Economic Blackmail at the Ukraine

Ukrainians are proud of their country–but it takes more than pride to hold a nation together.
[courtesy Google Images]

Criticism

For example, The Washington Examiner reported that:

“House Intelligence Committee Chairman Mike Rogers (R-Mich.) said the naivete of President Obama’s national security advisers about Russian President Vladimir Putin’s  motivations is allowing Russia to outmaneuver the U.S. in the Ukraine and other hot spots around the globe.

“Putin is playing chess and we’re playing marbles.  . . . As you move down the list in Syria and the Ukraine and other areas,” he said, “they’ve been running circles around us.”

I agree that Putin is playing chess.  But Obama is not playing “marbles” so much as playing without all of his “marbles”.

Why?  Because the US government is broke.  Between an exhausted treasury, an exhausted access to credit and an exhausted military, there’s virtually no way we can make a serious (military) attempt to prevent a Russian takeover of the Crimea.

Talk is cheap and that’s all Obama will offer the Ukraine, because that’s about all he’s got.  Obama will allow Russia to annex the Crimea because he doesn’t have the resources to do much else.

Hyperbole

Dave Hodges (the Common Sense Show) published, “Putin Has Occupied Crimea, Is Ukraine & World War III Next?”   According to Dave,

“Obama is famous for drawing imaginary red lines in the sand and then not acting. He warned Russia about their involvement in the Syrian conflict in which hundreds of thousands have died. He warned Russia against assisting Iran with its nuclear program.

“Putin has ignored Obama at every turn and holds him in absolute contempt.

“The unfolding war in Ukraine is just another case in point. Obama does not have the intestinal fortitude to stand up to Putin.”

It’s arguable that Obama’s predilection for drawing “red lines” in the Middle-East’s “sand”—and then not enforce those lines—has emboldened Russia to annex the Crimea.   You can only bluff so many times before the other players start to call your hand.

In any case, Obama’s problem isn’t necessarily a lack of intestinal fortitude.  The problem, again, is that the US is broke and no one will lend the government enough money to keep playing Global Policeman.

Result?  Our national government can’t afford to resist Russia in the Crimean sandbox.  Therefore, Obama will settle for wringing his hands and offering little more than rhetoric to stop Russian tanks.

As for the Ukraine causing WWIII, I can’t see how.

Yes, events could suddenly get out of control and allow a global catastrophe.  But, if we can’t afford to put boots on the ground to fight in the Crimea, how can we be expected to escalate up into WWIII?

More, to understand the Ukraine’s limited potential to trigger WWIII, consider some demographics provided by Wikipedia:

“Ukraine has been losing population since the 1990s because of its high death rate and a low birth rate. The population is shrinking by over 150,000 a year. The birth rate has recovered in recent years from a low level around 2000, and is now comparable to the European average. [But] It would need to increase by another 50% or so to stabilize the population and offset the high mortality rate.

“In 2007, the country’s population was declining at the fourth fastest rate in the world.

“Life expectancy is falling. The nation suffers a high mortality from environmental pollution, poor diets, widespread smoking, extensive alcoholism and deteriorating medical care.”

Ukrainian tragedy
[courtesy Google Images]

Does anyone believe that the rest of the world will agree to a third world war to defend a nation that’s so disabled, that it is will probably die of its own accord within another decade or two?

I don’t.

It could be argued that Russia is simply beginning to scavenge on the carcass of a dead (or nearly dead) nation.

What we’re seeing in the Ukraine may be morally wrong, but nevertheless, in some regards, as “natural” as the sight of dozens of lions, hyenas and vultures feeding on the carcass of a dead water buffalo.  How or why the buffalo died may be interesting information, but it’s largely irrelevant.  The fact is that the buffalo is dead, and the rest of the predators and scavengers will now feed on its corpse.

No one, not even other water buffalo, will attack the predators and scavengers for feeding on the buffalo’s corpse.

Similarly, although there could be some scuffles among the predators and scavengers to see who gets the biggest chunk of the corpse, no one will go to WWIII to protect the dying nation of Ukraine.

Black Humor

If there are no actual battles over the Ukraine, there will be rhetoric—and, despite the Ukraine’s grim prospects, some of that rhetoric may be darkly hilarious.

For example, the Associated Press reports in “US Announces Visa Restrictions on Russians,” that,

“The Obama administration slapped new visa restrictions on pro-Russian opponents of the new Ukraine government and cleared the way for financial sanctions as the West began punishing Moscow for its occupation of Ukraine’s Crimea region.

“The new visa restrictions targeted an unspecified and unidentified number of people and entities that the Obama administration accused of threatening Ukraine’s sovereignty and territorial borders.”

Thus, Obama is threatening to impose visa restrictions on an unspecified number of Ukrainians!

But, aren’t the Ukrainians the ones who’ve been invaded?  Aren’t the Russians are the ones who invaded?   So why is the US going to punish some of the Ukrainian people who support the Russian takeover by restricting their visas to enter the US?!

OMG! OMG!  Do you have any idea of how many pro-Russian Ukrainians are likely to seek visas to enter the US each year?  Why, . . . why, . . . it could be . . . dozens!  Suspending their visas could be tantamount to going to DefCon 4!

Git tuff, Barack!  Git tuff!

We’ll show the Russians who’s boss!  We’ll just suspend a couple dozen Ukrainian visas and thereby bring Putin to his knees!

“The anticipated financial sanctions will penalize “those who are most directly involved in destabilizing Ukraine, including the military intervention in Crimea, and does not preclude further steps should the situation deteriorate,” the White House said in a statement.”

Q:  Y’know what “anticipated financial sanctions” are?

A:  Those are sanctions that we haven’t yet imposed but, by golly, we sure might . . . one of these days.  (Of course, if the Ukraine ceases to exist in the meantime, well, maybe we won’t impose any sanctions after all.)

Q:  Y’know who the “anticipated financial sanctions” will be imposed against?

A:  They be imposed against those Ukrainians of Russian ancestry who were “most directly involved in destabilizing Ukraine.”  But those sanctions will not be imposed against Russia, itself.

Q:  Y’know what “further steps” means, doncha?

A:  It means that in addition to cutting off some Ukrainians’ visas, we might even cut off their internet access to NetFlix and, maybe, . . . maybe, . . . I mean if things go really, really bad, we may even suspend their Twitter accounts!

Yes—even their Twitter accounts! 

But we’ll do almost nothing against Russia, itself.

Indeed, the Obama administration rhetoric suggests that it no longer has the muscle to get really, really tough in conflicts like that in the Ukraine.

Obama’s lame reactions suggest that the US may be too broke to bomb.

Economic Blackmail  

Initially, the Obama administration threatened to hit Russia with economic sanctions for moving troops into Crimea.  Russian officials promised to retaliate against the US economy.  One top Kremlin adviser suggested that Russia could abandon the U.S. dollar in international trade, stop Russian companies from repaying debts owed to U.S. banks, dump U.S. debt and encourage other nations to do the same.

The fiat dollar is no longer backed by gold or silver.  It’s no longer exclusively backed by petroleum as the world’s only “petro-dollar”.

The last two pillars of support for the fiat dollar’s perceived value have been: 1) our overwhelming military power and willingness to subject any oil-producing nation to a dose of “shock and awe” if they dared sell their crude for anything other than “petro-dollars”; and 2) the dollar’s status as world reserve currency.

However, given the costs associated with the Iraq and Afghanistan wars, US military power is badly depleted and the US gov-co can no longer afford to invade foreign nations.   We can still bomb ‘em, but we can’t put boots on the ground.  

That means the perceived value of the dollar can no longer be adequately supported by US military power.

That leaves the dollar’s value resting almost entirely on its remaining role as World Reserve Currency.  That role is already diminishing and sure to fall within the next decade.   However, that role is fragile and, with the right push, might collapse suddenly, unexpectedly and soon.

Knowing the US lacks the military resources to invade another country, the Russians had only to expressly threaten the fiat dollar’s remaining status as World Reserve Currency as retaliation for US economic sanctions.

Result of that Russian threat?  The US blinked while it rethought its strategy of economic reprisals against Russia and decided to suspend a handful of Ukrainians’ visas.

•  The US tried to recruit Europe to help impose economic sanctions on Russia, but Russia is Europe’s largest supplier of energy.  (About 25% of Europe’s natural gas comes from Russia.)  If the gas supply is shut off due to economic retaliations, the European energy supply will be disrupted and the already fragile European economy might slide closer to depression.

That means Europe will not participate in meaningful economic sanctions against Russia.

And that means, that the US alone will be called on to make, or not make, economic sanctions against Russia.

And that means that Russia can focus all of its defensive reactions on only the US.

Russia knows that the perceived value of the US fiat dollar depends on being able to retain its status as “world reserve currency”.  Russia knows that the US dollar is already losing that status and therefore losing value.  Russia knows that the US government should be terrified by the possibility of the dollar losing its status as the World Reserve Currency since that loss might push the US into an economic depression.

Therefore, Russia knows that it can “bully” the US government by merely threatening to further reduce the dollar’s status as World Reserve Currency and encourage other nations to do the same.

More, Russia’s express threats will encourage other nations to make similar threats in future crises.  If that happens, the US gov-co may be again unable to respond with anything other than rhetoric and increased inflation of the fiat dollar. 

Things to Come

All of this only serves to confirm that the fiat dollar’s days are numbered.  As World Reserve Currency, the US dollar and US government were able to exert enormous influence over the world.  As the US dollar loses its status as World Reserve Currency, the world will be able exert enormous influence over the US government.

By linking ourselves to the world with the dollar as World Reserve Currency, we’ve also linked the world to us.  The same avenue of monetary power that allowed the US gov-co to exploit the world for at least 30 years, now allows the world to exploit us.

What goes around, comes around, hmm?

As a practical matter, the fiat dollar’s status as World Reserve Currency is still a great asset, but it’s also beginning to become a liability.  We’re beginning to face the threat of a “death by a thousand cuts” as one nation after another threatens to destroy part of whatever remains of the dollar’s status as World Reserve Currency by simply conducting its economic trade in a currency other than dollars.

The US gov-co can increasingly be bullied by the world.

We won’t give up the World Reserve Currency status.  But if we don’t separate the dollar from that status, we’ll remain vulnerable to economic blackmail by other nations like Russia and China.  A voluntary abandonment of the World Reserve Currency status won’t happen soon because, for now, that status does more good than harm.

But I’ll predict that the day is coming when the economic blackmail costs incurred in order to retain the World Reserve Currency status will begin to equal whatever economic advantages might flow from that status.  At that point, the US will kiss the World Reserve Currency status goodbye, and a new global reserve currency will emerge.

In the meantime, there’s no way out of this predicament.  Insofar as the US tries to retain the World Reserve Currency status, we’ll be subject to bullying by foreign powers.  If we abandon the World Reserve Currency status, the dollar will hyper-inflate, become worthless, and the US economy will collapse.

We are darned if we do and darned if we don’t.

While we dither about, begging for someone to please, please, please respect the dollar’s perceived value and status as World Reserve Currency, it’s certain that the Ukrainian confrontation and the Russians’ express threat to trash the dollar have pushed the fiat dollar closer to its demise.

Whether the Russian threat actually damages the dollar is almost irrelevant.  The fact that Russia merely made that threat—and the US backed off—is evidence of how fragile the dollar is and how compliant the US can be.  The rest of the world will see that evidence, and use the same leverage of threatening to trash the fiat dollar to humble the US government.

At some point in the future, the American people are going to get screwed by this “currency war”.  Those holding US dollars will inevitably lose some or all of their assets.

I can’t say that, “The end is near” for the fiat dollar.  But I can say that, thanks to US cowardice in the Ukraine, “The dollar’s end is nearer.”

The US can no longer afford to play “currency war”.

Got gold?