Guest Post: Why The West's Financial Warfare Against Russia May Lead To The Real Thing

Tyler Durden's picture

Authored by Harold James, originally posted at European Voice,

The revolution in Ukraine and Russia's illegal annexation of Crimea have generated a serious security crisis in Europe. But, with Western leaders testing a new kind of financial warfare, the situation could become even more dangerous.

A democratic, stable, and prosperous Ukraine would be a constant irritant – and rebuke – to President Vladimir Putin's autocratic and economically sclerotic Russian Federation. In order to prevent such an outcome, Putin is trying to destabilise Ukraine, by seizing Crimea and fomenting ethnic conflict in the eastern part of the country.

At the same time, Putin is attempting to boost Russia's appeal by doubling Crimeans' pensions, boosting the salaries of the region's 200,000 civil servants, and constructing large, Sochi-style infrastructure, including a $3 billion (€2.2bn) bridge across the Kerch Strait. This strategy's long-term sustainability is dubious, owing to the strain that it will put on Russia's public finances. But it will nonetheless serve Putin's goal of projecting Russia's influence.

For their part, the European Union and the United States have no desire for military intervention to defend Ukraine's sovereignty and territorial integrity. But verbal protests alone would make the West look ridiculous and ineffective to the rest of the international community, ultimately giving rise to further – and increasingly far-ranging – security challenges. This leaves Western powers with one option: to launch a financial war against Russia.

As the former US Treasury official Juan Zarate revealed in his recent memoir “Treasury's war”, the US spent the decade after the 11 September 2001 terrorist attacks developing a new set of financial weapons to use against the United States' enemies – first Al Qaeda, then North Korea and Iran, and now Russia. These weapons included asset freezes and blocking rogue banks' access to international finance.

When the Ukrainian revolution began, the Russian banking system was already over-extended and vulnerable. But the situation became much worse with the toppling of Ukrainian President Viktor Yanukovych and the annexation of Crimea, which triggered a stock-market panic that weakened the Russian economy considerably and depleted the assets of Russia's powerful oligarchs.

In a crony capitalist system, threatening the governing elite's wealth rapidly erodes loyalty to the regime. For the corrupt elite, there is a tipping point beyond which the opposition provides better protection for their wealth and power – a point that was reached in Ukraine as the Maidan protests gathered momentum.

Putin's public speeches reveal his conviction that the EU and the US cannot possibly be serious about their financial war, which, in his view, would ultimately hurt their highly complex and interconnected financial markets more than Russia's relatively isolated financial system. After all, the link between financial integration and vulnerability was the main lesson of the crisis that followed the collapse of US investment bank Lehman Brothers in 2008.

In fact, Lehman was a small institution compared to the Austrian, French, and German banks that have become highly exposed to Russia's financial system through the practice of using deposits from Russian companies and individuals to lend to Russian borrowers. Given this, a Russian asset freeze could be catastrophic for European – indeed, global – financial markets.

Putin's plan for destabilising Ukraine is thus two-pronged: capitalise on linguistic or national animosities in Ukraine to foster social fragmentation, while taking advantage of Western – especially European – financial vulnerabilities. Indeed, Putin sometimes likes to frame it as a contest pitting him against the power of financial markets.

The arms race that preceded the First World War was accompanied by exactly the same mixture of military reluctance and eagerness to experiment with the power of markets. In 1911, the leading textbook on the German financial system, by the veteran banker Jacob Riesser, warned: “The enemy, however, may endeavour to aggravate a the sudden collection of outstanding claims, by an unlimited sale of our home securities, and by other attempts to deprive Germany of gold. Attempts may also be made to dislocate our capital, bill, and securities markets, and to menace the basis of our system of credit and payments”.

Politicians began to grasp the potential consequences of financial vulnerability only in 1907, when they faced a financial panic that originated in the US but that had serious consequences for continental Europe (and, in some ways, prefigured the Great Depression). That experience taught every country to make its own financial system more resilient to ward off potential attacks, and that attacks could be a devastating response to diplomatic pressure.

That is exactly what happened in 1911, when a dispute over control of Morocco spurred France to organise the withdrawal of 200 million Deutsche Marks invested in Germany. But Germany was prepared and managed to ward off the attack. Indeed, German bankers proudly noted that the crisis of confidence hit the Paris market much harder than markets in Berlin or Hamburg.

Countries' efforts to protect their financial systems often centred on increased banking supervision and, in many cases, enlarging the central bank's authority to include the provision of emergency liquidity to domestic institutions. Subsequent debates about financial reform in the US reflected this imperative, with some of the US Federal Reserve's founders pointing out the military and financial applications of the term “reserve”.

At that time, financial-reform efforts were driven by the notion that building up financial buffers would make the world safe. But this belief fuelled excessive confidence among those responsible for the reforms, preventing them from anticipating that military measures would soon be needed to protect the economy. Instead of being an alternative to war, the financial arms race made war more likely – as it may well be doing with Russia today.

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HedgeAccordingly's picture

Krugman to Tom Keene: Nobody wants us to become Cuba:..

icanhasbailout's picture

"A democratic, stable, and prosperous Ukraine"


Lost me there. That Ukraine is not on the table. Actual real-world options:

1) Russian-dominated Ukraine

2) Fascist Ukraine


Pick one.

DoChenRollingBearing's picture



Either above pick is no good, nor our business.  Economic warfare is stupid as well.  Who are we fighting?


Russia is the Number 4 producer of gold in the world.  The USA is number 3.  Peru is number 6.  For any of you who would be interested and missed this (warning: gold porn):

"Gold News and Pictures from Peru"

tmosley's picture

"In order to prevent such an outcome, Putin is trying to destabilise Ukraine,"

This authors opinions just went in the trash.

It is the west that has and continues to destabilize Ukraine, and only an UTTER FOOL would think or claim otherwise.  Seizing Crimea and now other parts of Ukraine is just Putins rightful revenge.  Ukrainians don't want the thugs we installed in office.

Tengri Temujin's picture

WHy dont you ever put up this link Robert when you talk about Peruvian gold eh?

 also in the article is said

In a crony capitalist system, threatening the governing elite's wealth rapidly erodes loyalty to the regime. For the corrupt elite, there is a tipping point beyond which the opposition provides better protection for their wealth and power

i guess that is why we keep our stock market always high with fiat to keep the olies happy


TheMeatTrapper's picture



Nice blog. Never made it to Peru - but did spend a lot of time in Bolivia. I really miss the chicha and the saltenas! Is chicha popular in your area?

strannick's picture

The authors stable democratic prosperous Ukraine is a long way from the USAs civil war induced, IMF debt ridden, impoverished Ukraine. This guy needs to lose his Time magazine goggles...

old naughty's picture

Don't you get that feeling all these are covers for something about to happen at home?

He confiscated the helicopters...and now bringing home the tanks?

123dobryden's picture

using word fascist in ukraine context is very very pathetic...

btw ask lithuanians, estonians or latvians what is their opinion about russian rulers for the past centuries as its them who has first hand experience...

i understand "enemy of my enemy if my friend" but majority of guys here should do their homework a get some real info about how things are going in russia and why it always been so backwards, sclerotic always hurting little guy way too much then everywhere else



DoChenRollingBearing's picture

I can only chip-in the opinion of a few Lithuanian-Amerricans I know: They don't like the Russians either.  I already know that MANY Polish (and, duh, Polish-Americans) have no trust of Russia.

icanhasbailout's picture

I'll get to that as soon as I finish asking the remaining Cherokee about their experience with the US government.


With neo-Nazis in the government and controlling the streets, and an unholy alliance of oligarchs running the rest of the show, I'll stick with Fascist since it is spot on.


TheReplacement's picture

Oh since this group did it to that group then it is okay for yet another group to do it to the Ukrainians.  I getcha.

123dobryden's picture

because in russia there is no unholy alliance of oligarchs and putinjungen is not marching the streets

Anusocracy's picture

And the shitheads in the West believe their governments are "good" even though they are far more destructive than the others.

The West has been the number one enemy of mankind ever since the fall of the USSR and the true believers are incapable of comprehending that.

NoPantsSpongeBob's picture

"enemy of my enemy is my friend" must be an inspiration behind the Latvian annual Nazi SS parades. Even their ministers insists on attending it as an expression of Latvian patriotism.

Tengri Temujin's picture

enemy of the enemy is my friend hmmmm

I guess the Jews that were beaten to death with steel pipes in the town squares in the baltic republics now understand that the baltics considered them enemy that is why the Nazis were their friends.


The slaughter at Lietukis garage                                            Adv. Joseph A. Melamed

The grotesque savagery so virulently demonstrated by the Lithuanians at this dreadful event, represented a watershed in the campaign of persecution against the Jews not merely because of the bestial hatred the Lithuanians so shamelessly displayed in the course such  an act of ‘valor’ against defenseless people.

What made this act of barbarity so gruesome, was the fact it was committed in broad daylight with hundreds of local residents, including women and children, gathered around to observe the spectacle of Jews being either battered to death with crowbars or tire irons or choked to death by having a hose pipe shoved down their throats and water pumped into their gullets until their entrails burst.

 The rounds of applause that came from the assembled crowd with each successive band of thugs (Juozas Luksa) that had just murdered 68 innocent people, took out his harmonica and together with the assembled crowd sang the Lithuanian national anthem. The prisoners incarcerated in the Kovna ghetto were to compose a parody on that anthem later on during the dark years of imprisonment, a parody that reflected the depth of their hatred and contempt for their Lithuanian enemies.

 The significance of the Lietukis pogrom, in  terms of the depth of hatred evidenced towards Jews is, however, as relevant today as it was at the time. The manner in which the present day Lithuanian government chose to handle the Lietukis issue once it had been firmly placed on the international agenda was as shocking as the events themselves.

I can see why the Baltics also hate the Russians now, its oh so clear.


Savyindallas's picture

Millions of Jews have suffered pograms and persecution   -primarily as the result of retliation and vindictivness of those who themselves have suffered from the persecution of other more powerful jews  -who themselves never received their just reward for the actions. Doesn't make it right, but that's human nature  -and human history.

Ifigenia's picture

ask iraquis, afghanis, sirians, euroepans, south americans, africans and americans what is their opinion about US rulers of this century

123dobryden's picture

now you see? me downvoted you upvoted for telling the truth

Anusocracy's picture

Your mind is wrapped around the US's past and Russia's past.

Past reality, being what it is, is prone to be as riddled with lies as the present reality.

sgt_doom's picture

This dood James is a complete jackhole, doing the revisionism thing, while we have the real data at hand, douchey (referring to James).

And he mentions Juan Zarate, who wants to blow, or give blowjobs, to all the banksters.

What a complete load of bullcrap!

The only thing he got right is that the Obushma administration and NATO are pushing the world closer to nuke WWIII!

To the author of this pathetic blog:

The truth can be really harsh to you whores of the status quo, huh, douchey!

TheReplacement's picture

3) All the above since they are effectively the same thing to the serfs in Ukraine.

Soul Glow's picture

Financial Warfare, bitchez

Afu-Ra - Warfare (feat M.O.P) -

maskone909's picture

i whirlwind thru cities

one of my old fav's


maybe one day man governments will be deemed illegal.  like edie murphey said in raw, "what have you done for me lately?"

813kml's picture

I hope the Tylers got paid to post that trash.

Colonel Klink's picture

When goods (gas) stop crossing borders, troops usually do.  Same as it ever was.  Obama and other leaders of the West, need a distraction from the economic collapse that's headed the world's way.

Mr Giggles's picture

On horse back again, oh well, better have many horses with this many people about.

1000yrdstare's picture

IMHO, I believe we will see in the near future a massive false flag, here is why, Fellow ZH'rs and myself follow these events and get both sides of the story (usually) Now for the average American or Westerner just see what they are viewing on a daily basis (assuming they watch the MSM news) See if you can take a few days of watching nothing but what is on the MSM news ( FOX, CNN, MSNBC, CBS etc.) see what they are reporting on the situations with Syria and Ukraine. What I realized by doing this was they are conditioning the public to accept that certain countries are the bad guys (in which they may be) which to me seems as if they are conditioning the public before it happens, then stirring them up in a frenzy to go to war with another country. not sure if it will work, as many people have had there eyes open through the internet and it would take a massive false flag to do this. (nuke\chemical\biological a city?) How would you react if a major U.S. city was attacked in this way and blamed on Iran\Russia\China? I know my thoughts would be false flag, however, I believe the ordinary public would accept any story that was told to them, and we would have a new rallying cry. (remember the Maine! remember the Alamo! rmember the Lusitania! 9/11!)lets hope they let the currency fail and we never find out. In any case however, there will be pain.

NOTaREALmerican's picture

Politics and religion exist to provide a forum where the smart-n-savvy sociopaths manipulate the dumbasses with high-quality bullshit.  The human brain is designed to create, believe, and repeat bullshit.  It's how societies are organized.   There's no escaping this reality.   It's why nothing can be "changed".    All "change" really turns out to be is improved bullshit from the smart-n-savvy people.  

Just life.

y3maxx's picture

...Uncle Sam and Israel are out of control.

Both the USSA & Israel rely on the US, Petrodollar, as the World Currency Reserve.

El Vaquero's picture

See, that's the thing.  You could show me irrefutable evidence that Russia is a bad guy, we could have another Lusitania and you could show me irrefutable evidence that it was not a false flag, and I would still have that irrefutable evidence that we have been meddling over there and have made things worse and that we are also the bad guys.  We don't deserve to, say, have a passenger ship sunk with innocent civilians, but the folks in DC do deserve a very hard pee-pee slapping.

RafterManFMJ's picture

NOBODY IS INNOCENT! - Paraphrasing Curtis Emerson "Bombs Away" LeMay.

Winston Churchill's picture

I talk to a lot of people.
Even my pool guy yesterday knew exactly what is really going down.
Uncle Scam is out of control, and 'folks' are getting it, notwithstandiing the MSM propaganda.
Outside the DC bubble, peeps are getting pissed.
This is not going to end well

DoChenRollingBearing's picture

More people that I talk to are starting to feel the same.  So many lies, so many petty regulations, so many stuffed-shirt bureaucrats, so few real jobs...

Agree: This is not going end well.

El Vaquero's picture

Exactly.  End well, this will not.  There are too many stresses and too much institutional momentum to change course, and in a much broader sense than just US and Russian foreign policy.  Exactly when and how it will break is undetermined, but that it will break is something that you can bet on.

Tengri Temujin's picture

Right on the Money, and it showed in Nevada when people got fed up with the BLM

Nehweh Gahnin's picture

I'm a member of a mountain search & rescue unit.  This year alone, our unit has been flooded with new applicants, with our membership skyrocketing from its previous high of ~60 members to over 100 this month.  These members are heavily stacked with combat veterans (many of them special forces), medics, firefighters and preppers.  I was out on a navigation exercise last weekend, and talking to one of the old-timers, I was bemused and gratified that he, too, is anticipating an imminent collapse.  I teamed up that day with a doctor and a 3-tour (Iraq) Marine Recon veteran.  Same thing.  These folks are out here for a small set of reasons:  public service, education & training, and to sharpen the skillsets that will shortly be in critical demand.

The irony is that we have benefitted from some nice DHS grants, which causes some heartburn for some of the members (and subjects us to "allocation" under the Nat'l Defense Resources Preparedness EO), but the new truck, radios and GPS units are nice.

Winston Churchill's picture

I wish I was 20 years younger and in better health.
As is ,I am liability in what is coming.
i hope my brain will be of use, bacause most everything else isn't.
I have had the satisfaction of outliving my doctors and their various prognosises.

Hannibal's picture

WInston Churchil: I hear you, you're not alone, we can still kick ass!

813kml's picture

Nonsense, your brains will make a great plate of scrapple when supplies run low.

I'm joking, of course.  You are one of the most intelligent posters on ZH, Winston.  Your wisdom will come in handy for whomever is lucky enough to have you in their bunker.


P.S.  Bring along your supply of Cuban dog turds and you will be indispensable.

Things that go bump's picture

At the first sign of trouble you guys ought to head for the hills with all that equipment and keep you heads down until the dust settles. That way, you'll be in a position to do good when you're most needed.

Nehweh Gahnin's picture

A couple of the local PD's have received MRAPs.  I'll be keeping my eye on those, too.

Seriously, your point is well-taken by everyone.  This community of volunteers will not let this just go away, and they will not act against their neighbors' and families' interests.

Winston Churchill, you ain't too old to hold a radio, right?  That is needed too.  I'm no spring chicken myself, but this enriches me and is making me healthier.  See what you can find in your area.  (I don't mean to be presumptuous; just optimistic.)  It's a way of doing.  Of being awed by the people you interact with, because everyone is there because they want to be.  Contributions vary.  Respect doesn't.  Because how do you disrespect someone that just shows up to help?

When this shit goes down, your greatest capital is going to be the people around you.  Some people will be destitute in that capital, and others will not.  I put this above gold and silver, or ammo, but they are complementary.  

mccvilb's picture

Agreed. Winnie, I'm in a similar boat.

I started focusing on potable water last year... how to source it or create it in volume locally, and took a free course at a university in the Netherlands through on various methods of identifying and treating contaminated, polluted or brackish water. What will become exceedingly important down the road is how to do it cheaply and economically, for example, from solar energy using drip distillation or fresnel lenses.

You would be shocked and surprised at how dangerous some municipal water supplies are because they originate straight from wastewater (many African countries can't support their populations; with projected droughts here in the US it's coming to a theater near you) or have yet to be tested for heavy metals or treated for certain types of biological and industrial contamination. Here in Maine I've encountered arsenic and mercury poisoning in well water from nearby shellfish dump leaching, minimal to practically no treatment in some city water districts (not every city neighborhood gets its water from the same source), and salt water encroachment in coastal municipal wells. I'm no biologist or chemist but all I need know is how and where to send samples out for testing and how and where to buy supplies wholesale or direct.

Payne's picture

What if they have a False Flag and no one cares ???

detached.amusement's picture

what if they have a false flag and 95% of people believe the story, 5 million swiss cheese holes and all?


oh, wait a minute...

813kml's picture

The power of propaganda is incredible, if you hear the same thing over and over every day pretty soon it becomes ingrained (this explains religion).  I think most people in the US are just working to scrape by, they don't have time to investigate and still believe whatever US gov blares to them at face value.  IMHO, it won't be difficult to convince the US public to go to war but a false flag would definitely push things over the edge.  

US gov could very much use the distraction from its complete corruption and collapsing economy.  They could even spin it as a jobs initiative.  Puttin' Americans back to work at the industry they know best: WAR.

P.S.  I'd bang Rosie the Riveter.

Smegley Wanxalot's picture

1st sentence: "... and Russia's illegal annexation of Crimea"

That's all you need to read to know the author is a retarded pro-brussels tool.