Expect U.S. / Russian Tensions to Mount

Russia’s economy is deteriorating at a very fast pace. The Stabilization fund - a giant $450 billion savings account - has been depleted by a quarter since September as Russia tried to defend its currency. Despite that attempt, the ruble still declined.

Russian companies are facing $170 billion of debt rollover next year. Since the rest of the world is not willing to finance companies in stable political regimes, getting financing for Russian companies will be a problem (times have changed). Mr. Medvedev and his boss (Mr. Putin) will have to spend another quarter of the reserve to fund Russian corporations. According to the FT as the Russian economy is staring into a deep abyss and Russians suddenly start waking up to the realization that almighty Mrs. Oil and Mr. Natural Gas were responsible for (the temporary) resurrection of Mother Russia, and not Mr. Putin, people are already whispering for Mr. Putin’s resignation.

These whispers will magnify as things get worse. But what concerns me is the likely response. I visited Russia in September for the first time since I left in 1991, and even though at the time Russia was still prospering (and economic crisis was weeks away) I still felt this broad anti-American attitude. Now that things are getting worse every minute, Mr. Putin will likely redirect the attention and shift the blame to - you guessed it - the United States, the mother of all evil. The United States will be responsible for the global crisis, for manipulating oil markets, and anything bad that happens in Russia, the US will be the culprit. I don’t think this brings the US to war with Russia, but the relationship with Russia will likely get a lot worse.

Comments

[bosun.j:]

*The United States will be responsible for the global crisis, for manipulating oil markets, and anything bad that happens*

No truer words have been spoken!

Whomever choses to point this out will simply stating the truth. Whether we like him, her, it or the facts.

2008 Dec 30 03:42 AM

[Moon Kil Woong:]

Global tensions between everyone will tend to flare in a downturn. It is always easier to blame others than do some soul searching and self reflection.

Governments with unstable economies have a hard time getting people to consume. Governments with totalitarian regimes have a hard time getting people to invest. Governments that can't control their budgets have a hard time paying for their excesses. Governments that artificially manipulate their currency and market have a hard time balancing supply and demand. Every country has a lot to think about. And yet, I suppose every country will prefer to lay blame rather than think too deeply.

The ones that do and fix their problems will be the rising stars of the next up cycle. There is no guarantee the US or China will be one of them.

2008 Dec 30 03:53 AM

[Steven Hansen:]

the usa did pollute the world's economy - and no one has been held accountable to date. having said that, we would be where we are today because every country participated grabbing what they could off of the economic pile.

i personally blame the economic trouble in russia on every president after and including bush sr. russia was pushed into unstable capitalism when the mechanics and education of the country was unable to support it. since it never had a stable beginning - you cannot expect it to perform well during this major economic event.

i hope obama is more insightful then his predecessors.

2008 Dec 30 05:23 AM

[bosun.j:]

Good comment The hand! You underway or sitting at the dock?

2008 Dec 30 09:43 AM

[SW Richmond:]

I am concerned that Putin has the means to rescue himself by rescuing the price of oil, via a Caucasus war. Putin will not go quietly.

Comments?

2008 Dec 30 10:06 AM

[bosun.j:]

@SW Richmond:

Agreed, Putin will not go quietly. Where a war with Russia will break out is anyones guess.

Much the same can be said for America as well. Frankly I am more worried about what America will do than what Russia will do.

I have begun taking Chinese lessons as it may prove useful very soon.

2008 Dec 30 10:14 AM

[carey_jim:]

America has treated Russia very badly since 1917, so it isn't surprising that Russia has hated us, hates us now and will hate us in the future.

Woodrow Wilson denounced the Russian Revolution from the beginning and stared the first communist/socialist witch hunt in America.

Roosevelt embraced the mass murderer, 'Uncle Joe' Stalin when it was convenient and Truman denounced him when our mutual enemy, the Nazis were defeated and stared the second communist witch hunt.

We dumped the liberal and intelligent Michel Gorbachev for Boris 'John Barleycorn' Yeltsin when it was in our best interest.

We gave Alexandr Solzhenitsyn a Novel Prize because he was an anticommunist and then called him a reactionary embarrassment after the Soviet Union fell.

Not to mention our policy of encirclement and the final insult of encouraging former Soviet Satellite countries such as Poland to join NATO.

'Expect US/Russia tensions to mount.'

I don't know how tensions can mount much higher but the future is full of surprises, especially lately.

It already feels like one of those old World War II movies where a wounded submarine is sinking deeper and deeper and the crew is sweating and eying each other nervously while steel rivets pop from the hull.

Creeeeeeeek. Pop. Ziiiiing.

2008 Dec 30 03:40 PM

[Gtarras:]

I have spent most of past year in Russia, and, alas, confirm that the anti-american attitude is there and getting worse. Obama is the hope that things will be turning around, as the Georgia war stance of the current administration was a complete disaster and magnified things dramatically for the worse...

but i am totally AMAZED at the comments made here. Thats why America is the place that will turn around and will pull everybody out of the mess... AMericans blaming their own country for the malaises of the world? Its shocking (in a good way)...

Why so? Russians are blaming Americans. Thats right! Its America's fault they are inefficient, corrupt, unimaginative, criminalized, defeated as a nation by their own Kremlin managers to the thought that "nothing can be done" etc etc... Same (maybe to a lesser extent) can be said about the rest of Europe... PLEASE!

2008 Dec 30 08:16 PM

[carey_jim:]

Strong countries, as well as strong individual people, can criticize themselves.

What is so surprising about that? We know that weak individual people, and weak countries are aggressive and defensive and unable to admit mistakes.

Everyone knows that Russia has never recovered from its totalitarian past and that there is a very great deal to criticize about Russia, both for past actions and for present actions.

Some of us Americans only wish we had acted with much more intelligence and understanding towards Russia in the past as well as in the present, and in a way that better reflects our great ideals as a country.

We ask that of ourselves because we are Americans who live in a free society and we expect great things of ourselves.

Russia does not have the kind of strength that allows for self-criticism today, and in fact is near anarchy and collapse. I think the rest of the world should act appropriately, especially since Russia did the right and difficult thing which was to abandon her communist past.

Some of us think that surrounding Russia with missiles and, recently, failing to take a real-politic view of what happened in Georgia are not worthy of the free world.

If you know anything about American history you will know that America has been no less imperialistic than Russia and has just as often hid its real motives behind idealistic rhetoric.






On Dec 30 08:16 PM Gtarras wrote:

> I have spent most of past year in Russia, and, alas, confirm that
> the anti-american attitude is there and getting worse. Obama is the
> hope that things will be turning around, as the Georgia war stance
> of the current administration was a complete disaster and magnified
> things dramatically for the worse...
>
> but i am totally AMAZED at the comments made here. Thats why America
> is the place that will turn around and will pull everybody out of
> the mess... AMericans blaming their own country for the malaises
> of the world? Its shocking (in a good way)...
>
> Why so? Russians are blaming Americans. Thats right! Its America's
> fault they are inefficient, corrupt, unimaginative, criminalized,
> defeated as a nation by their own Kremlin managers to the thought
> that "nothing can be done" etc etc... Same (maybe to a lesser extent)
> can be said about the rest of Europe... PLEASE!

2008 Dec 30 09:05 PM

[Tony Petroski:]

You must understand that this self criticism only lasts while George Bush is still President. Once Obama is sworn in, even though it will only be January 20th, it will seem like springtime--the establishment media will tell us so, and seldom will be heard a discouraging word. And Obama will have nothing to say if the Russians invade Ukraine or any other place they choose. Hence, the "tensions" between the Americans and the Russians will melt away. Don't forget, the Obama generation was raised on the war cry: "What if they gave a war and nobody came?"

2008 Dec 30 09:21 PM

[scotty1560:]

was it the Ruskies are corrupt or the Dough Boys? I'm getting to old to
play "pin the tail on the donkey".

I look around our country and see lots of smug old USA corporate boys living
right next door to one of those Ruskie oil boys, next door to a Middle East
oil boy. I must admit those 100 ft yachts and car collections look nice, pretty landscape as well- they drive a little fast imo.

Count on any little bully in power to start a little "show of force" to create consolidate some power or cause a raw material "scare" Good for the economy in the short run..flags always look good on tv.

Here's a little piece of folklore during the grand time of the "Trail of Tears"
and "Wounded Knee" era highlighting the celebrity career of Georgie Custer,
so bravely fighting those heavily armed "savages".

In 1870, however, tanners found that they could make fine leather from buffalo hides regardless of the thickness of the robe. Hunters began killing buffalo. By 1872 more than half a million buffalo were slaughtered on the southern plains for their hides alone. The killing increased so rapidly that by 1880 nearly all the wild buffalo on the southern plains had been killed.

By then the slaughter of buffalo on the northern plains was under way. It had been delayed by the battle of the Little Bighorn in 1876 and the uprising by the Sioux Indians. By 1879, most of the wild buffalo in Wyoming and eastward through Nebraska had been killed, and by 1883 nearly all of the shaggies had been killed in Montana and Dakota Territory. What is believed to have been the last carload of buffalo robes and hides from the northern plains was shipped by rail from Dickinson in far western Dakota Territory in 1884.

how could the world exist without political corruption and power hungry elites?

2008 Dec 31 01:35 AM

[Short Trade...:]

I think the problems in Russia are even more serious. How can a country, were the average salary is about $1,000 a month, have such high prices? To travel in Russia is to be constantly amazed how people survive. Corruption plays a big role. Now with the Ruble ready to drop another 20 or 30 percent, the last thing Russians need now is more inflation, and that is what they are going to get. As far as Putin resigning, I think that is no feasible, Russia is a one party state, and Putin has a firm hold on the party. The last thing we need are tensions with Russia, hopefully Obama will work to improve relations.

Jan 01 07:03 AM

[SW Richmond:]

In case no one has noticed, Russia has cut off Ukraine's gas:
www.bloomberg.com/apps...

and, by some miracle, oil has gone up by more than five bucks a barrel.

Who'd have thunk it? Oh wait, I did...and got neg'd for it above.

There are way too many people here at SA who ignore the reality of politics; when one examines investment 'fundamentals', one MUST include politics as a matter of course. This is especially true in times of crisis; as far as governments are concerned, desperate times call for desperate measures, and they will do anything to stay in power. Absolutely anything. If one takes a cynical view of politics, one will NEVER be disappointed.

There are two 800-pound gorillas on the 'investment' center stage right now, and they are 'governments' and 'central banks'. Crunch numbers if you want, or do TA, but ignore the gorillas at your peril.

Jan 01 08:28 AM