Martin Armstrong On War, Debt, And Putin's 2 Choices

Tyler Durden's picture

Submitted by Martin Armstrong of Armstrong Economics blog,

The title of the next book that needs to be written is not War & Peace, but War and Debt. The interesting complexity of continually borrowing with no intention of ever paying anyone back is a totally modern development post-WWII. This has simply never been done before and governments have no clue what to do. They borrowed previously, but tended to pay back by raising taxes. At least there was some sense of obligation. Today, the national debts are just Ponzi Schemes where they issue new debt to pay off the old. This is one game of musical chairs.

Russia has raised its key interest rate to fight inflation as the rouble weakens in the face of war. These heads of states have been taught the lesson – this is no way to run a government. The key one-week minimum auction repo rate in Russia was increased by 50 basis points to 7.5 percent. There is no possible way for the Bank of Russia to lower the key rate in the coming months, especially since it raised its key rate by 150 bps in March in response to financial instability created by the political crisis in Ukraine.

Standard & Poor’s has cut Russia’s credit rating to BBB-minus, just one notch above junk – or non-investment – level. Moscow responded that politics had played a role in S&P’s decision. However, it was the first downgrade by a major agency following Russia’s annexation of Crimea from Ukraine in March.

What Russia is suddenly discovering is what we have been basing our analysis upon – Capital outflows, The investment capital has been pouring out of Russia since its economy began to weaken last year, along with emerging markets in general. However, adding this tense geopolitical situation between Russia and the West over Ukraine, has produced a mass exodus of capital in the area of $64 billion for the first quarter 2014. This is introducing additional significant capital outflows of both foreign and domestic capital from the Russian economy. We see even Russian Oligarchs moving money to other based currencies and Putin has responded by increases their taxes.

This is a interesting conflict of the old way of empire building and the post-WWII way of always borrowing and never paying anything back. Both the United States and Europe have threatened harsher sanctions against Russia and Putin has responded by sending bombers over Europe to reminded them who they are dealing with.

The capital flight from Russia of about $64 (46 billion euros), will impact its economic growth slowing it down dramatically. Meanwhile, Russia’s central bank has spent billions of US dollars on trying keeping the rouble from falling too fast.

George 1778 Tory Confiscation Note - r

We are entering a completely new era in economics. (1) if countries perceive that their borrowings curtail their ambitions (thus we have a check and balance), however (2) if countries cannot borrow, then they may invade and revert to the old Conquest Model relying upon the spoils of war, which included the confiscation of assets belonging to an adversary. Pictured here is a Georgia note of 1778 backed by assets confiscated from people who supported King George III. The French confiscated the assets of the Catholic Church under Napoleon.

Either Putin backs down, or he asserts the same principles and is then forced to invade in short-order just to economically survive.

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lolmao500's picture

Since Putin is KGB and NATO looks freaking weak and disorganized what ya think he's gonna do, Willis?

wee-weed up's picture

Putin is also well aware of the wussy in White House.

Zest's picture

C'mon take it easy on the guy. He hasn't been to the golf course in over a week.

0b1knob's picture

Spoils of war?   What exactly could they loot from Ukaine that would make it worth the effort?

Seer's picture

Pipeline?  Like picking up tracks to lay down heading east...

mjcOH1's picture

"C'mon take it easy on the guy. He hasn't been to the golf course in over a week."


He'll be back out there once the cramps and bloating subside.

macholatte's picture

What exactly could they loot from Ukaine that would make it worth the effort?


Good point.  Russia is Ukraine’s largest trading partner. It is also the “highway” for getting goods/energy from Russia to EU.

However, Ukraine is the world's largest producer of sunflower oil, a major global producer of grain and sugar, and future global player on meat and dairy markets. It is also one of the largest producers of nuts. Ukraine also produces more natural honey than any other European country. Because Ukraine possesses 30% of the world's richest black soil, its agricultural industry has a huge potential. However, farmland remains the only major asset in Ukraine that is not privatized.

A lot of tourists from USA, European Union and Russia provide a sort of dental tourism.

So there you go.

Urban Roman's picture

According to that article, they've got a space program.

That explains it, Zero wants their rocket scientists!

Keyser's picture

Putin back down from Obama? You must be joking... Face to face all Putin would have to do is say boo and Barry would wet his pants... 



Hugh_Jorgan's picture

Even Jimmy "Goober Peas" Carter looks like a steely-eye hawk compared to Barry.

<sarc> This all by design though, you'll never be able drag the average backwards, freedom-obsessed, gun-toting American to the grand utopia of european-style global governance if they're are allowed to have any kind of competentcy or real integrity in the smooth-walled, monolithic cabal that masquerades as their "elected" (sic) representatives. I mean, get a grip... ;-)</sarc>

Tabarnaque's picture

This article is a pile of garbage. Just to confuse and drag people's attention away from the real issues underlying the Ukrainian crisis. May I recall that the Ukrainian crisis was entirely manufactures by the US State Department. Who was the agressor here? The USSA. Who funded neo nazis to implement a violent coup against a democratically elected government? The USSA. Who stole Ukrainian gold a few days after the violent coup succeded? The USSA again. Far from being Russia looking forward to invade and looth Ukrain, it is the USSA invading Ukraine to looth the country out of its natural gas and rich agricultural lands (Monsanto, Cargill and ADM are already preparing to take over the rich Ukrainian plains).   

philipat's picture

"The capital flight from Russia of about $64 (46 billion euros), "

I never realised that the Euro had devalued so badly if $64 is equal to 46 Billion EUR? Perhaps it will when the ECB joins the currenct wars and starts QE-ing. Yeh, Yeh, Yeh.....

I don't know about fellow ZH'ers but I find it very difficult to take Martin Armstrong seriously?? IMHO, he seems consumed by style and has no substance. Living on "Past Glories" IMHO.

W270's picture

Correction Wet his Panties, Moochelle wears the pants in that Tribe

cynicalskeptic's picture

Reestablishing Russia's old borders may be reason enough

Stuck on Zero's picture

If Putin takes over the Ukraine he gets Chernobyl back.  Whoopppeee.


HardAssets's picture

Exactly. What's the author talking about ?  Russia is being threatened in their own back yard; the military threat to what they perceive as their vital interests is obvious.

These are the writings of a grocery clerk.

Quus Ant's picture

"if countries cannot borrow, then they may invade and revert to the old Conquest Model relying upon the spoils of war."

Alternately, if countries refuse to borrow they will be invaded, reduced to rubble and, as vassals, forced to borrow in the new Conquest Model.  Their goods (spoils) will be traded for paper money (beads) and their children will grow up under the all seeing, vengeful eye of the eagle. 

Tabarnaque's picture

The USA debt to GDP ratio is far higher that the Russian debt to GDP ratio. Who is the broke nation in the real world? The USSA are the ones broke with the Fed buying 75% of all new Treasury bond issued because nobody else wants to buy them.

Martin Armstrong is just a high level deceiver working for the power that be. This article is a piece of toxic trash. Surprised to see it on ZeroHedge.

mr.lucky's picture

Very symplistic writing about a very complex situation.  I'm not buying it. 

Carpenter1's picture

Who let this amateur in? I feel dirty after reading this tripe. Capital markets, debt, credit ratings.,,.Keynes? Is that you resurrected and writing BS articles?

Tulpa's picture

Ukraine is an independent country and is free to set its own policies and make its own friends.  I don't give a damn what Russians perceive about it, it's irrelevant.  Give them a teddy bear and a hug if they're upset.

I'm sick of this idiocy where the fact that Ukraine was under Russian domination for 200 years justifies putting them under the Russian boot again.  This from people who supposedly care about liberty.

Quus Ant's picture

This viewpoint disregards reality.  Ukraine is NOT an independent country and is NOT free to set its own policies and make its own friends  any more than any country in the Western hemisphere not named the United States is.  Look at a history of American intervention in South America if you disagree.  Look at Haiti.  

This understanding is important not just for accuracy, but for efficacy.  If you want to change the way things are in Haiti are you better served concentrating your efforts on the ground in Haiti, or where the levels of power actually reside? 

Want change in Ukraine?  Start saving your rubles.

Manthong's picture

Russian boot..

Much better for them to be under the US and EU boot.

..besides, it would be a shame for Ukraine to lose the $10 Billion Chevron shale deal, or the Cargill deal that put $200M into UkrLand Farming, or the Cargill purchased stake in the Novorossiysk port.. all inked just before they changed their mind to go with the Rooskies,

So the $5 Billion that Nuland put into the NGO’s operating there had to be put to work to change things back.

That’s OUR show going on over there.. we are “The Producers".

The Corporate-Foreign Policy ‘Deep State’ at work in Ukraine

Quus Ant's picture

There are multiple shows going on on multiple screens.  The Russians were always operating in Ukraine.  After the fall the West was content working incrementally for a time, but now they have upset the apple cart.  Overthrowing a government- even if it was a puppet government- creates a power vacuum.  Does the US even care who fills that vacuum as long as Russia is pulled into the ensuing chaos? 

US boots have done a lot of stomping in recent years.  When you say you would like to be under said boot are you saying you would like to be in Iraq? Afghanistan?  Libya? 

Prime locations are still available in Syria.  Cheap.

Tabarnaque's picture

Yeah, Corporate America (the real fascist power behind Obozo) is looking forward to looth Ukrainian natural resources away from them. Not to mention the TTIP "free trade agreement" which is nothing else than a US corporate power grab over the entire Western Europe, turning these vassal states into US dollar slaves for decades to come and giving a "divine" diplomatic immunity to US corporate interest on the entire continent.

The USSA boot ain't any paradise at all. I would hate to become a debt serf under the fascist regime of the Federal Reserve.

Manthong's picture

Maybe my sarc was not obvious enough.

The legitimate government made a decision... we didn't like it and we violently took down the legitimate government.

It was a lousy government, but legitimate. We were wrong to do what we did.

I don’t know which government is lousier; the old Ukraine, the new Ukraine, Russia, the EU or the US.

It's kind of like asking which species of animal's feces are you most fond of.

I can’t say for sure, but the bear shit appears to have a slightly fuller bouquet.


Tulpa's picture

I guess you missed where Cuba, Nicaragua, Venezuela, and Bolivia came out in support of Russia in the Crimean business. Yet surprisingly no American troops threatening their borders like Russia is doing with the Ukraine.

Quus Ant's picture

America doesn't need to send troops into those countries.  Soft power + CIA = bonus enchilada.   How's Maduro doing with those riots by the by?  Any other leaders come down with cancer?  They should stop holding USAN meetings in Fukushima.

Omegaman2211's picture

Not sure how that justifies a US led war against Russia, but ok.

Sabibaby's picture

Ukraine is the bread basket of Europe!

HardAssets's picture

"Ukraine is the bread basket of Europe!"


Not if they radiate the shit out of it.

viator's picture

"grains trade from the region, accounting for about a fifth of world exports"

Peter Pan's picture

"C'mon take it easy on the guy. He hasn't been to the golf course in over a week."

What do you call a Mexican with a golf ball through his forehead?


A hole in Juan.

hamstercheese's picture

Two Mexicans playing basketball against each other? Juan on Juan.

Seeking Aphids's picture

So you, wee-wee, would prefer that Obama have a pissing contest with Pee-wee Putin to prove he is not a wuss? For that you would risk WWIII?   

LetThemEatRand's picture

It's one of those times that some of the posters here at ZH run into themselves.  First, it is irrelevant who is in the WH.  Second, there is no second.

RaceToTheBottom's picture

It is epidemic here and represents a massive hole in their mindset and worldview.

You cannot say it is not important or that it can be compartmentalized.

Tulpa's picture

Say what you will about Bush, but his handling of the Russia-Georgia conflict in 2008 and the Israel-Lebanon conflict before, was light-years wiser and more pragmatic than BO's random thrashing about here in 2014 w.r.t. Syria and Ukraine.  Think about that:  someone is stupider than George W Bush.  Hard to believe.  

Quus Ant's picture

You think Bush handled those conflicts?  Like, personally?  Strategically?





The only thing I can say about Bush is that he was smart enough to keep his head down (sorry JFK) and stay to the script.  I dunno if Obama is so smart.

Volkodav's picture

I agree...someone is stupider than George W. Bush  


Nothing wise and pragmatic about enable that murderous tie-eating drug addict Saakashvilli with billions of taxpayer dollars to get people killed.

Most memorable was all the trash talk on the media after "Advisors" outran the Georgians back to Tblishi...




CrashisOptimistic's picture

Jesus.  How can an article like this appear, examining this and that of Russia, and in the whole damn thing there is no mention of oil at all.

What fucking morons.

LetThemEatRand's picture

This is what happens when a country with oil and a giant military decides to say fuck it and not bow down to the United Bankers of America.  Saudi Arabia is so much easier to control, and invading Iraq only cost a few hundred thousand ordinary lives.

Keyser's picture

1,000,000+ Iraqis died in the two American wars there, not to mention the depleted uranium throughout the country that will reek havoc for decades. These fuckers want to kill billions. A million here and a million there and it starts to add up...

slightlyskeptical's picture

Yep. And make everyone buy crappy health insurance so the cost doesn't fall on the state.

BlackChicken's picture

"The title of the next book that needs to be written is not War & Peace, but War and Debt."

A great book that has already been written is "War Cycles, Peace Cycles". One read through that and you will know exactly why the author was intensely vilified and marginalized.