Russo-Ukrainian war: Strategic and economic theatres

[Officer of Engineers]

So, what are those ramifications that you mention?
Please be specific, because we're looking at uncharted territory here, if that actually happens.

Well, in context, for one, Russia will not go broke anytime soon fighting this war.

[Gun Grape]

Sanctions. What sanctions?

[rj1]

So, what are those ramifications that you mention?
Please be specific, because we're looking at uncharted territory here, if that actually happens.

It's a hard to understand problem. There was actually an article about this today at FT Alphaville.

Dollar :-( | Financial Times (ft.com)

We tend to be sceptical of “RIP DOLLAR!!!” chatter, as the US currency enjoys the mother of all network effects.

But Stephen Jen’s latest note raises some interesting points. Jen is a very well-known currency analyst. At Morgan Stanley, he famously coined the “dollar smile” theory, which posits that the US currency tends to do well when the economy is humming or heaving. He now runs money at Eurizon SLJ, and occasionally still publishes fascinating research on the world of FX.

His latest briefing note argues that the US dollar has “suffered a stunning collapse” as a reserve currency, which has seemingly quickened after Washington’s decision to wield its control over the dollar-based international financial system against Russia. Jen estimates that if you adjust for price changes the dollar’s share of official global reserve currencies has gone from about 73 per cent in 2001 to around 55 per cent in 2021.

Then, last year, it fell to 47 per cent of total global reserves. FT Alphaville’s emphasis below:

The USD is losing its market share as a reserve currency at a much faster rate than is commonly believed. After steady declines in its global market share for the past two decades, in 2022 the dollar lost market share at a pace 10 times as rapidly. Analysts have failed to detect this big change because they calculate the nominal value of the world’s central banks’ dollar holdings without considering the changes in the price of the dollar. Adjusting for these price changes, the dollar, we calculate, has lost some 11 percent of its market share since 2016 and double that amount since 2008.

This erosion in the USD’s reserve currency status has accelerated precipitously since the start of the war in Ukraine. Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries, most of which are from the Global South.

. . . Without the need for us to take sides in this debate on Ukraine, it seems reasonable to speculate that the main driver of the collapse in USD’s reserve status in 2022 may have reflected a panicked reaction to property rights being jeopardised. What we witnessed in 2022 was sort of a ‘defund-the-global-police’ moment, whereby many reserve managers in the world disagreed with the conduct of both Russia and the US.

The article goes on to state that the main beneficiaries of the moves the past year are the yen and euro (and guesses this was part of the reason for Macron's diplomatic gambit in China) as well as what I talk about starting next paragraph. The yuan has been steadily increasing over time as well but the article asks the question "if you get out of the dollar, do you really trust Beijing to follow the rules?" I'll touch on the euro because it's the most credible alternative to the dollar, the yen and Japan has issues.

Going back to when Jean-Claude Trichet was ECB President, I firmly believe the Europeans' goal was to replace the dollar for reserve currency status which meant the euro and therefore Europe as a cohesive unit can restore their position to what it was prior to 1945 and become the center of the world. What reserve currency means is really 2 things. The first is what's mentioned above and is the weaker of the 2 things. The second more important thing is the basis of international trade, or how does a company in South Africa sell items to a company in Mexico. It's all done by what are called eurodollars which is this massively huge market that operates off time deposits. It's hard to estimate because the Federal Reserve is only in control of the dollar market inside the U.S., i.e. the eurodollar market is completely unregulated, but $20 trillion is probably close. So far per the Bank of International Settlements (BIS, the central bank for central banks) in the article, the eurodollar is still running high of 85% of international trade.

Eurodollar - Wikipedia

If these companies en masse decide they don't want or no longer need dollars to conduct transactions, the demand for dollars will decline. Even just talking scale, a 10% decline of $20 trillion is still huge and those dollars generated still exist. That means the dollars will all glut back here, fueling further inflation that no amount of money destruction could overcome. The effects would feed into U.S. Treasurys, meaning higher yields increasing the debt burden on the country when at present our "paying the interest on existing debt obligations" has now reached above $800 billion annually. The other alternative to not worry about selling high-yielding Treasury debt is you have a balanced federal budget, but I'll laugh when the Democrats and Republicans do that. Democrats don't believe in responsible fiscal management and with Trump the Republicans as a whole abandoned even the philosophical argument entirely. We've now reached the point where Social Security running out of funds and "what happens then?" instead of being some abstract far away year looks like it could happen in either the next presidential term or the one after. The federal government a month ago just said they were insuring every single deposit in a bank from loss.

If this dollar international decline actually occurred, it would be a Britain and France Suez Crisis-level reckoning for this country and a broad decrease in the standard of living whether you're rich or poor. Our country's politicians have long acted like they could buy for whatever and they don't have to be concerned with fiscal matters. No one cares about the "how" on stuff gets paid for. It's just assumed it will be because there's infinite money. If they get told "no, here's our limit", there's certain sets of people in both parties that will start throwing fits. And it will affect everything. That includes defense.

[DOR]

It's a hard to understand problem. There was actually an article about this today at FT Alphaville.

Dollar :-( | Financial Times (ft.com)



The article goes on to state that the main beneficiaries of the moves the past year are the yen and euro (and guesses this was part of the reason for Macron's diplomatic gambit in China) as well as what I talk about starting next paragraph. The yuan has been steadily increasing over time as well but the article asks the question "if you get out of the dollar, do you really trust Beijing to follow the rules?" I'll touch on the euro because it's the most credible alternative to the dollar, the yen and Japan has issues.

Going back to when Jean-Claude Trichet was ECB President, I firmly believe the Europeans' goal was to replace the dollar for reserve currency status which meant the euro and therefore Europe as a cohesive unit can restore their position to what it was prior to 1945 and become the center of the world. What reserve currency means is really 2 things. The first is what's mentioned above and is the weaker of the 2 things. The second more important thing is the basis of international trade, or how does a company in South Africa sell items to a company in Mexico. It's all done by what are called eurodollars which is this massively huge market that operates off time deposits. It's hard to estimate because the Federal Reserve is only in control of the dollar market inside the U.S., i.e. the eurodollar market is completely unregulated, but $20 trillion is probably close. So far per the Bank of International Settlements (BIS, the central bank for central banks) in the article, the eurodollar is still running high of 85% of international trade.

Eurodollar - Wikipedia

If these companies en masse decide they don't want or no longer need dollars to conduct transactions, the demand for dollars will decline. Even just talking scale, a 10% decline of $20 trillion is still huge and those dollars generated still exist. That means the dollars will all glut back here, fueling further inflation that no amount of money destruction could overcome. The effects would feed into U.S. Treasurys, meaning higher yields increasing the debt burden on the country when at present our "paying the interest on existing debt obligations" has now reached above $800 billion annually. The other alternative to not worry about selling high-yielding Treasury debt is you have a balanced federal budget, but I'll laugh when the Democrats and Republicans do that. Democrats don't believe in responsible fiscal management and with Trump the Republicans as a whole abandoned even the philosophical argument entirely. We've now reached the point where Social Security running out of funds and "what happens then?" instead of being some abstract far away year looks like it could happen in either the next presidential term or the one after. The federal government a month ago just said they were insuring every single deposit in a bank from loss.

If this dollar international decline actually occurred, it would be a Britain and France Suez Crisis-level reckoning for this country and a broad decrease in the standard of living whether you're rich or poor. Our country's politicians have long acted like they could buy for whatever and they don't have to be concerned with fiscal matters. No one cares about the "how" on stuff gets paid for. It's just assumed it will be because there's infinite money. If they get told "no, here's our limit", there's certain sets of people in both parties that will start throwing fits. And it will affect everything. That includes defense.

Reserve currencies are favored because they retain value (via-a-vs a developing economy's own currency), are very easy to exchange for other currencies or commodities, and easily transfer among financial institutions.

The dollar ticks all the boxes (The one recent and pretty minor exception, arising from US sanctions, is the last point: ease of acceptance.) as does the euro, yen, and British pound. Canadian, Australian, New Zealand, Singaporean, et al units generally are swapped into US$ before being changed into other things (money or commodities). Russian rubles and Chinese yuan don't tick any boxes, and are really only useful for trade with their own country. Sort of like the Thai Baht being useful in Cambodia or Burma: better than nothing, but that's about it.

The market share of dollars among the world's forex reserves is a curious measure. It does tell us something about the utility of other currencies, but not that much about the US dollar itself. We can conclude that the world's emerging markets are getting more comfortable with euros, yen, and pounds, but that's about it. The volume of Ruble / Yuan is not significant on a global scale.

Key issues:

“If these companies en masse decide ...” Ain't likely to happen. Companies don't decide things en masse; herds do.

“That means the dollars will all glut back here ...” Says who? Latin American drug lords? Russian mafia? South-east Asian corrupt politicians?
Banks in America have a saying that goes “Nice stack of cash you've got there. Where'd you get it? Got a paper trail on that? No? Aw, what a shame.”

“The effects would feed into U.S. Treasurys, meaning higher yields increasing the debt burden on the country when at present our "paying the interest on existing debt obligations" has now reached above $800 billion annually.”

$800 billion in annual federal interest payments ... 3.3% of GDP, a high since … 2001, 22 years ago.
In the 23 years prior to 2001, the average interest payment to GDP ratio was 4.4%, half again as high.
Keep it in perspective.

The interest rate data's here: <https://apps.bea.gov/iTable/?reqid=1...3QiLCI4NyJdXX0=>
You can use that data to examine why you still hold to the myth that it's the Democrats that don't believe in fiscal responsibility.
Or, you can pull your head out of the sand and recognize reality..

But, back to that statement about all those dollars flooding back into the US and feeding into Treasuries. How does that massive, $2 trillion, increase in demand for T-bills drive up yields? And, even if every single dollar was already in T-bills, and the customer demanded repayment, exactly how would that exchange of debt for cash work?

Social Security? Read the latest report: https://www.ssa.gov/policy/trust-funds-summary.html

[Amled]

https://www.windpowermonthly.com/art...sabotage-fears

Russia “Touring” Baltic/North Sea Wind Farms!
The Russian ship caught on camera has spent the last few weeks touring the Wind Farms of countries along the North Sea and the Baltic.
Countries as far apart as Finland and Great Britain; any country with large Wind Farms received a visit!
Maybe it ties in with the rash of “mysterious” underwater and aerial incursions, which occurred in and around North Sea oil/gas installations last summer!
Russian incursions here in Scandinavia has been going on for decades; air, sea, nothing new, but it does seem that the objects of their focus has changed.

[TopHatter]

Putin is cannibalizing Russia's economy as war in Ukraine derails financial order, Yale researchers say


Russia's President Vladimir Putin speaks at the victory ceremony at an Annual International Vladivostok Jigoro Kano Cadet Judo Tournament at Fetisov Arena, on Day 2 of the 2018 Eastern Economic Forum

• Putin has begun a "merciless cannibalization" of Russia's economy, two Yale academics said.
• Researchers pointed to the chaos unfolding in Russia as Putin tries to cover the nation's growing budget deficit.
• Russia's show of economic strength is a "facade," the researchers said.

Vladimir Putin is ruining his nation's economy, as the Russian president is derails the financial order in his quest to conquer Ukraine, according to two Yale researchers.

In a recent op-ed for TIME, Jeffrey Sonnenfeld and Steven Tian, two academics from the Yale Chief Executive Leadership Institute, pointed to the economic chaos unfolding in Russia as the war in Ukraine drags on.

Though some estimates show that Russia is spending surprisingly little on its "special military operation," official statistics show that the nation has racked up around a $40 billion budget deficit so far this year, thanks to increased military spending and falling revenue as western sanctions bite into key sectors of its economy.

"Far from the prevailing narrative on how Putin funds his invasion, Putin's financial lifeline has his merciless cannibalization of Russian economic productivity," Sonnenfeld and Tian said. "He has been burning the living room furniture to fuel his battles in Ukraine, but that is now starting to backfire amidst a deafening silence and dearth of public support."

Putin, for his part, has tried to shore up more money as the war effort continues, but has done so in ways that have largely ignored Russia's fiscal responsibilities, the researchers said. That includes measures like printing record volumes of Russia's ruble "out of thin air," forcing institutions to buy "near-worthless" Russian debt assets, hefty windfall taxes on "basically anything that moves," and taking billions out from Russia's sovereign wealth fund to square the nation's finances.

Those measures have contributed to the flight of millionaires and everyday workers, who have left the country to look for better opportunities, significantly hurting the nation's output and productivity. And though Putin has made a show of Russia's economic strength, his actions have only bought Russia more time, researchers warned.

"That resilience is nothing but a Potemkin façade, sustained not through genuine economic productivity but rather through shaking down the entire country for pennies to direct towards war," Sonnenfeld and Tian said. "Putin can continue to sustain his invasion of Ukraine this way, but in doing so, continues to rip off his own people. In avoiding outright economic collapse by mortgaging Russia's future, he grows more unloved by his people and is thus increasingly weakened.

Sonnenfeld and Tian have been critical of the state of Russia's economy, despite Putin's attempts to assure the public that Russia is doing just fine. Unpublished statistics from the Kremlin are likely to show a weaker picture of Russia's economy than the government has led on, Sonnenfeld and Tian said, who previously argued that Russia's economic figures were merely "cherry-picked" and that its economy was actually imploding.

"Amidst such undisguised plundering of the Russian economy, stripping it down for war toys, it is perhaps no surprise that Prigozhin's failed putsch this past weekend revealed no lost love for Putin domestically from the Russian populace and elites," the researchers said.
______

I was going to make a Potemkin village remark but they already covered that, so let me just say “Fallaces sunt rerum species”

[Albany Rifles]

Nothing to see...just move along!

[TopHatter]

Russia's economy dealt a crushing blow as its current-account surplus collapses by 93%

• Russia's current-account balance has collapsed, marking another blow to the floundering economy.
• Surplus tanked 93% to $5.4 billion last quarter from a year before, according to the Bank of Russia.
• That comes as Western sanctions continue to squeeze Russia's oil and gas exports.

Russia's economic woes are worsening, with the latest blow coming from a collapse in its current account.

The nation posted a current-account surplus of $5.4 billion for the April-June quarter, which marks a 93% plunge from a record $76.7 billion in the same period last year, Bank of Russia data shows. That's also the smallest excess since the third quarter of 2020.

It shows the heavy blow that Western economic sanctions — imposed on the Kremlin in response to its war on Ukraine — have dealt to the country's economy by squeezing its energy exports.

The worsening trade dynamics are also reflected in the plunging fortunes of the ruble. The Russian currency tumbled to a 15-month low of about 94.48 for each dollar earlier in July, hit hard by the country's weakening terms of trade.

"The decline in the surplus of the balance of the external trade in goods in January — June 2023 compared to the comparable period of 2022 was caused by a decrease in both the physical volumes of export deliveries and the deterioration in the price situation for the basic Russian export commodities, energy commodities made the most significant contribution to the decline in the value of exports," the Bank of Russia said.

Moscow's key source of revenue is through sales of its oil and gas products, but price caps and bans imposed on Russia's energy exports following its unprecedented attack on Ukraine have dealt a huge hit to its commodities business.

In June, Russia's Finance Ministry said that revenue from oil and gas taxes fell 36% compared to a year ago to about 570.7 billion rubles and that profits from crude and petroleum products tumbled 31% to 425.7 billion rubles.

Market commentators have weighed in on Russia's battered economy, with Yale researchers accusing President Vladimir Putin of cannibalizing the nation's economy in his mission to seize Ukraine.
_____

Makes me wonder what the real figures are....

[Monash]

Makes me wonder what the real figures are....

Real or not given how low the current account surplus is now 'officially' with ongoing sanctions and the costs of prosecuting the war next quarters figures are going to see Russia's CA in a deep hole.

[TopHatter]

Real or not given how low the current account surplus is now 'officially' with ongoing sanctions and the costs of prosecuting the war next quarters figures are going to see Russia's CA figures in a deep hole.

Yeah if they're officially quoting such low numbers....

[Amled]

https://www.themoscowtimes.com/2023/...reports-a81886

Kremlin Loyalists Handed Seized Carlsberg, Danone Assets…

Piracy is usually characterized as the illegal seizure of someone else’s property or the transport means, used to move said property.
Russia?
Russia has decided to cut out the middlemen in such arrangements!
They’ve decided to its much more profitable to simply steal entire companies!!!

[Albany Rifles]

https://www.themoscowtimes.com/2023/...reports-a81886



Piracy is usually characterized as the illegal seizure of someone else’s property or the transport means, used to move said property.
Russia?
Russia has decided to cut out the middlemen in such arrangements!
They’ve decided to its much more profitable to simply steal entire companies!!!

One man's stolen company is another man's nationalized company. Not sure of your age but this was a quite common practice in the 3rd World once they won liberation from UK/FRA/BEL/SP in the 1960s.

[Amled]

One man's stolen company is another man's nationalized company. Not sure of your age but this was a quite common practice in the 3rd World once they won liberation from UK/FRA/BEL/SP in the 1960s.

Oh Yahh, being 77, I do recall how, especially in the 60’s, there was a spate of “nationalizations” across the globe.
Many times by populists leaders, using any temporary wealth gained, to buy their power base amongst the previous disenfranchised.
In Russia…
Putin has decided to jump over the pesky detail of “nationalizations”, and go straight to confiscation!
Like the populist leaders of yore, he shares out the loot gained. Though as an autocratic kleptocrat, the loot this time goes to those nearest to him.
They probably needed some sweetening, after these last couple of months.
There’s one thing wrong with existing on the necessity of; robbing Peter to pay Paul! What are you going to do when Peter is tapped out?

[Albany Rifles]

Yeah...wasn't sure of your age. Not excusing what Russia is doing but we have seen it before. And I have zero pity for them as there has been plenty of warning

[S2]

So...earlier today I stumbled on this-

Russia's Medvedev: We'd Have To Use A Nuclear Weapon If Ukraine's Offensive Was A Success- Reuters 7/30/23

Even earlier today, however, I stumbled on THIS-

Escalation Management In Ukraine: "Learning By Doing" In Response To the "Threat That Leaves Something To Chance"- The Scholar Volume 6 Issue 3 Summer 2023 29-50 Janice Gross Stein

Beautifully written and researched and a perfect counter-point to that neanderthal orc, Medvedev. We'd best not take counsel of our fears and be certain, this time, that our message is clearly sent and received.