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Thread: US, Russia exchange threats at tense UN meeting

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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by 24107 View Post
    They are no longer the soviet union, times have changed.
    lol who the hell is this guy!?!?! he's hilarious!
    The whole modern world has divided itself into Conservatives and Progressives. The business of Progressives is to go on making mistakes. The business of Conservatives is to prevent mistakes from being corrected.
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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by Demon of Light View Post
    There are significant differences. Back in 2008 most governments were experiencing continued growth right up to the collapse. More importantly, the collapse was a result of fear and valuation losses rather than any material losses. Some material losses existed, but they were not of the extreme nature we are talking about here. You would have the fear and valuation losses set in rather quickly as well, but the material losses would be severe. Pumping money into the system "saved" the economy, but even that has had serious negative side effects that can only be tamped down by continuing to pump money into the system. Such an approach is unsustainable. In the case of an energy crisis, you are talking about a fundamental and severe material loss. People would not be able to pay off loans due to high energy prices and businesses that are unable to operate due to energy disruptions would not be able to sustain their cash flow. Material losses would be immediate and severe as banks would see large deposit outflows as citizen try to fill in finance gaps and any borrowers who were on the verge of default already will default in rapid succession. Banks would see cash inflows plummeting at the same time as deposit outflows are accelerating.

    Of course, state intervention is an option, but the effect would be less decisive. This wouldn't be like a normal bank run where people are pulling cash because they fear the money will no longer be there the next day. People would be pulling cash because they would be increasingly cash-starved. Recapitalization of the banks by governments will not give people the energy they need. It would basically be like trying to bail out a sinking boat without plugging the leak. What you have to keep in mind is exactly how much we use energy every day and how vital it is to the economy. Currency can be replaced and printed, but it is not that simple with energy. No amount of money being injected into the system would change the fundamental picture in an energy crisis.
    Again, although this is a very good response, I think that you have underestimated the power of the Federal Reserve due to the reserve currency status of the US dollar. Recapitalization of the banks will give people the energy they need as long as energy producers accept dollars as payment for their energy. Quite frankly, that's what has been keeping the US economy going. The US produces far less than what we buy. That is manifest in the form of a trade deficit. The only way we get away with it is because instead of exchanging goods for imports, we give people dollars, and they accept it. No other country on the face of the Earth has that power. That essentially means that the Fed can print money to import the energy. And again, as long as energy exporters accept dollars in payment, the Fed can continue to do so. The world financial system is set up to use dollars as payment for goods and services. Right now, there is nothing to replace the dollar in this crucial functionality. China has attempted to purpose an alternative system based on a combination of currencies, but that has not been implemented. Furthermore seeing as it is the current system that butter's the Chinese bread, so to speak, it's hard to see that replacement system being implemented anytime soon.

    Quote Originally Posted by Demon of Light View Post
    Russia's foreign reserves are worth over half a trillion dollars. It would take them a while to exhaust that. The thing about the EU cutting off imports is that it would lessen Russia's need for foreign currency at the same time, as well as diminishing the import risks from a devalued ruble. On the flip-side, a devalued ruble makes their exports that much more lucrative. Remember when American politicians were repeatedly crying foul over China devaluing its currency? That was because it made imports from China more attractive to businesses due to the exchange rate. It would actually give Russia another potential means of windfall. On the one hand, the denominated value of their chief exports will be much higher on the international market and on the other hand a devalued ruble means the foreign currency payments for it are higher in value domestically. Simultaneously, they can keep energy prices low domestically because more supply will be consumed in their home market.
    First of all, I don't see Europe's cutting off imports of Russia's energy as diminishing Russia's need for foreign currency. Russia is highly dependent on crucial imports such as food, medicine, and heavy machinery. How are they going to obtain these things from others? By paying in rubles? Of course not, they will need foreign currency, in particular dollars to get these things. The next thing is that although they would be getting more money for their energy due higher prices, this effect would be offset by a smaller customer base. In other words there would be no other substantial customers left but China and India. Also, there would be a decrease in the foreign investment that is needed to extract the energy, a decrease in the available financing needed to extract the energy, and a decrease in the foreign technical assistance used to extract the energy. These things will lead to a decline in production. So a smaller customer base combined with a decline in production would offset any gains due to higher energy prices. So Russia would be forced to draw down on it's substantial foreign reserves to purchase the crucial items that they need. Not only that but the resultant inflationary pressure on these items would have devastating effects on the lives of everyday people and will erode the tax base of the government. At the point that Russia's foreign reserves are exhausted, they would face a very difficult choice, either feed and provide medicine to the citizens of Russia and reduce the military, or let them die of starvation and disease, but maintain the military.

    On the US side, things would be bad as well. What will happen is that there will be inflation due to higher energy prices. The Fed will respond by raising interests rates which will have the effect of putting people out of work. People will lose their homes and live a wretched existence, but there will be food. But unlike Russia, the Fed can print money for the US government and the banks. Yes, there will be outflows, but the Fed will be able to compensate by giving the banks money in exchange for worthless collateral like the bad loans that the banks have on their books. Furthermore, unlike Russia, the US will be able to maintain it's military capability, because the US government can take as many treasury notes to the Fed and get money in exchange as they desire.

    The result is that the people of both countries would live wretched existences, although with Russia it would be more so due to lack of food and medicine. However, although the military capability of Russia would remain significant, it will decline relative to the US. So Russia would be the loser in that struggle.

    Quote Originally Posted by Demon of Light View Post
    Only Fitch rates them at BBB, two notches above junk, while the other two major ratings firm put them three notches above junk. Unless the U.S. decides to exert political pressure on them, I do not see such a rapid downgrade. Reality is that Russia is under no serious threat of struggling to repay its rather small foreign debts. This rating is mostly due to Russia having defaulted back in 1998. Just like a regular creditor, a previous default trashes your score for a long time.
    Well, you could be sure that the US would be very angry and would indeed exert, successfully in my opinion, pressure to downgrade Russia credit rating. That would result in increased borrowing costs for Russia.

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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by MildSteel View Post
    Again, although this is a very good response, I think that you have underestimated the power of the Federal Reserve due to the reserve currency status of the US dollar. Recapitalization of the banks will give people the energy they need as long as energy producers accept dollars as payment for their energy.
    There is no underestimating of the Federal Reserve's power. However much money the Fed produces, it cannot change the fact that you still need to have the energy available for purchase. Energy producers simply do not have sufficient spare production capacity or spare export capacity to fill a Russia-sized hole. Most already work at nearly full capacity to meet ongoing demand from around the world. It is very hard to overstate how much value energy has for any economy. The U.S. saw a significant recession and market crash in 1973 despite producing most of its own energy at the time. Europe does not have the same cushion.
    First of all, I don't see Europe's cutting off imports of Russia's energy as diminishing Russia's need for foreign currency.
    Ah, I mean imports from Europe by Russia.
    Russia is highly dependent on crucial imports such as food, medicine, and heavy machinery. How are they going to obtain these things from others? By paying in rubles? Of course not, they will need foreign currency, in particular dollars to get these things.
    First off, they have rather large foreign currency reserves as noted before. Secondly, temporary disruptions in the supply of the aforementioned products are much more easily managed and compensated than dependencies on energy. Russia has regularly blocked shipments of various food products from the West in the past and has had little trouble diversifying among other countries.
    The next thing is that although they would be getting more money for their energy due higher prices, this effect would be offset by a smaller customer base. In other words there would be no other substantial customers left but China and India.
    They would have plenty more customers than China and India. Most of Asia, including Japan, is extremely unlikely to go along with a trade war against Russia.
    Also, there would be a decrease in the foreign investment that is needed to extract the energy, a decrease in the available financing needed to extract the energy, and a decrease in the foreign technical assistance used to extract the energy. These things will lead to a decline in production. So a smaller customer base combined with a decline in production would offset any gains due to higher energy prices. So Russia would be forced to draw down on it's substantial foreign reserves to purchase the crucial items that they need. Not only that but the resultant inflationary pressure on these items would have devastating effects on the lives of everyday people and will erode the tax base of the government. At the point that Russia's foreign reserves are exhausted, they would face a very difficult choice, either feed and provide medicine to the citizens of Russia and reduce the military, or let them die of starvation and disease, but maintain the military.
    Everything you just described here is absurd. Production declining a bit does not harm their bottom line in the short term, even if any of that stuff you said would cause a decline were actually valid. Foreign investment is currently playing a major role in accessing new supplies, but Russia can easily replace those investments. China and India, especially, would be ecstatic at the idea of being able to get a major foothold in the Russian oil and gas industry. As to the rest, even if Russia were somehow to struggle to replace other major imports, the costs would not be nearly severe enough to deplete their forex reserves over a few months. Keep in mind, this is about time and the time it takes for all those problems you talk about to develop is far more than a few months with the kind of supply disruption we are talking about. Loss of energy supplies has an immediate and severe effect whether the loss is partial or total. Indeed, loss of energy results in a lot of the problems you are talking about and the more extreme the loss the more extreme the problems. Whether the hike in market prices would completely offset the temporary loss of the European market is an interesting question. The Arab leaders significantly reduced production and exports over several months yet still came out ahead, though their reduction was less than what we are talking about here. I suspect Russia would at least endure far less pain from cutting off Europe on the energy front than Europe would endure from the loss of that energy.
    On the US side, things would be bad as well. What will happen is that there will be inflation due to higher energy prices. The Fed will respond by raising interests rates which will have the effect of putting people out of work. People will lose their homes and live a wretched existence, but there will be food. But unlike Russia, the Fed can print money for the US government and the banks. Yes, there will be outflows, but the Fed will be able to compensate by giving the banks money in exchange for worthless collateral like the bad loans that the banks have on their books. Furthermore, unlike Russia, the US will be able to maintain it's military capability, because the US government can take as many treasury notes to the Fed and get money in exchange as they desire. The result is that the people of both countries would live wretched existences, although with Russia it would be more so due to lack of food and medicine. However, although the military capability of Russia would remain significant, it will decline relative to the US. So Russia would be the loser in that struggle.
    I believe the U.S. will definitely suffer less because we are less dependent on Russia than the EU and we we are increasing our self-sufficiency in energy. Of course, Russia will also not suffer much from a cut-off by the U.S. for the same reason. A trade war between the U.S. and Russia alone would be disruptive but not destructive for either party. The EU taking part makes it more dangerous for Russia, but as I have been saying, they cannot stick through for the long haul if Russia cuts off their supply. Were the U.S. hurt severely, it would mostly be due to the effect on Europe.
    Well, you could be sure that the US would be very angry and would indeed exert, successfully in my opinion, pressure to downgrade Russia credit rating. That would result in increased borrowing costs for Russia.
    Yes, but they already have high borrowing costs from being just a few notches above junk, where they have been for over a decade. Russia's government will not have serious financing troubles since they have very little foreign debt. Household and corporate debt, foreign and domestic, are all much lower in Russia. This also diminishes the impact all these other issues will have on Russia's economy. Generally speaking, Russia's economy has much more fundamental strength. Europe only endures so long as it is well-supplied by countries like Russia.
    "For what is Evil but Good-tortured by its own hunger and thirst?"
    - Khalil Gibran

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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by Demon of Light View Post
    There is no underestimating of the Federal Reserve's power. However much money the Fed produces, it cannot change the fact that you still need to have the energy available for purchase. Energy producers simply do not have sufficient spare production capacity or spare export capacity to fill a Russia-sized hole. Most already work at nearly full capacity to meet ongoing demand from around the world. It is very hard to overstate how much value energy has for any economy. The U.S. saw a significant recession and market crash in 1973 despite producing most of its own energy at the time. Europe does not have the same cushion.
    The supply would go down and demand would go up. Therefore I said the price of energy would increase. The point is that as long as the energy producers take dollars in payment, the US will be able to buy the energy, although at substantially higher prices. It would ruin the economy and common people would be put in an awkward position. A contraction of the economy would mean less consumption, so less energy would be needed.

    Quote Originally Posted by Demon of Light View Post
    First off, they have rather large foreign currency reserves as noted before. Secondly, temporary disruptions in the supply of the aforementioned products are much more easily managed and compensated than dependencies on energy. Russia has regularly blocked shipments of various food products from the West in the past and has had little trouble diversifying among other countries.
    Although their foreign reserves are large, they are finite. And after a couple of years, they will be depleted. On the other hand the Fed can print as much money as the US government requires, as long a people all over the world accept dollars as payment for goods and services.

    Quote Originally Posted by Demon of Light View Post
    They would have plenty more customers than China and India. Most of Asia, including Japan, is extremely unlikely to go along with a trade war against Russia.
    They would have customers, no doubt. But they will have fewer and will have lost their best customers.

    Quote Originally Posted by Demon of Light View Post
    Everything you just described here is absurd. Production declining a bit does not harm their bottom line in the short term, even if any of that stuff you said would cause a decline were actually valid. Foreign investment is currently playing a major role in accessing new supplies, but Russia can easily replace those investments. China and India, especially, would be ecstatic at the idea of being able to get a major foothold in the Russian oil and gas industry. As to the rest, even if Russia were somehow to struggle to replace other major imports, the costs would not be nearly severe enough to deplete their forex reserves over a few months. Keep in mind, this is about time and the time it takes for all those problems you talk about to develop is far more than a few months with the kind of supply disruption we are talking about. Loss of energy supplies has an immediate and severe effect whether the loss is partial or total. Indeed, loss of energy results in a lot of the problems you are talking about and the more extreme the loss the more extreme the problems. Whether the hike in market prices would completely offset the temporary loss of the European market is an interesting question. The Arab leaders significantly reduced production and exports over several months yet still came out ahead, though their reduction was less than what we are talking about here. I suspect Russia would at least endure far less pain from cutting off Europe on the energy front than Europe would endure from the loss of that energy.
    I don't think what I put forward is absurd at all, because the exploration and production of oil are capital intensive endeavors. These people spend millions of dollars drilling a well, just looking for oil. And they are lucky if one in three that they drill trying to find it produces. You have got companies like ExxonMobil, the largest oil company in the world over in Russia now. You want me to believe its going to be easy to replace a company with such resources? I don't think so. Of course the Chinese will step up to the plate, but their oil companies don't have the technical expertise and financial resources of a company like ExxonMobil. Over and above that, we have seen time and time again that countries that lack sufficient foreign investment see production go down. So I fail to see why that notion is absurd.

    The next thing is that although the Arabs decreased production, they were not facing the obstacle that major suppliers of their food, medicine, and heavy machinery would be unavailable. If that had been the case, they would have to pay much higher prices for these items, which would erode any gains for the higher prices.

    Quote Originally Posted by Demon of Light View Post
    I believe the U.S. will definitely suffer less because we are less dependent on Russia than the EU and we we are increasing our self-sufficiency in energy. Of course, Russia will also not suffer much from a cut-off by the U.S. for the same reason. A trade war between the U.S. and Russia alone would be disruptive but not destructive for either party. The EU taking part makes it more dangerous for Russia, but as I have been saying, they cannot stick through for the long haul if Russia cuts off their supply. Were the U.S. hurt severely, it would mostly be due to the effect on Europe.
    I agree that the effects on the US would be due to those on Europe. For one thing it would mean higher energy prices for everyone, which would create substantial inflation and thereby depress demand. The consumer has been the engine of the US economy, and even without the higher prices that would be a result, consumers in the US, due to the decline in available credit, are finding it harder to keep up spending levels. Some substantial inflation in the form of higher energy prices would send the US economy into a tailspin. I agree that the US would not suffer as much as Europe, but they would suffer. The thing is this. The common people of Europe will suffer tremendously, probably everywhere would be like Greece is now. But the financial structure would not collapse. The Federal Reserve, as I have said before, will keep the financial structure of Europe from collapsing. But again, as I said before, after a couple of years, Russia's foreign reserves will be exhausted. At that time, they would have some very hard choices to make.

    Quote Originally Posted by Demon of Light View Post
    Yes, but they already have high borrowing costs from being just a few notches above junk, where they have been for over a decade. Russia's government will not have serious financing troubles since they have very little foreign debt. Household and corporate debt, foreign and domestic, are all much lower in Russia. This also diminishes the impact all these other issues will have on Russia's economy. Generally speaking, Russia's economy has much more fundamental strength. Europe only endures so long as it is well-supplied by countries like Russia.
    They will have trouble with financing for two reasons. First the decline in their credit rating will increase their borrowing costs. Second, there would be a decline in the number of available lenders if they are locked out of the European and American markets.

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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by joko104 View Post
    I'm sick of the calls for the USA to run with its tail between its legs to talk of WWIII.

    Putin understands the USA is in the coward's mode, so can act as if Russia does not fear war with the USA, while the USA is terrified of war with Russia.

    When did the USA become such cowards? We pricked with Russia and they pricked with us the entire Cold War and Russia was vastly more powerful and influential then.

    The escalation Russia threatens otherwise in diplomatic matters is real, but it is an escalation that we match it we win it. We hold most the cards, not Russia.
    Because another war would be met with VAST public opposition and would mean many politicians their jobs. Politicians don't like losing their jobs, therefor, No war with Russia... See how that works?
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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by MildSteel View Post
    The supply would go down and demand would go up. Therefore I said the price of energy would increase. The point is that as long as the energy producers take dollars in payment, the US will be able to buy the energy, although at substantially higher prices. It would ruin the economy and common people would be put in an awkward position. A contraction of the economy would mean less consumption, so less energy would be needed.



    Although their foreign reserves are large, they are finite. And after a couple of years, they will be depleted. On the other hand the Fed can print as much money as the US government requires, as long a people all over the world accept dollars as payment for goods and services.



    They would have customers, no doubt. But they will have fewer and will have lost their best customers.



    I don't think what I put forward is absurd at all, because the exploration and production of oil are capital intensive endeavors. These people spend millions of dollars drilling a well, just looking for oil. And they are lucky if one in three that they drill trying to find it produces. You have got companies like ExxonMobil, the largest oil company in the world over in Russia now. You want me to believe its going to be easy to replace a company with such resources? I don't think so. Of course the Chinese will step up to the plate, but their oil companies don't have the technical expertise and financial resources of a company like ExxonMobil. Over and above that, we have seen time and time again that countries that lack sufficient foreign investment see production go down. So I fail to see why that notion is absurd.

    The next thing is that although the Arabs decreased production, they were not facing the obstacle that major suppliers of their food, medicine, and heavy machinery would be unavailable. If that had been the case, they would have to pay much higher prices for these items, which would erode any gains for the higher prices.



    I agree that the effects on the US would be due to those on Europe. For one thing it would mean higher energy prices for everyone, which would create substantial inflation and thereby depress demand. The consumer has been the engine of the US economy, and even without the higher prices that would be a result, consumers in the US, due to the decline in available credit, are finding it harder to keep up spending levels. Some substantial inflation in the form of higher energy prices would send the US economy into a tailspin. I agree that the US would not suffer as much as Europe, but they would suffer. The thing is this. The common people of Europe will suffer tremendously, probably everywhere would be like Greece is now. But the financial structure would not collapse. The Federal Reserve, as I have said before, will keep the financial structure of Europe from collapsing. But again, as I said before, after a couple of years, Russia's foreign reserves will be exhausted. At that time, they would have some very hard choices to make.



    They will have trouble with financing for two reasons. First the decline in their credit rating will increase their borrowing costs. Second, there would be a decline in the number of available lenders if they are locked out of the European and American markets.
    Again, you have to remember that Europe can only endure about three months without Russian oil and gas. Once that happens, much of the East will be having widespread blackouts and suffering fuel droughts. The financial system will be seeing massive losses that cannot simply be papered over because having money is not really the issue. The Federal Reserve is not all-powerful and its ability to rescue a financial system is dependent on the nature of the crisis. Back in 2008, the crisis for most of the world was strictly about money and credit being scarce, which the Fed can meddle in rather effectively by just flood the market with cash. An energy crisis is simply not something a central bank can handle easily because flooding the market with cash does not resolve the underlying cause of the financial weakness. It would be far worse than anything we have seen in the developed world for some time. Check out this article about Crimea's brief blackouts for an idea:

    Those reassurances have provided little comfort to Filipp Savchenko, the 29-year-old owner of a refrigeration and logistics business in Simferopol, the Crimean capital. Savchenko said Tuesday that the power had been out for two nights at his warehouse, where he stores about $9,000 of produce daily for his clients.

    "With the help of the generators we have, we were able to survive," Savchenko said. "But if they turn (the electricity) off in the future or for longer, we won't be able to cope. We'll lose our produce and business owners will have legal issues with us."
    Imagine stories like that playing out all over Eastern Europe and then popping up in Austria, Italy, and Germany. You would see scarcity in various food items that have to be kept fresh and thus higher prices all around. Oil losses would cause shipping to stall, increasing the scarcity, and driving prices up even more. At the same time, this would all be depriving the economy of serious vitality. You would have severe inflation and recessionary or even depressionary conditions. Stagflation is the bane of all central bankers as there is no money-printing solution to the problem since money-printing aggravates one of the key causes of the economic weakness. Banks either fail or get seized by the state in such a situation, the latter just being failure by another name.
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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by Demon of Light View Post
    Again, you have to remember that Europe can only endure about three months without Russian oil and gas. Once that happens, much of the East will be having widespread blackouts and suffering fuel droughts. The financial system will be seeing massive losses that cannot simply be papered over because having money is not really the issue. The Federal Reserve is not all-powerful and its ability to rescue a financial system is dependent on the nature of the crisis. Back in 2008, the crisis for most of the world was strictly about money and credit being scarce, which the Fed can meddle in rather effectively by just flood the market with cash. An energy crisis is simply not something a central bank can handle easily because flooding the market with cash does not resolve the underlying cause of the financial weakness. It would be far worse than anything we have seen in the developed world for some time. Check out this article about Crimea's brief blackouts for an idea:

    Imagine stories like that playing out all over Eastern Europe and then popping up in Austria, Italy, and Germany. You would see scarcity in various food items that have to be kept fresh and thus higher prices all around. Oil losses would cause shipping to stall, increasing the scarcity, and driving prices up even more. At the same time, this would all be depriving the economy of serious vitality. You would have severe inflation and recessionary or even depressionary conditions. Stagflation is the bane of all central bankers as there is no money-printing solution to the problem since money-printing aggravates one of the key causes of the economic weakness. Banks either fail or get seized by the state in such a situation, the latter just being failure by another name.
    I don't dispute that the effects would be severe. But my point is that the financial system as a whole would be left intact. Some banks would be allowed to fail, just like with Lehman Brothers here in the US. But they would identify the ones they want to keep, and the Fed can provide as much capital as needed to keep the vital ones afloat. They will increase interests rates to combat inflation, and people will suffer, just like in Greece. There would probably be energy shortages, but there would be plenty of energy made available for defense and putting down social unrest. Recall what people like Angela Merkel did to the people of Greece. That's what they would do. However, on the Russian side the suffering will be just as intense or greater. There won't be enough food or medicine. But the problem for Russia will be that they can't print enormous amounts of money to maintain their military. And that's the crucial factor. Their military capability will decline relative to that of the US, because that's really what the pissing contest comes down to. If Russia had the military capability of Iran, we would have been over there in a minute to kick them out of Crimea. But because of the nature of the Russian military, we can't just do that type of thing. But as that military capability declines, the situation changes.

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    Re: US, Russia exchange threats at tense UN meeting

    Quote Originally Posted by OnWisconsin View Post
    Because another war would be met with VAST public opposition and would mean many politicians their jobs. Politicians don't like losing their jobs, therefor, No war with Russia... See how that works?
    I hope you are right about that, it's better to focus on a constructive solution that benefits U.S. citizens.

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