Far-fetched scenario: a stronger, post-apocalypse Russia?
This is just a rag-tag scenario that I’m putting up here so that others may poke holes in it, leading to better understanding and analysis, not that ZHers need an invitation to destroy uninformed commentary! Not finance or economics related, and definitely not useful right now. Just an attempt to look beyond and try to understand. TD, Marla, apologies if this doesn't quite fit in here.
If the Federal Reserve is unable to prevent severe deflation, the US government will formally repudiate its debt. If the Fed is successful, it will seek to inflate the debt away. Either way the Chinese lose unless they discover a way to unload USD 2tn+ before it happens.
Despite frequent reminders by astute commentators regarding the collective brilliance of the Chinese leadership (thousands of years of wisdom in dealing with recalcitrant superpower debtors is supposed to have been distilled into the current crop), one finds it difficult to believe the Chinese leadership will manage to salvage much value out of the situation they find themselves in.
For one thing, unloading those many USDs would place mad pressure on their own currency, and for a state-dominated economy that relies on exports to maintain employment, that is a very bad thing. So despite their recent attempts at throwing small change at various commodities, they are going to be very cranky when the US looks them in the eye, smiles, and says, ‘Sorry, but I don't think you'll be getting your money back.’
When that happens, whatever remaining confidence remained in the USD disappears and the Fed’s strong dollar policy rings hollow. Though this would, under normal circumstances, serve to boost exports, one wonders how this will happen with a country that doesn't really manufacture anything substantial that others want. Except weapons systems.
It would be in the interests of the United States to, ahem, encourage a global shooting war in order to sell arms, ammunition and weapons systems to everyone including itself. Hey, it worked the last time around, didn't it?
It would also serve the interests of the political leadership to have the people unite against a common enemy, taking the heat off Washington. And what better enemy than the big bad Chinese who just caused the world to lose confidence in the USD (and thus closed the infinite Line of Credit the US had). Not just that, ‘but the big bad Chinese caused the crash in the first place by lending us too much money when they knew we couldn't possibly pay it back.’
This time around the US will be involved in the war from the beginning. This time around the US will not be a manufacturing powerhouse. This time around the US (and China too) will not have easy access to the natural resources (read OIL) required to successfully prosecute a war. And with the Oil producing states getting screwed over alongside the Chinese when the US repudiates its debts, one wonders where the US (and China) will procure the required resources from.
Enter Russia, with substantial energy deposits, a strong military-industrial complex capable to supplying to both sides, and a military strong enough to convince the US to look elsewhere for an enemy.
The Chinese will need to shop hurriedly for
sophisticated weapons systems that they haven't been able to copy yet. Russia to the
rescue again?
Could the next half
century become Russia’s,
if it plays its cards right? Assuming, of course, that nuclear winter doesn't
make Moscow any
colder than it already is?
(7 votes)
on Wed, 08/19/2009 - 03:29
#40809
Alternative: China could sustain its employment by switching to "domestic consumption" mode by "ordering" factories to sell on the domestic market (and to "friendly" countries) all goods at what US Brands consider COGS (which already factor a healthy margin for Chinese companies).
All the rest of the exposed scenario is still possible but the US would be far more isolated...
China would lose its USD reserves but would quickly build up new ones, while increasing domestic consumption, rising living standards and preserving employment.
WDYT?
on Wed, 08/19/2009 - 06:51
#40871
The only issue I have with your thesis (China increasing domestic consumption) is whether the Chinese would consume enough to offset the decline in US consumption. I doubt that will happen. The US has, to be fair to them, worked really really hard for a really really long time at being a excessively leveraged profligate pig. I doubt the Chinese could rise to that level soon.
As for friendly countries, which ones? All the leading consumers are 'western' nations.
on Wed, 08/19/2009 - 08:01
#40910
It is much easier for an export driven economy with plenty of reserves to convert into a consumption driven economy than a consumption driven economy to convert into an export driven one. Much easier to consume your way out than start producing (for a change).
on Wed, 08/19/2009 - 15:59
#41606
Jester the leading consumers are not the western ones
http://www.pimco.com/LeftNav/Featured+Market+Commentary/EMW/2009/Emerging+Markets+in+the+New+Normal+Mewbourne.htm
See chart 2 of the Global Share of Consumption.
China, Non-Japan Asia, and Japan consume 31.2% of global consumption, the US is first of course with 28.3%
on Wed, 08/19/2009 - 03:38
#40813
Alternative: China could sustain its employment by switching to "domestic consumption" mode by "ordering" factories to sell on the domestic market (and to "friendly" countries) all goods at what US Brands consider COGS (which already factor a healthy margin for Chinese companies).
All the rest of the exposed scenario is still possible but the US would be far more isolated...
China would lose its USD reserves but would quickly build up new ones, while increasing domestic consumption, rising living standards and preserving employment.
WDYT?
on Wed, 08/19/2009 - 03:55
#40822
...with regards from Russia :
"a strong military-industrial complex" - author , please , inform yourself about the current situation in the russian defence industry. it's a DISASTER !!!
The MAKS 2009 air show event the latest argument...
on Wed, 08/19/2009 - 04:17
#40833
Are you referring to the collision?
It doesn't take away from the fact that Russia has tremendous experience in designing and manufacturing
I'm sure I've left something out. Unfortunately, I'm at work and don't have the leeway to go into greater detail.
It might not be the best equipment out there, but the amount they can manufacture and field is second only to the US. Volume is the key word I should have put in the article.
on Wed, 08/19/2009 - 15:21
#41555
Yes their SAMs are very good with S300s, the least capable, of that class being set up in Iran right now. Probably good enough to make Israel think twice.
The Iskander medium and short range missiles are very accurate and able to destroy anything that can't hide. The US missile shield in Poland will fall almost instantly to these should the need arrise.
on Wed, 08/19/2009 - 10:29
#41106
:-) Russia lost six planes in its war with Georgia last August, not four as was officially announced, and at least three were downed by "friendly fire", a Russian military journal reported.
http://www.reuters.com/article/europeCrisis/idUSL8262192
But the US military sucked balls leading up to WW2 as well. Not to start the debate as to how/who won the war, but we were producing the vast majority of the world's oil back then. So on the energy point yeah, access to steady oil can be a more significant advantage than the immediate state of one's armed forces.
on Wed, 08/19/2009 - 12:54
#41359
Russian military complex is a disaster. Yes they have had some success over the years but they have had many many BAD days -
1. Losing the their iron curtain properties.
2. Nuclear subs failing to resurface.
3. Never could manufacture decent bombers.
4. The helicopters were looking pretty good until President Reagan threw a couple of stinger missles to the boys in the mountains and "poof"...bye bye ruskies.
5. The best technology they ever came up with was the technology they could steal.
Could go on and on but that is not the point.
Russia has to much land, to much corruption, to many drug users, to many drunks, and a shrinking population. Their mortality rate is as bad as any 3rd world country and they have a number of hostile minorities within their own borders (that are increasing in numbers). I'm thinking, probably not so great place to live in the next 10 - 200 years.
Brilliant piece of strategy.......Russia selling weaponry (including nuclear technology) to the Chinese. Let me see....Russia has 140 million people (and declining), a joke of an army (navy is a bigger joke) and the Chinese can send a billion troops over the border into mineral rich Russia.
Hmmmmmmm......can we say "Peoples Chinese Democratic Socialist Republic of Russia"? Or maybe they will just be the "Russian Republic of China".
on Wed, 08/19/2009 - 13:55
#41459
Sending the billion troops into Russia is logistically impossible due to geographic constraints as well as lack of transportation to move all those troops. Geography is key. Both Chinese and Russians have geography against them. Both have huge restive populations in far-flung regions that both have to buy off and restrain at all times. Chinese rural west is dirt poor, compared to the coastlines. Russia's former republics offer similar problems.
on Wed, 08/19/2009 - 14:00
#41465
As to 2.) The Indians seem to like the Russian sub technology. They are building their nuclear sub fleet with help from Russia:
http://zeropointfield.wordpress.com/2009/07/26/india-introduces-first-nu...
on Wed, 08/19/2009 - 04:48
#40837
Mother Russia has ALL the resources, and soon will, finally have control of the ALL the ebbs and flows of International Currencies ??????? ??????????????? ????????????
Our dear Spy, has delivered unto Mother Russia, secrets far more precious than the 1945 gadget, far more powerful than the 1952 H-bomb 'secret'
You fools, all, Lenin finally vindicated no, we are not interested in the rope to hang you, any longer you poor dumb bastards, all of you
We are, by the way "hiring", and those who wish not to volunteer will be given,
perhaps, an offer they will not refuse to come to the land of green aurora, sunflowers, beautiful blond haired blue ice queen eyes woman
He, who controls the Heartland, controls the World, did you forget that, that which in 1923 Hess and Hitler knew so well THEN, nothing has changed
on Wed, 08/19/2009 - 12:52
#41364
Russia, much like the french language, is dying.
on Wed, 08/19/2009 - 12:57
#41377
c'est simplement pas vrai. la moitié des gens en Afrique (les environ 350 millions) parle le français.
on Wed, 08/19/2009 - 13:02
#41384
Not quite true, and most of those that are left are learning arabic.
on Wed, 08/19/2009 - 15:50
#41594
It was supposed to be dead several times in a history, yet still around.
on Wed, 08/19/2009 - 08:36
#40935
Putkin KGB Russian mathematicians, and internet skills thank you silicon valley USA
Goldman Sachs, the program trading schema - we got it !
and we ARE hiring !
on Wed, 08/19/2009 - 11:56
#41276
Russians.
on Wed, 08/19/2009 - 08:57
#40954
1) The US actually still produces a lot of manufacturing that the world would love to have but can't afford right now. If the dollar collapses or when it dramatically falls, they'll be able to afford it and US net exports would dramatically rise alongside Capital Investment in new manufacturing. Of course, since America would be moving (slowly) from a consumption/debt based culture to something more sustainable, lots of pain would ensue.
2) There will never again be major military conflicts among the super-powers of the world since that would risk nuclear holocaust. So you can count out your theories that swing this way. Minor skirmishes for resources in foreign lands perhaps, but that's it.
3) Inflating the debt away is virtually an impossible task going forward since creditor nations are rapidly waking up to what the US is doing and not funding further deficit spending or doing so with TIPS (yes this is not a full hedge) or in their own currencies (Japan). Of course, there could simply be a huge (or continuing) monetization of the debt which would probably collapse the dollar and any confidence in the US markets. If 'continuing monetization' is the theme, this will result in 'death by 1,000 knives' for the dollar instead of one fell swoop.
on Wed, 08/19/2009 - 09:14
#40976
Conrads..you are forgetting the #1 killer in Russia...Vodka...as for military might, they are still searching for the RED OCTOBER of the eastern seacoast! They had their day in under Puto and what did they do? They bite the hand that fed them..Oliagarts Broke the Banks!
on Wed, 08/19/2009 - 12:53
#41367
Amen!
on Wed, 08/19/2009 - 09:20
#40986
Not sure that the perception of Russia from the outside world is correct.
Russia still owns the lost virtues of the last centuries,that is steadfastness in adversity,able to suffer without a tear.Music is highly praised,reading is a genuine act of life.
on Wed, 08/19/2009 - 15:36
#41578
Are you friggin' joking?! Don't be a romantic slob.
Today, Russia is a collection of thugs pimping their sisters, a lot of old babuschkas whose husbands are either already dead or close to it, and a bunch of nationalist teens encouraged by Putin's neo-nazi "youth" groups, called "nashi," meaning "ours," that beat up immigrants and jews.
If it weren't for their oil/gas, Russia would have imploded a long time ago.
on Wed, 08/19/2009 - 09:31
#41000
This post is meant to discuss the proposed geo-political scenario, and has nothing to do with economy, oil, stocks and trading.
---------------------------------------------------------
I'm sure that many of you know about USA-USSR standoff over missiles in Cuba, when the Cold War may have been only hours away from becoming "hot."
A lot fewer people know that in 1969 USSR and China actually started a "hot" mini-war, and that they perhaps were only days away from nuclear exchanges:
http://en.wikipedia.org/wiki/Sino-Soviet_border_conflict
That's what I call a precedent. BTW, Russian kicked some serious butt which persuaded chnes to start "talking."
Today, however, there are millions of Chinese living in Siberia, while russian population is decreasing. Russian populist resentment toward chinese is growing.
jester's scenario is, IMHO, far less plausable than the following: Chinese try to buy/lease/steal/claim their own parts of Siberia where a) ethnic chinese/chinese citizen constitute a majority, b) territory that previously belonged to chinese empire. Since there's nothing more precious for the Russians than land (what else have they got, other than their landmass, really?) Russia will be the one to have a conflict with China, not the USA.
on Wed, 08/19/2009 - 10:01
#41042
Me liky your scenario...Imho...oil/gas in Siberia!
on Wed, 08/19/2009 - 10:08
#41056
x 2; We do not have a long border with China, they do. In addition you ve got to remember that the population of JUST underemployed migrant workers in CHina exceeds the total population of Russia by a large margin. In addition Russians have been trying to diversify their economy away from resource oriented for at least 10 year with little or no luck.
The only reason CHinese have not taken over SIberia are Russian nukes. And in the future, Russians will need us much more than we need them.
on Wed, 08/19/2009 - 13:55
#41457
Forget about b). This is all part of the Mongol Empire anyway.
on Thu, 08/20/2009 - 06:46
#42069
This post is meant to discuss the proposed geo-political scenario, and has nothing to do with economy, oil, stocks and trading.
You were being facetious right? : )
Geo-politics IS all about the economy, oil, stocks and trading (as well as a few other things).
on Wed, 08/19/2009 - 10:05
#41047
check out the sale of Chinese holdings in the past couple of days. DXY was plummeting until your British friends didn't increase they holdings by 30.1% in order to stop the fall. This is a very dangerous game they are playing and, from the looks of it; China is done with the shenanigans.
on Wed, 08/19/2009 - 13:41
#41443
Anyone with more details?
Particularly, what is the next shoe to drop?
on Wed, 08/19/2009 - 10:12
#41067
I keep it simple, short on OIL now (rest in cash) and some more after the Labor day. So much for diversification : (
on Wed, 08/19/2009 - 11:55
#41273
Russia and Germany. The new world empire. Southern Europe and the US will look like Argentina.
on Wed, 08/19/2009 - 11:59
#41283
How about this for a name:
Grussia
If you doubt this, look at the latest German shipbuilding deal and the role Gazprom is taking in east German investment, and in all the former German cities of Poland and Czech.
on Thu, 08/20/2009 - 11:49
#42337
Say that will be cooperation out of necessity. My biggest argument against it is that the German politicians are not smart enough to see the possibility.
on Wed, 08/19/2009 - 12:29
#41336
Sorry if someone already thought of this one, but a conventional war against China, with The U.S. and Russia as allies fighting on the Chinese/Russian border, would be the most appealing to the powers that be, in the U.S. of course, nice and clean for the team
on Wed, 08/19/2009 - 12:55
#41372
Would a two tier dollar work. One value for domestic spent dollars and another ( lower ) for foreign spent dollars ?
on Wed, 08/19/2009 - 13:09
#41393
that would make US even more Chinese than they already are
on Wed, 08/19/2009 - 13:09
#41392
oh my, i thought i got linked out somewhere!
all 3 ad spots occupied by the "find your russian beauty" pink ads, made the site not look not very zero-hedgey at all
on Wed, 08/19/2009 - 14:07
#41477
I think you are still stuck two much in Cold War think.
If you are looking for large projects that can lift the world out of the slump, look no further than
a) manned space flight projects, incl. seemingly exotic stuff;
b) hardening the energy power grid;
c) introducing fuel-cell cars (and fuel cells in other environments);
d) introducing a world wide basic guaranteed income for every human over 18;
e) developing nuclear fusion (and fast);
IMHO, shifting the quants to developing nuclear fusion, warp drives, etc would be much more useful to humans than letting them do what they do now. Admit it quants, what you do today sucks, it just pays well, but a real challenge looks different.
on Wed, 08/19/2009 - 14:57
#41532
@41477
Best ideas yet.
on Wed, 08/19/2009 - 15:20
#41551
One thing not to forget is that Russian leadership has a focus, a man who found the focus after the collapse of the USSR, and enough vision for the focus--if Putin soon goes-- to continue with it. But Putin is unlikely to soon go. I know of no focus that the U.S. or China has or anyone here much knows about. Europe is Bruisselville. This is why Russia is not just the dumb arse next door, but rather intelligent and tough, and may in the long run prevail.
on Thu, 08/20/2009 - 01:01
#42014
+5 trillion!
Russia has, or seems to have, a singularity of vision. The US definitely lacks that. So do, to an extent, the Chinese (refer to increasing tensions between the Party and the PLA)
on Wed, 08/19/2009 - 15:42
#41582
I agree about the russians killing themselves. The majority of the population in Urban cities, aside from individually injesting enough vodka to kill a herd of elephants, truly believes in blow as a diet aid and X for spiritual enlightenment. Russians are sniffing and swallowing with the arrogance and innocence of 15 year olds. The next generation to get pushed out, if the girls get over their fear of losing anorexic lithe bodies during pregnancy, will already have this ingrained in their DNA.
on Wed, 08/19/2009 - 17:31
#41705
Here is one to lift the slump: Build the Bering sea Alaska/Siberia tunnel. Watch the ocean shipping industry go nuts. You could close most container ports, espcially if Japan and Korea build a link. Course you have close down North Korea.
on Wed, 08/19/2009 - 21:26
#41897
Do not confuse the Russian military with Russian military hardware. The Russians are trying to sell to the highest bidder, and it doesn't matter who. They are trying to sell SAM's that Iran bought (but didn't get delivered) to Israel, and they try to sell everything to China. The problem is, the Chinese buy a few of something then just reverse engineer it. The Russians just cancelled an order of Sukhoi fighters to China because the Chinese were doing just that. As with most subjects in international relations, there is far more to the story than what is on the surface.
on Thu, 08/20/2009 - 01:54
#42020
It's not in the interests of the Chinese or the Russians to provoke a military conflict with the U.S. as the U.S holds the trump card here.
The best chance that the U.S.would have to cling on to No1 status would be playing that card when the other 'games' are done with. I'm sure that the current situation is what Cheney et al were maneuvering for during the previous adminstration. Deficits don't mean shit when the shit hits the fan.
Let's hope that cooler heads prevail if it gets to the point that the U.S. defaults on the debt to China. In my opinion, the debt is of less concern to China than restructuring it's economy to cope with the degradation of the US consumer base. Strangely, I don't think that a US debt default is a *bad* result for China. Sure it's a shipload of $$$ to lose, but in this situation the US (and IMF and UN and NATO, G7/8) permanently loses much of it's credibility and supposed moral authority. Not to mention the disastrous economic consequences implicit in such a default for the West.
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