Putin Appears Prepared to Further Decimate Russia’s Economy
Some analysts warn Putin may be preparing coordinated invasions with China. Russia planning invasion of Ukraine; while China invades Taiwan simultaneously could set off a third world war.
President Biden’s imposition of new sanctions has Russian President Vladimir Putin’s panties in a bunch and him reciprocating with sanctions that don’t add up to a hill of beans. Putin’s telling the Russian people he intends to speed up his drive to make Russia’s economy more self-sufficient is as realistic as his claim he never interfered in the 2016 and 2020 U.S. elections.
Since the Obama Administration sanctioned Russia for its annexation of Crimea, Putin’s government and central bank have stripped back the country’s exposure to dollars, shifted assets out of the U.S., and sold a smaller share of its debt to foreigners.
Elina Ribakova, the deputy chief economist at the Institute of International Finance in Washington, was quoted by Bloomberg as sating
“The Americans are saying: be careful, or we could do more, but Russia is just going to continue down the path toward economic autarky,”
The administration of U.S. President Joe Biden is imposing sweeping penalties and sanctions and is prepared to ratchet them up if Russia and its autocratic leader Putin continue its belligerence.
For example, the Biden Administration warned of “consequences” if jailed opposition activist Alexey Navalny dies in prison. Word is from his followers and friends that doctors say he could pass away at any moment.
Russia’s gold reserves jumped to $581 billion above its dollar reserves for the first time on record last year following a multi-year drive to reduce exposure to U.S. assets. In fact, Russia’s gold reserves made up 24% of the central bank’s stockpile as of the end of September 2020, the latest date for which the breakdown is available. The share of dollar assets had fallen to 22%, which’s down from more than 40% in 2018.
In fact, the latest inventory of Russia’s international U.S. dollar reserves has plummeted to fewer than 7%. By the end of this past September, down from about 30% before the Crimea annexation. Most of the shift happened in the second quarter of 2018, just after sanctions on aluminum giant United Co. Rusal revealed how vulnerable Russia was to sanctions.
U.S. and western economists warn that the apparent Russian resilience to successive waves of sanctions provides by the United States has only bolstered the Russian dictator’s false sense of security. It has served to make it less cooperative with the U.S. running out of mid-level options; the next round of sanctions could be more disruptive than those already imposed, holding back trade and investment in Russian by the U.S. and other western democracies.
Russia may fast approaching a position where it cuts itself off from the world economy entirely. For that reason, officials in Washington D.C. are trying to restrain and hold back the sanctions it imposes. Many White House advisors worry if they go too far (as they did with the Rusal sanctions that were later revoked), they risk igniting a panic in the global markets. Stoking fears that since Putin would have nothing to lose, a coordinated invasion by China and Russia of Taiwan and Ukraine could thrust the United States and its allies into a third world war.
Cutting back on the use of the U.S. Dollar in trade with India, China and the European Union, the euro has almost overtaken the dollar in Russia’s trade with even the EU. Russian exports to China have exploded, and approximately two-thirds of Russia’s exports are heading to India.
According to Bloomberg, last week’s sanctions imposed by the United States against Russia included a ban on purchases of its bonds on the primary market, so the next big target could be the secondary market. The sanction could limit Russian banks’ access to the financial messaging system used for most international money transfers.
Russia is already looking for alternatives to this international money transfer system, known as SWIFT, to make Russia less vulnerable, even though attempts to reduce the impact of the financial sanction imposed by the United States so far haven’t led to much help for Russia. According to Bloomberg…
“One reason the Finance Ministry wasn’t too concerned about the latest sanctions measure on government debt is that Russia has mostly been selling to local banks at its weekly auctions anyway. Borrowing was ramped up during the pandemic even though foreign demand was weak, which increased the overall size of the market and pushed down the share of foreigners.”
Most U.S. banks will still be able to buy new Russian debt on the secondary market after the penalties come into force in mid-June.
“Russia is “well-positioned” for a near-term market disruption because it has a high cash buffer and demand from local banks is “robust,” Fitch Ratings said in a research note published late on Friday. However, an invasion of Ukraine, much less a simultaneous invasion by Russia of the eastern European country and Chinese invasion, could not only start a third world war but also crash the world’s financial system. The growing possibility of a conventional world war III should now be considered by investors, a possibility not to be ignored.
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