Ukraine Flashpoint

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Whoever is looking for the flashpoint, that lethal moment when the war of words and diplomatic lies turns into full-blown physical conflict between the East and the West, they will find it relatively soon if we are to believe the markets and how they are reacting this morning.

Military inspectors were taken hostage Sunday 27th April by pro-Russian supporters. They also seized regional-television headquarters in Donestsk. Last week five pro-Russian supporters were killed and Russia stated that Kiev would be called to justice (the Russian definition of justice being rather different perhaps). A Ukrainian military helicopter was also hit last Friday in gunfire. That’s called escalation; little by little until the flashpoint appears. Sanctions are expected from the USA and from the EU today.

But, war never let anybody come out of it a financial winner, even if you are the one that stands towering over the prostrate soldier on the floor at your feet. Whoever wins the Ukraine-Crimea tug-of-war between Russia and the West will still come out of it suffering.

Nobody ever wins a war and we only have to look back in history at that. But, since when did we ever learn from our mistakes?

Let’s take the United Kingdom for example in World War I:

• The country spent 20% on average of its accumulated wealth.
• Russia owed the UK money but when the Russian Revolution occurred that stated that it as a Tsarist debt rather than a Soviet one and so they refused to pay it back. The UK was owed more money by other nations than it owed the USA itself for loans.
• Many countries that Britain sold its goods to before the war seized the opportunity to set up their own industries to manufacture while the UK was busy fighting their war. When the war ended, it was too late for Britain to get back its markets. 
• The US had advanced European countries a loan of $10 billion in both goods and credit.
• Paying back the debt was a hindrance to economic growth, since the indebted countries spent money on the repayments rather than actually buying goods from the USA. 
• It was the UK and France that owed the most to the US, but they in turn found it impossible to get the money back from those that were in debt to them. It was a vicious circle of money spent and never paid back. 
• Britain ‘made’ a payment of $95.5 million in 1932, but it was based on gold in the vaults of the Bank of England that they never shipped to the USA. The USA never asked for it since it would have caused the collapse of the UK and the UK made veiled threats that they would liquidate the dollar. Virtual money transfers had just been invented. The money never got paid, the gold stayed in the UK.
• There was a moratorium on all war debts in 1931 and no repayments have been made since 1934 to any nation.

World War II was hardly any better.

• The UK paid of its final instalment of a loan to the USA and to Canada in 2006! The loan had been taken out in 1945 and totaled $4.34 billion since the UK was on the verge of bankruptcy.
• After 61 years the UK made the final repayment of that loan to the US (£43 million) and to Canada (£12million). 
• The UK had to defer repayment (it should have been paid off in 50 annual instalments) in 1956, 1957, 1964, 1965, 1968 and 1976.

That all being said, we know that nobody will come out of the Ukraine conflict with the champagne corks popping and war doesn’t relaunch an economy; it just makes it worse. Adam Smith was wrong about needing a good famine or a war to decimate the population. It may get better a generation down the line (just, maybe) but in the meantime for those of us around at the time, it will be a hard blow to the economy and yet more struggle at a time when we don’t need it. But, can we complacently sit back and let a dictatorial leader do exactly what he wants just because he feels like taking over another country. That smacks of history too. Putin used to try to pull the wool over the eyes of his electorate and the rest of the world. His thuggish attitude and his recreation of Tsarist Russia is not befitting of the times.

If the West doesn’t act, he will continue. Then, when we look back in time we shall see President Obama and the European Union just as we remember Neville Chamberlain, Prime Minister of Britain: fooled into thinking that there would be no war in Europe, stupidly waving his paper in the air with his ‘peace for our time’ speech that nobody else believed. Chamberlain’s final words that day in 1938, just before World War II erupted were ‘go home and get a nice quiet sleep’.

Originally posted: Ukraine Flashpoint

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