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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 16, 2014 at 10:15 AM

Dangers of poking the bear

Russia is in recession. Not only that, but interests rates have risen to 17 percent as the central bank tries desperately to protect the free-falling ruble. Bank runs by the rich are siphoning out dollars and euros, although the central bank hasn’t yet unloaded dollars, which might help.

One big problem facing Moscow is falling oil prices, hurting its most important economic asset. But the other is Western sanctions because of Tsar Vladimir’s power play against Ukraine.

Sanctions rarely bring regime change or even behavior change by the bad guys in power. See Iran, North Korea, Cuba and pre-invasion Iraq. They do plenty to hurt ordinary people and stoke nationalism, solidifying the hold on power of said bad guys.

Russia might seem like a trifling thing in the world economy to most Americans. Out of nearly $1.6 trillion in U.S. merchandise exports, the Russian Federation accounts for a mere $11.1 billion, less than Thailand ($1.5 billion from Washington state).

Still, it has the world’s ninth-largest GDP and second-largest military, the latter heavy on nuclear weapons and doctrine that encourages their use. When Sen. John McCain said Russia “is a giant gas station masquerading as a country,” it was a cute quip. But your corner Exxon doesn’t have 1,800 strategically operational nuclear warheads out of a total stockpile of 8,500 warheads.

Russia has always seen itself as a great power.

Washington has been particularly tone deaf to the age-old reality that nations have interests. Yes, Moscow has acted badly in eastern Ukraine. The annexation of Crimea is pure national interest; it’s the home port of Russia’s Black Sea fleet. Ukraine was part of the Russian/Soviet empires for centuries. What happens in Ukraine is of serious concern to Moscow.

You’ve all been taught that Imperial Germany started the Great War a century ago. In fact, apart from Germany’s late-stage diplomatic blunders, the real force for war was Russia. It tied its national interests “little brother” Slavs in Serbia that had orchestrated the assassination of the Austro-Hungarian arch-duke. Russia had its eyes on controlling the Bosphorus and Dardanelles straits as it had for centuries and still does.

The first modern era of economic globalization was gone.

So we should tread lightly, and not merely because of Russia’s effect on other emerging markets.

Put another way, if current policies continue and we throw away our First World status and economy, the day may come when the world seeks sanctions against us. For crimes such as the land stolen in the relocation of the Five Civilized Tribes and the Mexican War, and more recently, for enshrining torture as national policy.

But closer at hand, playing economic chicken with a nuclear-armed power is riskier than Washington understands.


Today’s Econ Haiku:

Tourists take a look

Pioneer Square once stood here

Now we have a hole


 

 

Comments | More in Global economy | Topics: Nuclear weapons, Oil prices, Russian economy

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