Why the sanctions on Russia will fail spectacularly

The first thing you've got to ask is "How much pain will the sanctions inflict?"
Will they absolutely crush Russia's economy, or just throw it into recession? The correct answer is closer to the latter than the former.

However, the analysts warned that a war lasting into 2023 with tougher sanctions from western governments and Russia retaliating by restricting gas supplies would cause a sharper fall of 7% in Russian GDP next year.

7% is not insignificant. That's a very deep recession. However, it isn't "crushing" Russia's economy.
If the economy contracted by that amount on its own, it would be a political disaster and would trigger a change of leadership. However, it has a very different effect when imposed by foreign powers, because it allows Putin to blame the West for their economic woes.

That brings us to question number two, "Will sanction force a leadership change?"

“We must thank the Europeans for their agricultural sanctions. Well done. Thank you for all your sanctions,” Putin proclaimed on Oct. 21, 2021. Russia “doesn’t give a s--t about sanctions,” a senior Russian diplomat recently stated. These are not empty boasts. Western sanctions against Russia have a long, failed history.
...
According to a view popular among Russian elites, instead of harming Russia, Western sanctions make it stronger. First, they believe that sanctions harm the West more than they damage Russia. According to the Russian government’s newspaper, Rossiyskaya Gazeta, the EU, U.S., Australia, Norway and Canada lost up to $8.6 billion a year because of the sanctions war. By 2019, the EU alone lost $240 billion from the sanctions war, almost five times more than Russia did, Putin bragged.

More crucially, the sanctions forced Russia to heavily invest in domestic production. Western sanctions finally gave the Kremlin the pretext to self-isolate from global markets in strategically important economic areas and nurture Russian producers. Import substitution became the regime’s stated goal. The policy is economically inefficient but is crucial for Putin’s regime survival. Domestically, it allows Putin to create economic elites who owe the Kremlin their fortunes and are beholden to the regime. Not competitive internationally, their prosperity rests on Putin’s decision to disengage from international trade. Internationally, sanctions eventually reduce Russia’s reliance on, and thus vulnerability to, Western pressure and potential interference.

So if sanctions can't crush Russia's economy, and can't force a change of leadership, then question number three is "Can sanctions force a change of behavior?"
To achieve that goal requires more than a stick. It requires a carrot to. There has to be some reward for good behavior.

There's two problems with that. Problem #1 is how the U.S. backed out of Iran Nuclear Agreement despite Iran following the agreement to the letter. That means the U.S. has no credibility. "Good behavior" becomes a relative benchmark outside of Russia's control.

Problem number two is that sanctions on Russia never go away.

President Gerald Ford signed off on trade restrictions against the Soviet Union and other communist countries in a 1974 measure known as the Jackson-Vanik amendment, for its congressional sponsors.
...Nearly four decades passed before President Barack Obama finally lifted those restrictions and granted Russia full trade ties in a law he signed on Dec. 14, 2012. Yet that very same law, known as the Magnitsky Act, also imposed new sanctions that bar specific Russian human rights violators from entering the U.S.

So as one set of sanctions vanished, new ones appeared.

If Russia thinks the sanctions are permanent, and they most likely are permanent, then there is little incentive to change behavior. Or to put it another way: "Economic pressure—with no hope of an end—will likely not stop the fighting. If anything, it could make the situation worse."
Even Biden's aides don't think that sanctions will alter Putin's behavior.
The U.S. obviously has relied too much on the stick, while never using a carrot. Much like our domestic policies.

Given these facts, our sanctions on Russia appear to be aimed at inflicting pain without achieving any goals. Which is pointless in most cases, but is Standard Operating Procedure for the U.S.
Just look at our record for War on Terror, War On Drugs, etc.
Our policies create victims and enemies. Nothing more.

Finally, our sanctions regime doesn't come without cost, and those costs come in many forms. This includes the obvious one.

Penalties on oil and gas, for example, would impose severe costs for Russia. But the harder it hurts Russia, the harder it hurts the West — particularly European allies, who are more reliant on Russian natural gas. But this affects the US, too. Inflation and fears of even greater global energy price spikes — already happening in the wake of Russia’s assault — and the possible domestic fallout are all intertwined with one of the most consequential foreign policy decisions in decades.

A recession is a near certainty now, but the impact also has long-term costs.

At issue is the US president’s move to freeze a sizable portion of Russia’s foreign-exchange reserves as punishment for Vladimir Putin’s Ukraine invasion. In Biden’s words: Washington is “preventing Russia’s central bank from defending the Russian ruble making Putin’s $630 billion war fund worthless.”
...
In recent conversations with senior Bank of Japan officials, the decision to separate Putin from billions of state wealth is likely to cause China, Saudi Arabia and other regimes in Biden’s crosshairs to reduce their holdings.

We just proved that loaning money to the U.S. carries unknown political risks.
One way or another, this will turn out to be rising interest rates in the U.S. for decades to come.

This is a very bold gamble to make at a time when the U.S. is running record trade deficits and record budget deficits, while the Federal Reserve is engaging in monetary experimentation never before seen in history.
We've essentially no Plan B if Russia doesn't back down. Thus what is at stake in this financial war against Russia is the Hegemony of the U.S. Dollar. If this economic war fails then so will the U.S. Empire.

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and it's totally bipartisan

ukraine-russia.jpg

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22 users have voted.

"Import substitution became the regime’s stated goal. The policy is economically inefficient but is crucial for Putin’s regime survival. "

Sure, we've optimized supply chains (and many other areas) to eliminate slack that was soaking up some profits. But having some slack helps to make the system more resilient. If everything depends on 100% efficiency (just in time deliveries of inventories) then a small blip in the system can bring lots of things to a screeching halt, as we've seen these past few years.

Russia's economy may not be as efficient for the rentiers, but it may prove to be easier to maintain at a "sufficient" level overall.

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20 users have voted.

Of course these "sanctions" will do nothing but send the fucked global economy into the status of Even More Fucked.

Tens of trillions of dollars worth of "money" have been pumped into the global economy since 2019 by the central banks of the world. This slush has filled the gap of diminished demand stemming from the lockdowns and consequent realignment of retail sales away from mom and pop stores to corporate sellers.

In my own not so typical pattern of daily life of regular business travel, my gross expenditures diminished by about six thousand dollars a month. The planes were always full and the hotels wre jammed. Virtually everybody I know saw their entertainment and travel expenditures all but disappear for most of the last two years.

This massive hole in aggregate demand would "normally" cause a "recession" and it will eventually do so once the Central Bank money spigot is turned off. In the mean time, all those trillions of dollars of fiat money will continue to sit in the stock and retail estate "markets" inflating the balance sheets of all the investors in the world.

That dam could break at any moment -- that is why they call it a crash.

Now with these utterly irrational "sanctions" starting to cause specific energy and food inflation spikes. coupled with the increased demand that will come with the end of Pandemic House Arresst, Push will say hello to Shove. Two independent crises will combine Weimar level inflation with 1930's level economic contraction. The "stagflation" that elected Ronald Reagan in 1980 will return with an order of magnitude more intensity.

All over the internet, I see disgusted voices talking about how stupid the Biden Government is. That assumes, of course, that they really are oblivious to the threat of nuclear war or the idiotic economics of these Sanctions.

.

Nobody is that stupid. There has to be another explanation.

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I cried when I wrote this song. Sue me if I play too long.

QMS's picture

disrupt global trade by sanctioning trading partners
and the results will be felt at home.
Why the US does not recognize this is beyond understanding.
Unless the global banking interests see some value in destroying the
US financial system?
The former 'strong' dollar trading system is all but in the toilet now
due to the greed infested in this economic war.
The US is to blame, and the consequences will hit home.
Stupid shits. And we will suffer the consequences.

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gulfgal98's picture

@QMS The effect of these sanctions ends up being sanctions on the American people whose lives are already in the toilet due to greed and stupidity of the Administration and the global elite it serves.

I just pray this does not end in nuclear war because those on our end are too stupid to realize that will be the end of all of us. We have freaking elected officials in Congress calling for a no fly zone but when asked what that meant, they had no idea.

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

usefewersyllables's picture

probably be just fine, as they will simply start trading with everyone but us (looking at you, China!)- as will the rest of the world.

Our economy, on the other hand, is likely to suffer very, very badly- especially once China decides that they are tired of playing footsie with us. The wheels can and will come off the wagon very quickly once the petrodollar is replaced by the petroyuan, and you can bet your bottom yuan that the Chinese are fully aware of that.

We have burned all our allies, to one extent or another. We have truly sown the wind with this brilliant bit of financial warfare. The whirlwind is warming up in the wings, as we speak.

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Twice bitten, permanently shy.

Pluto's Republic's picture

@usefewersyllables

...are unusual.

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____________________
Those who can make you believe absurdities can make you commit atrocities.
— Voltaire

snoopydawg's picture

Are they still doing this so we can fund our wars or was that some fairy tale I was told. And if they do then what happens if they stop or call in the chips?

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It is not until the tide goes out that you discover who has been swimming naked.

gulfgal98's picture

@snoopydawg https://www.investopedia.com/articles/investing/080615/china-owns-us-deb...

There are two main economic reasons Chinese lenders bought up so many U.S. Treasuries. The first and most important is that China wants its own currency, the yuan, pegged to the dollar.10 This has been common practice for many countries ever since the Bretton Woods Conference in 1944.11

A dollar-pegged yuan helps keep down the cost of Chinese exports, which the Chinese government believes makes it stronger in international markets. This also reduces the purchasing power of Chinese earners.

There's more than what I excerpted here. How long China will continue to invest in US Treasuries may be debatable in the not too distant future. (JMHO)

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

snoopydawg's picture

@gulfgal98

That was most helpful. One more question. Are these treasury bonds or government bonds?

GOOD to see you. Hope you are doing well?

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5 users have voted.

It is not until the tide goes out that you discover who has been swimming naked.

gulfgal98's picture

@snoopydawg I believe that US debt is through Treasury bonds, but if I am wrong I hope someone here will clarify the difference.

Yes, and thank you.

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9 users have voted.

Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

from
Gonzalo Lira
*Skip ahead to 24:24 for the Saudi oil portion of the video*
The three earlier sections are a bit off topic (and very likely controversial), but the forth section is right on point one possible unintended consequence that might hurt the US in a very big way.

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“We have a very small window in which we need to make a fundamental shift away from capitalism.” Kshama Sawant

Sanctions are based on globalization, and globalization is based on exploitation. Or, more specifically, globalization is globalization of demand and reduction of production costs regardless of the consequences. (for example 30 years ago I read that Somalia was a food exporter, but it was all fruit to Europe, while Somalis starved for need of, well, food) Making Russia self sufficient was less "efficient" - less profitable - but also less exploited.

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On to Biden since 1973

CB's picture

Former senior advisor the Secretary of Defense Col. Doug Macgregor joins Max Blumenthal and Aaron Mate for a candid, live discussion of the Russia-Ukraine war

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For Putin, keeping power is the only consideration and sanctions won't make him lose power. That said Russia imports a lot of capital goods. Chips and spare parts. Sanctions will degrade Russia's ability to make everything from APCs to tank parts to trucks. Oligarchs don't matter, one can always find new oligarchs, but a degraded military can't fight.

Russia doesn't even need the money from exporting oil and wheat as much as it needs the capital goods to do everything. Russia doesn't make much.

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@ban nock Russia makes a lot of raw materials as well as things like the sapphire wafers needed to make computer chips (and neon from RU/Ukraine is also needed in chip fab).

How much of what it won't be able to import from the West is because the West won't have the materials they need to make things? China should get plenty of raw materials from Russia to meet the BRIC needs, but maybe not enough to make things to ship to the "West". Who's ox is being gored (or foot is being shot) then?

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16 users have voted.

@ban nock John McCain's comment that Russia is a gas station pretending to be a country seems to be deeply ingrained in the minds of Westerners. Energy is indeed the majority of Russian EXPORt revenues. But as a percent of gross national product it is 15%. In the US the percentage of energy as gross national product is 9%. So what is the other 85% of the Russian economy doing? The majority of the Russian economy services Russian consumers. You knows that Russia is one of few countries producing its own insulin?

Cliches about Russian and Western economies will sink the West.

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@MrWebster
military weapons and food.

So along with oil and gas, Russia's economy looks a lot like ours, but with just a couple exceptions:

1) we also produce a lot of tech, Russia doesn't

2) Russia has a balanced budget and a trade surplus, while we have an enormous current account deficit

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@gjohnsit Read a tweet in passing that a baker in VZ said the reason they have bread products is because Russia sent them wheat.

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Bob In Portland's picture

@gjohnsit They may not make a lot of tech but they make missiles and jets that can go hypersonic.

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Pricknick's picture

@gjohnsit

1) we also produce a lot of tech, Russia doesn't

Let's forget about kalibr missile which recently wiped out a bunch of wanna be warriors and freaked out the missile defensive systems that supposedly protect nato.
Let's forget about the old and improved S-500 which scares the shit out the f-35 pieces of shit.
Sorry gjohn, the only tech that we, the us produces, is surveillance which is second best at most.

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Regardless of the path in life I chose, I realize it's always forward, never straight.

Bob In Portland's picture

@ban nock Everyone on the TV channels we get here in the US tells us that Putin is evil and crazy. He isn't.

They said the same thing about every leader we murdered to get their country's wealth.

This serves several purposes, the most important being that the American public never actually learns what either side is fighting for.

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Maybe it is not having the resulted results. Perhaps someone can explain.

https://www.xe.com/currencycharts/?from=USD&to=RUB&view=1M

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The Liberal Moonbat's picture

...the USD becomes the first sovereign currency in history to win a Darwin Award.

For those of us who live here: Then what?

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In the Land of the Blind, the one-eyed man is declared insane when he speaks of colors.

To paraphrase Jodie Foster: Human is not something to aspire to, it's something to get away from.

@The Liberal Moonbat
I'm just a bit swamped at the moment

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I have friends in Russia and a Zoom buddy that I talk to once a week. I've also researched Russian sources. Here's what I found:

- Gasoline (Benzene as they call it) is currently around 51 Rubles per liter, essentially no change.
- Natural gas for heating and cooking for a typical single family house was $24 per month in the Winter, unchanged.
- Transportation, metro, busses, trams etc. , unchanged
- Food, this is more interesting. If you shop locally grown food, such as carrots, potatoes, cabbage, tomatoes, onions, kasha, eggs, chicken, pork, beef, fish etc. the prices are unchanged. If you shop produce from friendly nations, Turkey, Israel, China, other Asian countries, South America, Central America, Africa, the prices are the same. If you shop Western foods then the prices have increased from 20 to 100%.
- Medicines. This is a problem. Western medicines have increased by as much as 100%.

Practically speaking for the average Russian the economic situation has not changed. If you are in the upper middle class then you life style just became more expensive.

They report that the support for President Putin and the situation with Ukraine is extremely strong. The approval numbers for President Putin are now around 77%, a significant increase. Just as in the US it is not a good idea to publicly express disapproval of the situation. The anti war demonstrations are microscopic, consider that Moscow has a population of about 13 million and 20 million in the greater area, if you see demonstrations filmed at ground level and the don't extend for blocks then they are miniscule.

It seems pretty obvious that we have screwed ourselves and Europe without impacting the average Russian. Russia is extremely self-sufficient in providing the basics for life, and they trade with just about every non-Western country in the world. I'd classify these sanctions as an own-goal.

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Capitalism has always been the rule of the people by the oligarchs. You only have two choices, eliminate them or restrict their power.

snoopydawg's picture

@The Wizard

Meanwhile life in America is going to get more expensive. If Russia cannot find a buyer for its oil then 30% of it will be off the market. That would rein holy hell on gas prices.

Here’s how Russia is dealing with the sanctions.

Seniors and people who are unemployed because companies have pulled out will be taken care of. Minimum wage has increased to $20/hour. Read to see what else they are doing. Think our government will look at for us? Yeah me neither.

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9 users have voted.

It is not until the tide goes out that you discover who has been swimming naked.

@The Wizard Have people I know from Southern Russia (not Moscow or St. Petersburg), and life is going on normally. Support for Putin is high and growing anti-Western sentiment.

The old Soviets are laughing at sanctions. They know how to survive the worst of times.

It seems under Putin Russia has worked toward self sufficiency and made progress toward that goal.

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QMS's picture

@MrWebster

The two major Eastern European countries have insulated themselves (and their people)
from all of this sanction BS. The west seems hot to maintain the unipolar concept of
global control, but certain unions are not going along with it. It will be the US, in the end
that suffers the consequences of their arrogance. Too many bombs, not much foresight.

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usefewersyllables's picture

@The Wizard

help us get rid of some of our own home-grown oligarchs...

Catch the gray men when they dive from the 14th floor. Well, one can hope.

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Twice bitten, permanently shy.

shaharazade's picture

Hard to see what is going down globally and harder still to see what's up with the US.Can't read 'the news' as it is all a product of Big Tech, media, and leaves me literally shivering cold. Although for me the saving grace is it's so absurd it's become almost laughable. 'Propaganda all is phony' Don't Tweet, or any of that jazz, got no TV, got no cable. Use the library where I did gey RFKjr's book about Fauci and Bill Gates and Big Pharma. So what's up with the food situation in the US? Like gas is it profiteering. Used to read about empty shelves in Soviet Russia. lol.

I've taken to Substack subscriptions for news and opinion. 'At least I get my washing done.' Strange days when nothing is believable and all roads lead nowhere. What a freaking mess. Empire dying? Good but the misery we inflict on humans and the planet as we go is sickening. Can't get that tweaked about most stories these days as nothing is real. Anyway back I go to watch Russel Brand make me laugh and yet spout some truths. Truth is not easy to find on the net or anywhere.

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