
Another major source of Russian funding is U.S. mutual funds, with investments worth a reported $325 billion. Big outfits such as Pimco, BlackRock, Fidelity, Goldman Sachs and T. Rowe Price have served as the emerging-market investment intermediaries. And if that money were pulled, another gigantic blow would land on Russia's finances and economy. The ruble would completely tank, forcing the Russian central bank to spend big chunks of those $400 billion in foreign-exchange reserves.
And then there's Western bank lending to Russian business: $51 billion from France, $37 billion from the U.S. and $20 billion to $30 billion each from Italy, Germany, the U.K., and the Netherlands.
The point of all this is that the deflation of the Russian financial system and economy can be done through strict and severe banking sanctions. But those sanctions have to come from Europe as well as the United States.
So far this year Russian stocks are off about 13 percent. It's a big drop, but not a collapse. Russia's stock market and oligarchs are undeniably waiting to see just how united the Western opposition is going to be.
Of course, there are other muscular ways to penalize and contain Russia. There could be a European ban on Russian energy imports. Or a large-scale (if symbolic) Obama endorsement of U.S. natural-gas exports, including 25 new permits for liquefied natural gas terminals. Renegotiating Polish and Czech Republic missile-defense systems, a harder-line NATO military campaign and military assistance to Ukraine all fit in the package. Kicking Russia out of the G8 is another good idea.
But make no mistake about it -- deflating Russia financially and economically will require a completely united front by the U.S. and Europe. Essentially, banks and investment funds will have to stop doing business with Russia. No loans to Russian companies. No stock market activities. No investments. No nothing.
That's how difficult this job is going to be.
It’s a non-starter, the Germans will never allow sanctions.
I hope those TBTF bank “stress” tests weren’t just for fun and games, this ride could get bumpy.
Germany won’t cooperate, and we could make a list a mile long of others who won’t or who will lie about participating.
Even energy supplies to Europe is so far in the future that it’s not even worth discussing. Russia already has pipelines to China. They just reverse direction on that fuel, and China’s getting their energy from pipelines and not from tankers.
If the west wants to confront Putin, then they’re just going to have to confront him. And they don’t want to do even that. ABMs in former Warsaw Pact countries? Nope. A new version of the Fulda Gap based out of Poland, Czech, Bulgaria, Hungary, Estonia, and Ukraine? That isn’t going to happen.
That is confrontation. That isn’t sending a message. That is sending a double-dog dare ya.
first you get independence. then you kill the price. dirt cheap energy in the USA will produce enormous growth. it is pure oxygen to economic growth in the USA and around the world.
And it will never happen, because the powers that be will never allow it.
first you get independence. then you kill the price. dirt cheap energy in the USA will produce enormous growth. it is pure oxygen to economic growth in the USA and around the world.
And it will never happen, because the powers that be will never allow it.
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Might have been true 30 years ago. Definitely not true now. Why not? Well first of all everybody body but everybody wants energy independence. The most popular means to that is byo fracking oi/gas. The Chinese have lots of shale gas deposits—some of the largest in the world. Even europe has shale gas deposits though they likely won’t use them. But you can bet the chinese are going to quick studies of fracking. The USA is already headed for oil independence in 3-5 years. The demand for oil is so strong and other oil fields are being depleted so rapidly that other oil producers around the world won’t care about rising US oil production. Its going to take another 5 years before enormous shale oil/gas reserves in other parts of the world come onstream in volume.
What will kill the cost of energy is something entirely different. It will be demand side collapse. But we won’t see it even begin for another half dozen years. It will come three ways. First natural gas will substitute for oil in trucks and buses. The infrastructure to support these vehicles has been completed. Growth in sales of natural gas trucks and buses in the USA is running about 30% @ year. Second, electric cars. Coming off a low base electric car sales have increased five fold in the last two years. Because they come off such low base growth rates will be high from now till 2020—while their share of total auto sales will remain minisule. Nevertheless, tesla alone expects to sell 500k vehicles in 2020. About 2020 natural gas trucks and buses and electric cars will slow down the demand growth for oil. But it will still be another 10 years before they stop it and turn down demand. Which will have the effect of dropping oil prices.
The killer is further off the wings. There are about 10 countries around the world gearing up for a very public competition to be the first to have a prototype thorium lftr reactor—one that can also burn waste uranium.
The thing about these reactors is that they will cut the cost of electricity to anywhere from 1/2-1/10 current cheapest coal/natural gas.
that’s what will bring the hammer down on oil—because then the move to electric cars becomes a stampede. But that’s still another 15 years away.
It doesn’t work like that. At lower prices more people can afford energy. There is huge and growing pent up demand for energy in the developing world that can absorb big supply increases, acting as a break on price drops. Furthermore, price drops make some energy unprofitable to develop, which works to slow the expansion of supply. The market is more stable than many realize.
Big drops in energy prices are bad for the bank accounts of the people run the USA too. That’s the most pertinent fact if you are trying to make predictions about what will happen.
AMEN!
It doesn’t work like that. At lower prices more people can afford energy. There is huge and growing pent up demand for energy in the developing world that can absorb big supply increases, acting as a break on price drops. Furthermore, price drops make some energy unprofitable to develop, which works to slow the expansion of supply. The market is more stable than many realize.
Big drops in energy prices are bad for the bank accounts of the people run the USA too. That’s the most pertinent fact if you are trying to make predictions about what will happen.
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Agree but the demand for energy in the 21st century will be several orders of magnitude higher than the demand for energy in 20th century. just as the demand for energy in the 20th century was several orders of magnitude higher than the demand for energy in the 19th century.
Even current oil/gas/coal deposits will not be able to meet the demand in a couple decades without even higher prices.
This leaves the current structure of energy supplies vulnerable to lower cost much higher volume energies.
That’s why there is a huge —about go very public —race for the first country/company to develop the first lftr thorium reactor. (actually a couple prototypes were done in the late 60’s.) why? because the thorium reactors promise the sort of higher order of magnitude and lower cost and safer cleaner energy that will be needed to meet energy supplies demands.
its that high order magnitude energy demand that has countries like china so freaked out about energy supplies for the future. they figure out how much energy taiwan needs per person and then multiply that by the number of people on the mainland china and come up with a gargantuan energy demand,
that’s why when they read articles about thorium reactors three years ago they immediately sent a delegation over to pick up the latest plans. That’s why recently they moved up the date of their first prototype to 10 years hence. that’s also why one of their chief archetects for their thorium venture was quoted in the newspaper as saying that
Professor Li, director of the project’s molten salt chemistry and engineering technology division, said the smog crisis had provided huge impetus for their research.
“The problem of coal has become clear. If the average energy consumption per person doubles, this country will be choked to death by polluted air,” he said. “Nuclear power provides the only solution for massive coal replacement and thorium carries much hope.”
Researchers working on the project said they were under unprecedented “war-like” pressure to succeed and some of the technical challenges they faced were difficult, if not impossible to solve in such a short period.”
“This is definitely a race,” said Li. China “faces fierce competition from overseas and to get there first will not be an easy task”, he said.
It’s virtually inevitable. We have a tremendous over supply of natural gas and the liquids produced at the same time; butane, propane, ethane, and pentane. It’s only a matter of time before we flood the market.
The other factor being ignored is we used to import 25% of the world’s oil. No more! The oil produced along with the natural gas is moving us towards energy independence. That 25% left in the market has to be a drag on pricing. You only have to look at Venezuela to get a preview of what’s going to happen to other countries that rely on oil and/or gas to play a major role in financing government operations.
We’re on a roll. If Obama gets out of the way, it will happen faster. Even with his obstructions it will happen, just slower.
In the future Putin will be Kaputin.
You underestimate the power of Socialism.
You’re under estimating the power of greed.
Socialism is like rust. It never stops destroying.
True.
And you're forgetting that Socialists are the most greedy of all.
Greed in the pursuit of power. Interesting!
According to leftists, capitalists are greedy because they take profit from supplying a service or goods to another without coercion.
Additionally, Socialists are caring for taking wealth by coercion from anyone who has accumulated it, if those Socialists deliver some small amount of that wealth to persons that have not accumulated wealth for whatever reason.
Those that vote for capitalists are selfish and greedy, and those that vote for Socialist promises of free [fill in blank] for all, are noble and selfless.
In actuality, the professionally self entitled are the greedy by a longshot, and the capitalist is a seeker of reward in exchange for making available something of value.
Greed is a Socialist trait and phenomena, much more than capitalist, and must be considered as a Socialist weapon, too, to be safe.
See, I wasn't shining ya on.
I’m wondering about greed for power rather than money. I know those are thought to be interchangeable. That’s not always true. A bureaucrat sitting in a cubicle can rewrite sections of the DOT manual that affects gray areas and result in changes in what is considered a commercial vehicle or block importation of a piece of equipment that’s a negligible source of pollution.
None of them are wealthy from their government salary. You’ve kicked off a train of thought for me.
You make a good point.
Power it's self would be more versatile, but money, used as power, would easily be more covert, now you got me thinking.
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