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Martin Armstrong On War, Debt, And Putin's 2 Choices
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.
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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Exactly, some one gets it.
"Russia does not produce anything except oil and gas."
Are you not aware that PHYSICAL RESOURCES are the big movers behind the world's work?
US was doing fine with oil exports, riding high on the hog, until it went from a net exporter to a net importer.
Yeah, it ain't going to last. Nothing is (especially as energy runs down).
The difference being that US had a gigantic industrial base while it was exporting oil, and wasn't dependent on oil revenues.
The Arab countries cut off oil to the West to punish them for political stuff in 1973 -- how did that work out?
"Russia does not produce anything except oil and gas. "
Russia is the #5 and growing largest exporter of wheat in the world. They are a net food importer, mostly with seafood imports offsetting newly rising agricultural growth. Russia also exported 25 million tons of iron ore last year.
But besides that, saying that all they produce is oil and gas is like telling a scuba diver that all his tank delivers is air. When you output the only thing that matters, why do you look for anything else?
Russian wheat production has dropped 40% since 2008 and they're now behind France.
Dependency on oil and raw material production with little internal goods production makes them vulnerable to swings in the oil price. It's been high for a while but that won't last forever.
I saw a few brand new ladas in managua last year
Ignorant post....
You know nothing about Russia...
Neither Russia or China are in a position to link their currencies to the gold they hold.
China has printed three times as much as the US and Russia has problems.
They are probably trying to go down the same path as the US.
They are probably getting Gold so their central banksters can sell the gold back and forth between themselves to keep control over the physical price....
Do that and watch imports to Russia implode, I'm sure they can get by on rutabagas and beets.
The west can only defeat Russia with nukes, and the entire Russian urban population of the country can be sheltered in civil defense bunkers. So even a nuclear war may not be winnable in the end for the west. But the west needs a distraction and a scapegoat.
NO ONE WINS in a nuclear war.
I'd like to think that if alive Reagan could deal with this, but I'm afraid that the complexities of the day are far greater than in his days.
If Reagan were alive today, he'd at least deal with Russia on an adult level.
Of course, the neocons would be in a frenzy and call him the biggest appeaser since Neville Chamberlain, just like they did the first time.
Haha...so the supporters of the American revolutionaries stole assets from the supporters of the losing side!
2 + 2 = 1 BILLION. Thank you Martin Armstrong for your hyperbolic explanation of why Russia, a producer country with capital inflows based on production, has to invade its customer countries...IMMEDIATELY. What a genius you are to base everything on half of a single datapoint completely out of the macro context. No Martin, Russia does not need to invade anyone to get paper they print. All Russia has to do is tell them they will buy in Rubles or nothing, if your half a datapoint is even valid.
Russia is not a country, it is a gang. Money is pouring out of there as fast as China. Tell Putin to stop exporting his resources. I give him to winter before his country implodes.
The only reason money is leaving is because the world senses Obama is going to enact capital controls and punitive measures on money in Russia. Which of course will boomarang again. Any capital control we lay down is a capital control on us too. Obama is definately stupid enough to lay out his militarized version of Smoot Hawley again. Kicking Iran out of SWIFT worked out so well. Lets try it on an even bigger energy producer and see how much more damage we can do to the petrodollar.
"Russia is not a country, it is a gang." Every country/nation is based on groups. Welcome to humanity 101!
This changes nothing as far as the geopolitical landscape.
The US govt is full of thuggery. Not seeing it give way any time soon.
"I give him to winter before his country implodes."
How fucking generous of you! Are you putting your money down on this?
I believe we're more likely to see a Balkanized States of America first.
Russia is not a producer country. They have to import nearly everything except oil, gas, and military equipment.
Who is in a bigger World of Shit, Putin or the Banks that invested in Russia?
RE
Because it does not matter you knucklehead. Russia can't stop exporting oil because their economy collapses. It is so funny that everyone here who desparately wants America to fail never understands that their adversaries are weaker than they are. This is simply a fact.
I am not happy that we are engaging in this, I am a fortress America type person, and leave us a alone and we'll leave you alone citizen, but just pointing out facts. I've done the Marine Corps thing and know our strategic capabilities quite well vs. our competitors. No contest.
In case all of you are naive, we want Russia to invade the Ukraine. This will bog them down, wake Europe up, and probably take them down. Putin knows this and knows he must try and inch his way in. We know that and will force his hand. The Chinese would be delighted but are about to implode themselves so no joy for them.
A mess because we let the bankers run our country.
Your third paragrpah tends to comport with what Paul Craig Roberts suggests.
Anyone thinking they have it figure out is likely wrong... Lots of spins left in the planet, just about anything can unfold...
Seer, good point, lack of full disclosure...anywhere. It's rampant and disconcerting.
I agree with most, if not everything you just wrote.
Good post, but no thank you for your service.
Wow, you're a little prick aren't you?
As my (ex)USMC son volunteered one day,
I absolutely do not support the troops.
At least, not the American ones.
If he calls himself an x marine he was never really a Marine to begin with.
Ex~marines lie in graveyards. Former Marines, not so much.
I'd venture a guess at a big slimey pussy...
Based on the feverish rhetoric from DC and EU I sense that our leaders are not as confident as you and need this war NOW.
Time is on Putin's side in this instance and I think he knows it.
1. Does Russia need to import energy? No.
2. Does Russia need to import food? Maybe yes, maybe no, but most likely not.
3. Does Russia need to import any other resources? Not that I am aware of and what they don't have they can probably get from China or the 3rd world.
4. Does Russia need to import technology? Most likely but thanks to their new best buddy, China, they have no problem.
What does Russia need western FIAT crap dollar/euro financing for? No, seriously ... IMO, it is just a show with a preplanned second act and finale.
They certainly don't need anything we have. Anything we claim to make can be purchased in China from the same people that make it for us. It is just rebranded and called a knockoff when the factories do an extra shift for themselves.
"2. Does Russia need to import food? Maybe yes, maybe no, but most likely not."
Operative word: "Need". They export wheat. They import seafood and some more extravagant food types. They are a net food importer, but they don't need to be. They are self sufficient in food if they chose to be via diet choice. Their livestock is in the north and their grains are in the south. #5 largest Wheat exporter in the world.
"4. Does Russia need to import technology? Most likely but thanks to their new best buddy, China, they have no problem."
The only US access to the International Space Station presently is via Russian launch vehicle. The Shuttle program has been terminated.
That was indeed a stupid decision by NASA, but the ISS really isn't a priority for our security.
We should be using PRIVATE launch vehicles to drive out "public funded waste" like the shuttle program. Why the hell we just didn't launch them into orbit to use as space only shuttles I'll never know. Hell you could give "bus" tours to the elite.
They import pork and poultry from the US, sizeable amounts.
Maybe, and maybe not too.
The rest of the world has to think over this hypothesis. But, recall China lurks and hopes, Iran plans a new middle east, Syria is tired of war possibly but Israel hunks down to strike, and Obama?? He must find the heart of a Lion, but can not so far. Meanwhile the Yellow brick road beckons to all fools. The USA is vulnerable like never before unless the man behind the current can't pull it off, The world is waiting
"Yet as the old proverb goes: "Russia is never as strong as she looks; Russia is never as weak as she looks."
Princeton professor Harold James sees echoes of events before the First World War when Britain and France imagined they could use financial warfare to check German power.
He says the world's interlocking nexus means this cannot be contained. Sanctions risk setting off a chain-reaction to match the 2008 shock. "Lehman was a small institution compared with the Austrian, French and German banks that have become highly exposed to Russia’s financial system. A Russian asset freeze could be catastrophic for European – indeed, global – financial markets," he wrote on Project Syndicate.
Chancellor George Osborne must have been let into the secret of US plans by now. Perhaps that is why he issued last week's alert in Washington, warning City bankers to prepare for a sanctions fall-out. The City is precious, he said, "but that doesn't mean its interests will come above the national security interests of our country".
The greatest risk is surely an "asymmetric" riposte by the Kremlin. Russia's cyber-warfare experts are among the best, and they had their own trial run on Estonia in 2007. A cyber shutdown of an Illinois water system was tracked to Russian sources in 2011. We don't know whether US Homeland Security can counter a full-blown "denial-of-service" attack on electricity grids, water systems, air traffic control, or indeed the New York Stock Exchange, and nor does Washington.
"If we were in a cyberwar today, the US would lose. We're simply the most dependent and most vulnerable," said US spy chief Mike McConnell in 2010.
The US defence secretary Leon Panetta warned of a cyber-Pearl Harbour in 2012. "They could shut down the power grid across large parts of the country. They could derail passenger trains or, even more dangerous, derail passenger trains loaded with lethal chemicals. They could contaminate the water supply in major cities, or shut down the power grid across large parts of the country,” he said. Slapstick exaggeration to extract more funds from Congress? We may find out.
Sanctions are as old as time. So are the salutary lessons. Pericles tried to cow the city state of Megara in 432 BC by cutting off trade access to markets of the Athenian Empire. He set off the Pelopennesian Wars, bringing Sparta's hoplite infantry crashing down on Athens. Greece's economic system was left in ruins, at the mercy of Persia. That was a taste of asymmetry."
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/107710...
Cyberwar is deadly!
But, during my working career, I have to say many many systems are not even connected to mr "WWW."
A huge danger is the insider threat, where an agent sabotages your machines with dirty code.
I want some ice cream
Not sure this isn't nonsense.
For as long as their was fiat currencies, there were people cheating and manipulating them.....
What Russia is experiencing is not different than what the US will experience once the world money realizes that being the least dirty shirt in the hamper does not remove the fact that the US still is a dirty shirt and still in the friggin hamper...
Bottom line here is the rest of the world is sick of being coerced into supporting the Dollar. The US. is going after Putin for daring to make trade deals in something other than dollars. This could very well turn into a world war if Putin can show real strength here and some of the BRICS decide to back him.
The terrible problem for 'we the people' is that if the US. pushes Russia into a corner, they will probably go nuclear.
Ironically the best we can hope for is that this whole thing is somehow a set-up by the banksters with the important players on both sides complicit to scare the shit out of all of us, so they can then come to our rescue and consolidate power even more.
maybe Obama's just pissed he won't give snowden back.
Russia will not go nuclear over Ukraine, not any part of it. Of course they won't have to as nothing will be done to stop Putin in Ukraine or Belarus.
Yeah, I think a lot of Russia's problems stem from the fact they are not champions of the 'petrodollar.'
I was reading some history last night; many wags, at the close of the 19th century, called it "the Rothschild Century," as they owned about 1/2 of the world's wealth at that time.
Vlad is fighting the Anglo-American bankster cartel.
"Cecil! Ring up that Bath House lad you hired! Putin is offering to trade oil for rubles!"
"Right on it, Sir Cedric. We'll stop this."
No. There is a third choice. The SCO.
The East will isolate the West and watch it crumble.
putin is in the position of having already lost western ukraine, and finding it necessary to draw world criticism for protecting the other half. this is US win win. squares the account on Syria, but raises the possiblity of a long cold gasless winter in the eurozone. does the eu like obamas push? will yellen continue to fund the euro banks under the table?prediciton: obama heats up the cold war just in time for a republican cold warrior to win the presidential election (will it be kerry or clinton?)snark snark
Thanks for that fat load of textual diarreaha.
People insinuating that Obama looks weak if he doesn't "do something' to Putin...what exactly do these people want him to do to look so big and tough?
Go to war with Russia???
Does anyone realize just how totally fucking insane this is???
Principles are tough (for some)!
He's painted himself into that corner with his rhetoric, unfortunately. Had he simply condemned the annexation of Crimea and Russia's destabilization of eastern UKR (but then he'd have to condemn Euromaidan's destabilization of Kiev also) he could have avoided war without appearing weak. But after he's threatened "several levels of costs" if Russia doesn't do as he says, it becomes a standoff between him and Putin.
This "hapless", "clueless" foreign policy is a cover for a sinister agenda that is run by people who are not elected, yet are publicly funded thru secret budgetary arrangements.
Obama has to explain the mess they create. He is not in charge and just enjoys the benefits, golf, vacation, and nice retirement.
His ego is nearly as big as his ears...
Aren't all governments involved over borrowed and never pay back?
I think you nailed it!!
!!! ??? WHAT ??? !!!
??? Borrow or Invade ???
Wow, what crazy talk! How about operate the efficient way, the way that is best for individuals, for corporations, for governments, for everyone. Namely...
Produce and Trade.
Sheesh! This is especially viable for Russia, since they have boatloads of natural resources to trade for anything they need to buy (import).
Wow, I've seen false alternatives before, but this is absurd.
Martin has succombed to bipolar thinking.
"either this or that", with no other alternatives whatsoever.
Maybe this bipolar-thinking process comes as a side effect from the drugs "they" force fed him during captivity?
If Martin were to admit this, then I would feel sorry for him.
False dichotomy anyone?
Useless article - Putin's gold, oil, gas, minerals trumps the West's toilet paper
But you still need the "US toilet paper" to pay for labor, extraction costs, refining and transportation.
I can buy a Big Mac in Russia with "US toilet paper", but I bet that the cashier won't like me if I try to pay for my Big Mac with a truck load of ore.
As I see it, Maybe Putin stockpiles Big Mac's as well. I have read/looked at pictures of Big Mac's almost a year old and they look the same. Don't really believe they are fit for Human Consumption. As is the GMO food stuff now with roundup still in the food made with Monsanto's products. The revolt on Monsanto's food has really picked up or should I say Shelved........The World also sees that. What's happening to Computer sales? You know, the computers with a back door that they can manipulate everything you do including youyre banking....Shut off your life so to speak. Control is run by CON'S, there will be a Backlash......just hoping the scopes get set on the correct Targets.
According to Tullett Prebon Group Limited:
http://www.tullettprebon.com/Documents/strategyinsights/TPSI_009_Perfect_Storm_009.pdf
perfect storm
energy, finance and the end of growth
Summary
The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge.
Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. Financial market participants can carry out transactions in milliseconds. With 24-hour news coverage, the media focus has shifted inexorably from the analytical to the immediate. The basis of politicians’ calculations has shortened to the point where it can seem that all that matters is the next sound-bite, the next headline and the next snapshot of public opinion. The corporate focus has moved all too often from strategic planning to immediate profitability as represented by the next quarter’s earnings.
This report explains that this acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects. The relentless shortening of media, social and political horizons has resulted in the establishment of self-destructive economic patterns which now threaten to undermine economic viability.
We date the acceleration in short-termism to the early 1980s. Since then, there has been a relentless shift to immediate consumption as part of something that has been called a “cult of self-worship”. The pursuit of instant gratification has resulted in the accumulation of debt on an unprecedented scale. The financial crisis, which began in 2008 and has since segued into the deepest and most protracted economic slump for at least eighty years, did not result entirely from a short period of malfeasance by a tiny minority, comforting though this illusion may be. Rather, what began in 2008 was the denouement of a broadly-based
process which had lasted for thirty years, and is described here as “the great credit super-cycle”.
The credit super-cycle process is exemplified by the relationship between GDP and aggregate credit market debt in the United States (see fig. 1.1). In 1945, and despite the huge costs involved in winning the Second World War, the aggregate indebtedness of American businesses, individuals and government equated to 159% of GDP. More than three decades later, in 1981, this ratio was little changed, at 168%. In real terms, total debt had increased by 214% since 1945, but the economy had grown by 197%, keeping the debt ratio remarkably static over an extended period which, incidentally, was far from shock-free (since it included two major oil crises).
Thanks for that link ...Tullett Prebon Group have a habit of telling people like it is. I'm surprised they get away with it(!)
There are few orgs that have the guts and honesty to spell out the truth of the huge unprecented mess that our political leaders have created. And which have a very long way to go before our leaders even get a clue of how to deal with it, let alone actually take the right action.
I said in 2008 that this was no ordinary market correction and that it will take a generation to work its way thru, but that assumed our leaders knew what to do. They don't. Nothing has changed to alter my views, except perhaps the timescale has gotten longer.
ok fuck you
shut up for a while
sounds to me like the US is in the same boat even more so than RU.
nice try marty but on cigar
Martin Armstrong is a tool. We are the aggressors to save our own fiat butt and to enslave others with
debt-based central banking. This entire economic downturn is a like a run in gin rummy to take the world
and place it in a new world order - collapse and control, my fellow Americans.
Poco say so...
I totally agree with the first paragraph of this article. The rest is a diatribe pointing out the problems Russia faces in this economic Cold War, which let us not forget was started by Western governments, not by Russia. No doubts about that.
So what has Armstrong got to say about the economic reasons, motives and consequences to the West of this situation? Very little it seems.
I suspect one major reason of the West is to hide - by way of creating a huge distraction - the bankruptcy and collapse of Western economies.
A second reason is to make a grab for control of what's left of global fossil fuel resources.
A third reason is to isolate Russia and pick it off before it goes after its next major competitor: China.
There can only be one supreme global power in the world. The West intends that to be itself, whatever the cost to economies, societies et al.
Martin Armstrong is a cabal shill
Martin Armstrong shows no bias in his analysis
Which is it, vote now.
Well, after all Martin Armstrong is an expert on Ponzi schemes... However, his reasoning is completely wrong. Crimea was not invaded for econmic reasons. In fact, it's an economic sinkhole that will cost Russia billions every year. Tyler, why the hell do you continue to publish this felonious moron?
Pussy, a leading exporter of cheap pussy!
It's a rather naive analysis as though the west has all the cards to play. Last time I looked it's the West that is more dependent on Russia than vice versa. Yes, the capital outflows are large but whose capital? Does anyone really think that oligarchs are putting their money into western banks?!? The oligarchs are using what means available to them to keep their money safe from both sides. And Armstrong is a complete idiot if he thinks that Putin is going to back down. From what? Keeping ethnic Russians from being attacked and forced from Ukraine by neo nazi right wing groups?!? How stupid can he be!
As for his assertion that just to economically survive, since when has the Russian economy been so tied to the west? Never! His analysis is so full of holes it beggars belief.
Russia and Germany need each other. I suspect Putin and Merkel are ccommunicating with each other on the down low. Since Snowden, I also suspect the NSA is having much more difficulty monitoring their communications.
Have to agree, this writer sounds like another 'useful idiot', to use the intel verbage.
I'm sure Putin is shaking in his boots as clueless western investors pile out of Russia and... into what exactly? Oh yeah... move money back to countries with ballooning debts and bizarrely low interest rates and over inflated stock markets with a political elite hell bent on starting wars. Let me think, what is it Russia needs from the West exactly... err... they need dollah right? And what if that one trick stops working? Then the emperor has no clothes. Everyone needs dollars because we say so. Trouble is the Russians and the Chinese have other ideas. If Armstrong thinks the Russians haven't planned what to do next he's an idiot. As dumb and arrogant as Kerry. Especially the bit about invading other countries for resources, I mean look at the size of Russia... it's fucking enormous. I hope he pays ZH to carry these articles, he obviously knows zip about Russia. Ukraine has been a basket case for years, would you invade that? Oh wait... the Russians haven't invaded anywhere yet.
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.
Let's see:
Russia leaks at the rate of $64B per quarter ... $21B per month.
USA leaks at $85B per month, just in QE (4 times what Russia leaks).
I guess it's all about whose bucket will empty first ... and where that leakage is going.