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US, Russia exchange threats at tense UN meeting

They are no longer the soviet union, times have changed.
[video=]http.com/watch?v=rjqJ3cDzReA[/video]

Their behavior is soviet, not Russian.
This is cold war 2.0.
If a Dem Congress in 2017 acts toward a GOP President as McCain and co. are acting now,
that would be called Unpatriotic .
 
If shipments of Russian energy are stopped for Europe, it will definitely hurt Russia, no doubt. But it will also hurt not only Europe, but the global economy as well. Recall that Europe is in bad shape economically now. Germany is basically keeping Europe afloat. However, Germany depends on Russia for 36 percent of their natural gas. If that stops, German exports will become too expensive and the German economy will come down bringing Europe and the rest of the world with it.

It is more than that. Germany depends on Russia for a large amount of its coal and oil as well and their economy is driven by trade with exports and imports each amounting to roughly half the country's GDP. A loss of Russian resources would eventually cripple their industry and deprive them of a major source of economic strength. At the same time their businesses are the ones most exposed to Russia.

One really has to consider how interconnected the various European economies are in order to understand exactly how destructive this situation would be for the EU. I don't think analysts talking about the problems from a cut-off are really putting much thought into their rose-colored views. As I have noted elsewhere, the Baltic states and Finland get a large portion of their electricity directly from Russia, in addition to their various hydrocarbon fuels. On top of that, the Baltic states depend heavily on trade with Russia, trade amongst each other, and trade with Finland.

The immediate loss of electricity, natural resources, and trade from Russia would be devastating beyond anything that would affect Russia in the short-term. What makes this a disaster in the making is the exposure of the Scandinavian banking system to such a collapse of those economies. According to the IMF, a major loss on banking assets in Finland and the Baltic states would cause Swedish banks to incur significant losses, forcing deleveraging equivalent to several points of Sweden's GDP. Denmark's banking system also has huge exposure to Finland and the Baltics. Norway has exposure to those states as well, but their exposure to the Swedish banking system is the real risk at that point. Its largest bank has some exposure to the Baltic states and the other Nordic countries, but the Norwegian banking system also includes a number of Swedish banks. One bank with nearly half of Finland's banking market is considered "too big to fail" in Norway due to the size of local subsidiary.

Basically, a collapse of the Finnish and Baltic economies is liable to cause a severe financial crisis all over the Nordic region, which would cause serious systemic risks all over Europe. At the same time Southeastern Europe would be experiencing price hikes and Bulgaria would be facing severe pressure due to the near total dependency on Russian oil and gas, not to mention refined petroleum products, together with their lack of sufficient storage to meet the loss. Austria would be undergoing serious pressure from the outset due to Raiffeisen bank having an eighth of its assets in Russia, in addition to exposure in Ukraine and Bulgaria.

For Europe, their only hope would be that Russia capitulates within the first three months. That would be their only saving grace. If Russia holds out that long they gain the upper hand as that is when the strategic natural gas and oil reserves of many countries would be set to run dry. It may not even take that long as the longer things go and the lower the reserves get, the more likely these countries are to start cutting output to preserve supply as long as possible, thus causing a shortage even with some spare supply. Either way, once the oil and gas starts getting real sparse for those countries heavily dependent on Russia, the jig is going to be up. Austria happens to be one of those countries, as is Italy (depending on natural gas imports from Russia for a significant portion of its electricity), and both of those countries hold large stakes in the very parts of Eastern Europe that are nearly entirely dependent on Russia for their energy needs.

After three months, Brussels will have little choice but to cave. Otherwise Eastern Europe will see its entire economy shutdown in the face of fuel droughts and blackouts, which will quickly bring down Austria and Italy as well due to their own dependency and their outsized banking exposure to Eastern Europe. By then, the system will be too far gone for anyone to save. In Europe's current economic and political state, not getting Russia to concede within the first few months means facing total disintegration. The problem is that, as I noted, Russia has the financial resources and political wherewithal to plug the gap enough to avoid any massive downturn for months. However, no amount of money can plug an energy gap.

I presume this is why you don't see any articles at present talking about what to do if Russia does cut off the energy and doesn't change its mind in the first few months. They all know what it would mean and just want to shut the thought out of their minds, preferring to think it would destroy Russia before it would get that far. Of course, the Arab monarchies pulled off a significant drop in output only to come out richer and with more political clout, so history is not in favor of the optimists.

Not only that but Russia was threatened with having their credit rating degraded.

After a certain point being downgraded does not mean nearly as much to a country. So long as they aren't junked the impact will be less serious. Europe has much more to lose on that front. If the euros are fool enough to start a trade war with Russia and Moscow shuts off their energy then I expect there will not be any AAA-rated countries in the EU anymore.
 
Bone-crushing sanctions are all that soviets understand .

A man can get angry at the door because he hurts his fingers when he shuts the door and his fingers get caught. Not understanding physics, he can hit the door with all his might with his fist. However, the door will hit back just as hard, and he can break his knuckles.
 
It is more than that. Germany depends on Russia for a large amount of its coal and oil as well and their economy is driven by trade with exports and imports each amounting to roughly half the country's GDP. A loss of Russian resources would eventually cripple their industry and deprive them of a major source of economic strength. At the same time their businesses are the ones most exposed to Russia.

One really has to consider how interconnected the various European economies are in order to understand exactly how destructive this situation would be for the EU. I don't think analysts talking about the problems from a cut-off are really putting much thought into their rose-colored views. As I have noted elsewhere, the Baltic states and Finland get a large portion of their electricity directly from Russia, in addition to their various hydrocarbon fuels. On top of that, the Baltic states depend heavily on trade with Russia, trade amongst each other, and trade with Finland.

The immediate loss of electricity, natural resources, and trade from Russia would be devastating beyond anything that would affect Russia in the short-term. What makes this a disaster in the making is the exposure of the Scandinavian banking system to such a collapse of those economies. According to the IMF, a major loss on banking assets in Finland and the Baltic states would cause Swedish banks to incur significant losses, forcing deleveraging equivalent to several points of Sweden's GDP. Denmark's banking system also has huge exposure to Finland and the Baltics. Norway has exposure to those states as well, but their exposure to the Swedish banking system is the real risk at that point. Its largest bank has some exposure to the Baltic states and the other Nordic countries, but the Norwegian banking system also includes a number of Swedish banks. One bank with nearly half of Finland's banking market is considered "too big to fail" in Norway due to the size of local subsidiary.

Basically, a collapse of the Finnish and Baltic economies is liable to cause a severe financial crisis all over the Nordic region, which would cause serious systemic risks all over Europe. At the same time Southeastern Europe would be experiencing price hikes and Bulgaria would be facing severe pressure due to the near total dependency on Russian oil and gas, not to mention refined petroleum products, together with their lack of sufficient storage to meet the loss. Austria would be undergoing serious pressure from the outset due to Raiffeisen bank having an eighth of its assets in Russia, in addition to exposure in Ukraine and Bulgaria.

For Europe, their only hope would be that Russia capitulates within the first three months. That would be their only saving grace. If Russia holds out that long they gain the upper hand
.......
After three months, Brussels will have little choice but to cave. Otherwise Eastern Europe will see its entire economy shutdown in the face of fuel droughts and blackouts, which will quickly bring down Austria and Italy as well due to their own dependency and their outsized banking exposure to Eastern Europe. By then, the system will be too far gone for anyone to save. In Europe's current economic and political state, not getting Russia to concede within the first few months means facing total disintegration. The problem is that, as I noted, Russia has the financial resources and political wherewithal to plug the gap enough to avoid any massive downturn for months. However, no amount of money can plug an energy gap.

While what you have put forward certainly has merit, I think your analysis leaves out one crucial factor. I made a similar, though not the same error back in 2008 when I thought the world financial system was surely going to collapse. But learned something then. I didn't realize the types of things the Federal Reserve could do as a result of the dollars reserve currency status. Essentially the Federal Reserve can print as much money as needed to keep the financial system of not only the US, but Europe as well from collapsing. Now you may ask how can they possibly prop up the banking system of Europe. Well they did it, and here's how. Back when Russia took over South Ossetia, the banking system of Europe was about to collapse. However, what the Federal Reserve did was to take the currency of various European nations, in exchange for US dollars. And because everyone, including Russia gladly accepts US dollars, the Fed was able to keep the European banking system from collapsing.

That's the kind of power Putin is up against. I mean yeah, Russia would survive, but they would soon exhaust their foreign reserves. And the Fed will not swap dollars for rubles. At that time, Russia will have a very difficult time importing the things it needs. Russia imports quite of bit of it's food. It would get rough. Yeah they will find other customers for their energy, but they will lose a huge part of their customer base, so they would hurt tremendously. As such Russia will get the worse of that struggle.

It's a nasty scenario and is something both sides will seek to avoid, if possible.

After a certain point being downgraded does not mean nearly as much to a country. So long as they aren't junked the impact will be less serious. Europe has much more to lose on that front. If the euros are fool enough to start a trade war with Russia and Moscow shuts off their energy then I expect there will not be any AAA-rated countries in the EU anymore.

My understanding is that they are at BBB, which is not to far from junk.
 
While what you have put forward certainly has merit, I think your analysis leaves out one crucial factor. I made a similar, though not the same error back in 2008 when I thought the world financial system was surely going to collapse. But learned something then. I didn't realize the types of things the Federal Reserve could do as a result of the dollars reserve currency status. Essentially the Federal Reserve can print as much money as needed to keep the financial system of not only the US, but Europe as well from collapsing. Now you may ask how can they possibly prop up the banking system of Europe. Well they did it, and here's how. Back when Russia took over South Ossetia, the banking system of Europe was about to collapse. However, what the Federal Reserve did was to take the currency of various European nations, in exchange for US dollars. And because everyone, including Russia gladly accepts US dollars, the Fed was able to keep the European banking system from collapsing.

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.

That's the kind of power Putin is up against. I mean yeah, Russia would survive, but they would soon exhaust their foreign reserves. And the Fed will not swap dollars for rubles. At that time, Russia will have a very difficult time importing the things it needs. Russia imports quite of bit of it's food. It would get rough. Yeah they will find other customers for their energy, but they will lose a huge part of their customer base, so they would hurt tremendously. As such Russia will get the worse of that struggle.

It's a nasty scenario and is something both sides will seek to avoid, if possible.

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.

My understanding is that they are at BBB, which is not to far from junk.

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.
 
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.

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.

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.
 
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.
 
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.

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.

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.

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.

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.

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.
 
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?
 
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.
 
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.
 
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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