Russian default ramifications

What impact would a Russian default have on the world and on Berkshire?

When the Russians defaulted in 1998 I think it weakened Yeltsin enough politically and eventually cost him his job, so that would be a nice benefit if Putin was forced out somehow.

I think LTCM was brought down in part because of exposure to Russia, so I’m wondering what the odds are of something like that happening again. Could there be knock on effects that might cause financial blowups around the world?

I know many are cheering the sanctions on Russia (I am) because of what they are doing in Ukraine, but I’m not smart enough to understand the ripple effects of a possible default. But maybe a Russian default is not that big of a possibility?

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Matt Levine suggests that by sanctioning Russia’s central bank it could possibly weaken the US dollar as a global reserve currency.

“ But there are also more specific complaints about “weaponizing the dollar”: The U.S.-dollar-based international financial system, and the international financial system broadly, is an extremely valuable engine for global prosperity because people basically trust it to be reliable and neutral and rules-based; they trust that a dollar in a bank is usable and fungible, that the dollar system protects property rights.[2] “Money is a social construct,” sure, in the back of everyone’s mind, but it is a well-constructed construct, one that works. Making the Russian central bank’s money disappear undermines that valuable trust. This is arguably bad for the dollar’s long-run dominance: Russia will develop its own ways around SWIFT, China will push other countries to adopt its digital yuan, everyone will use Bitcoin, etc. But it is also arguably bad for global prosperity: Trustworthy rules-based trade works better and produces more value than arbitrary uncertain trade.“

https://www.bloomberg.com/opinion/articles/2022-02-28/russia…

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Far be it from me to take the other side of a global finance & economics argument with Matt Levine.

However, I would suggest that a rules based international finance system can only endure by serving a rules based system for global security and prosperity. This includes respecting a nation’s right to secure borders when it is not threatening another sovereign state. It also includes a nation’s right to engage with other nations to further their mutual security and prosperity.

My obvious points to Mr. Levine:

  1. There is a pre-condition for sustained use of this USD-based intl finance system - respect for the basic rights of nation states and their citizens. Indeed, the dollar’s global acceptance is in no way furthered with a Russian invasion of Ukraine and the subsequent installation of a puppet regime. China may opportunistically try to make that point as well.

  2. Just as Putin has no problem using their NG supply to Europe as leverage, the US (in concert with NATO & EU) should use all available assets to counter Putin’s violation of intl law, potential war crimes and his infectious threat to the world order. Putin’s foray into Ukraine is not a first time offense.

A currency crisis & the associated inflation ripples are problems every economy will need to deal with. The slaughter of innocents and the taking of a nation state’s land and resources by force are problems of another order altogether. I would submit that there are times when the civilized world may need to “weaponize the dollar” to manage events that could ultimately upend its reserve status anyway. History is littered with the tragic costs of appeasement.

The US and its currency didn’t simply inherit reserve currency status. Its adoption is rooted in the Federal Reserve Act of 1913 & the 1944 Bretton Woods Agreement(both peripheral to US involvement in prior wars on European soil). The USD enjoyed a record as a reliable store of value, because its value remained linked to gold, when most/all others had left the gold standard to finance their war efforts.

The reserve status of the USD is sustained by the size & strength of the US economy and the dominant role US institutions play in financial markets globally. The euro or the renminbi could supplant the USD as the global reserve currency, but the necessary institutional commitments from the EU & China are as yet, insufficient to win the trust and confidence of the global community.

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The slaughter of innocents and the taking of a nation state’s land and resources by force are problems of another order altogether. I would submit that there are times when the civilized world may need to “weaponize the dollar”…

Funny. I thought I was reading about the US invasion of Iraq in 2003 under false pretenses. A half MILLION Iraqis, mostly civilians, murdered thanks to one megalomaniac’s ego trip.

Civilized world my …

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US invasion of Iraq in 2003 under false pretenses. A half MILLION Iraqis, mostly civilians, murdered thanks to one megalomaniac’s ego trip.

One?

If you mean the supposed WMD’s and the one in the White House: Wasn’t there such a guy in Downing Street too?

Yes, I voted for Blair. Pretty disgusted by the whole dossier affair. Pisses me off when he floats around on TV as a consultant for Goldman Sachs.

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<<Yes, I voted for Blair. Pretty disgusted by the whole dossier affair. Pisses me off when he floats around on TV as a consultant for Goldman Sachs.>>

Now is the time to send all these retired politicians to Ukraine as voluntary fighters or consultants.

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“Funny. I thought I was reading about the US invasion of Iraq in 2003 under false pretenses.”

Your point is unassailable, and yet it asks our minds to engage in a time travel nearly 20 years and 3300 km from the blood that is spilling now, from the families now choosing self defense over refugee status.

I firmly believe those victims in Iraq are imploring us from their graves to keep our collective eyes and conscience on this moment of horror that we can confront and the perpetrator we can condemn and indict.

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Yes, I voted for Blair. Pretty disgusted by the whole dossier affair…

Not nearly as embarrassing as Gerhard Schroeder and anyone who ever supported him in anything.

Past: Chancellor of Germany, Grand Cross 1st Class of the Order of Merit of the Federal Republic of Germany.
Continuing: Chairman of the board of Rosneft and Nord Stream AG, just nominated to board of Gazprom three weeks ago.
Today: Dick. No sign of resigning any of those roles. His entire staff have just quit in disgust.

His view on the invasion? “Both sides made mistakes”. And that Ukraine, not Russia, was “saber-rattling.”
I guess Ukraine made the mistake of being in the way of all those tanks.

Jim

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Both sides made mistakes

NATO expansion is part of the problem.

Iraq found out the hard way that their country was destroyed for Oil by a superpower using a false pretext of WMD and fake powder show.

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NATO expansion is part of the problem.

That’s Russian propaganda.

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Your point is unassailable, and yet it asks our minds to engage in a time travel nearly 20 years and 3300 km from the blood that is spilling now, from the families now choosing self defense over refugee status.

I firmly believe those victims in Iraq are imploring us from their graves to keep our collective eyes and conscience on this moment of horror that we can confront and the perpetrator we can condemn and indict.

I love this. Typical Western bombast.

"Yes, we polluted the Hell out of the world, but that was a long time ago. India and China are doing it now so they must be condemned.

Yes, we hunted a whole lot of species to extinction. But that was a long time ago. China should not do now what we did back then.

Yes, we attacked and murdered hundreds of thousands of civilians but that was 20 years ago. This is now."

All of the above is also true and has an unassailable logic. Just can’t swallow it. The collective eyes and conscience were asleep when it truly mattered.

Time travel my …

(I think this is just how I end my political posts now :-))

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Divi: NATO expansion is part of the problem.

Reply: That’s Russian propaganda.

For the 1st time I have to agree with friend Divi. Of course it’s a problem if in several waves NATO comes closer and closer to you until it finally arrives directly at your doorsteps.

This would be immediately obvious for you for a moment stop seeing it through Western eyes only, if you for a moment see yourself being in the shoes of the “other” side.

Invert the situation and imagine a Russian-Chinese led military alliance which long ago started at Argentine but over the years includes more and more South American countries and extends over Brasil, Columbia, Mexico until it finally arrives at YOUR doorsteps.

Not a problem for you at all? You would not feel threatened? Ha!

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NATO expansion is part of the problem.

That’s Russian propaganda.

I suppose those two things can both be true. To very different extents, of course.

Let’s say your next door neighbour has a well known poodle phobia and you buy a poodle.
Then he burns your house down because he says poodles are evil, obviously creating a big problem for you.

Yes, it’s fully his fault and his stance was utter nonsense.
And also…your purchase of a poodle was, in some small way, a “part” of the resulting problem: one of the catalysts.
You knew he had a crazy aversion to poodles before you bought one.

That’s not to say you shouldn’t have bought a poodle. Anybody should have the right to buy a poodle. No argument. Vive le caniche!
But, having bought a poodle, it’s not 100% surprising that a problem would be created.
Annoying a well armed nut job is absolutely one’s right, but there are sometimes things within your rights that lead to unpleasant results.

I can think of several things that are plainly true that I could post on this board that would get me barred forever.

As for NATO expansion in the specific—
Few people seem to consider why NATO expansion annoys Mr Putin so much.
Sure, he’s paranoid, and he sees them as a threat. But that’s just the shallow first level thinking.
More to the point, he may be a little bit nuts, but he’s also very canny and has some goals.
NATO exists because it’s easy for a large country to pick off small adjoining countries one by one.
NATO prevents that because of Article 5–an attack/declaration of war on one is deemed an attack on all, making it, for military purposes, one big country.
He likes the idea (and habit) of picking off small countries one by one. Either for assimilation or to make them docile client states. He can’t do that to members of NATO.
So, he doesn’t want his targets to join NATO. Each one that does becomes too expensive to attack.
It’s utterly maddening for him (literally, in his case), like seeing all the eligible pretty girls in his town get married one by one by one.

Or such is the hope, at least.
I wouldn’t bet my fortune on the future prospects of the Suwalki gap right now.
As mentioned, he’s a little bit nuts.
Of some mild concern…I had several conversations today with an associate in Kaunas, 100km away.

Jim

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Let’s say your next door neighbour has a well known poodle phobia and you buy a poodle.

The poodle analogy is trivializes the issue.

Think of Cuban missile crisis except Russia and US switching roles.

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For the 1st time I have to agree with friend Divi. Of course it’s a problem if in several waves NATO comes closer and closer to you until it finally arrives directly at your doorsteps.

This would be immediately obvious for you for a moment stop seeing it through Western eyes only, if you for a moment see yourself being in the shoes of the “other” side.

Invert the situation and imagine a Russian-Chinese led military alliance which long ago started at Argentine but over the years includes more and more South American countries and extends over Brasil, Columbia, Mexico until it finally arrives at YOUR doorsteps.

Not a problem for you at all? You would not feel threatened? Ha!

I see a couple differences. One is that Russia is a nuclear armed power with a very large army and is geographically vast. No one is going to invade Russia. Even in the Cold War days the US and the FSU fought many proxy battles, but tried to avoid going toe-to-toe as much as possible.

It is also instructive to understand why some countries want to join NATO, particularly in central and eastern Europe. Putin has intimated a number of times that he’s border-flexible. He views Russia’s borders as whatever he wants them to be. Those countries don’t have plans to invade Russia, they want to avoid getting steam rolled by Russia. There are some good reasons to believe getting steam rolled by Russia is a reasonable concern.

The notion Russia is pragmatically invading Ukraine in order to defend her borders is “puppy ate my homework” territory. Russia invaded Ukraine because Putin wants to control Ukraine. Full stop.

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… I have to agree with friend Divi … Of course it’s a problem if … NATO comes closer

stop seeing it through Western eyes only …

Well, let’s just look at the situation “in the shoes of the ‘other’ side”:

NATO was formed in 1949, how many times has Russia been attacked by NATO?
The closest encounter in the Cold War was in the Americas region (Cuba), NOT Eastern Europe!

If Ukraine wanted to threaten Russia, why would they agree to unilaterally destroy their 1/3 of the Soviet nuclear arsenal (1,700 warheads) and sign the Treaty on Non-Proliferation of Nuclear Weapons (NPT) in 1994?

What troubles Putin to an extent that he publicly humiliates his Intel chief, who can’t seem to muster a full throated endorsement to invade a neighboring republic?

Could it perhaps be the vivid contrast that neighbor Ukraine represents with a citizenry insisting on free and fair elections? Hmmm, shall we ask Alexi Navalny or is he too “Western”?

What is the threat to Putin when the people of neighboring Ukraine begin seeing tangible benefits to investigating and prosecuting corruption of government leaders? My guess is that “Eastern eyes” in the towns across Russia might decide the mother country needs that same medicine.

Putin enjoys an obscene racket with a tight oligarchy. It has enriched him, while plundering the Russian economy & people. Anyone challenging that status quo represents an existential threat to someone who has been Russian president or prime minister for more than 20 years. Putin has enabled and harbored criminals who have destabilized America’s political process, vandalized or stolen data from public & private Western companies and citizens & assassinated political rivals and journalists that challenge his narrative and con.

This is NOT the time to play the false equivalency card and YES, I’d be happy to mourn the victims of the Iraq war … but that’s a worthy focus when the clear and present danger that’s squarely on their counterparts in Ukraine subsides. Diversion will have to wait.

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This is NOT the time to play the false equivalency card

From Iraqi’s point of view, their country was attacked and destroyed for Oil by a western demagogue superpower with fake reason (white powder and WMD).
This followed with years of plundering, torture /rape (yes) and looting and ended up killing ~5000,000 to ~1,000,000 Iraqi citizens.

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Divi,

I’m not some apologist for Bush/Cheney. We’re not litigating the Iraq War.

Saddam had gathered lots of bad karma with Iraqis and outsiders (even before he invaded Kuwait).
The ensuing Iraqi civil war had religious and ethnic roots - mostly irrelevant in Ukraine.

Zelensky was popularly elected by the Ukrainian people with 73.2 per cent of the vote.
He didn’t take Ukraine to war with Iran, invade Kuwait or use chemical weapons against the Kurds.
He’s was a professional comedian for heaven’s sake - a bit less than a neighborhood bully.

It’s not that your point as framed is without merit, it’s not. But Zelensky’s (Ukraine) threat profile is not remotely equivalent to what Saddam’s was in 2003. Zelensky’s Ukraine is not a military threat to Russia, as claimed. Zelinsky simply represents a dangerous example for Putin’s Russian citizens to consider - the popular will of its neighboring people. That’s Putin’s torment.

It would be foolish and dishonest of me to insult your opinion. My point is that Putin’s little game is not at all complicated, unless we allow ourselves to be distracted in this crucial moment.

Cheers!

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From Iraqi’s point of view, their country was attacked and destroyed for Oil by a western demagogue superpower with fake reason (white powder and WMD).
This followed with years of plundering, torture /rape (yes) and looting and ended up killing ~5000,000 to ~1,000,000 Iraqi citizens.

On these TMF boards I argued long and hard that the Iraq war was based on flimsy evidence, and after the war started I argued the war was being prosecuted in a foolish manner based on wishful thinking.

I am still of the opinion that two wrongs don’t make a right. Right now, Putin is bombing civilians. That’s wrong. Whatever the US did in Iraq is zero justification for Putin killing innocent people. Full stop. And whatever handwaving you can come up with to defend Putin’s atrocities, it still isn’t justification for his killing innocent people. And by the way, many of those innocent people are his own soldiers.

Maybe, just maybe, there was another solution that could have avoided young Russians coming home in body bags from a war they didn’t want and by all accounts didn’t even know they were engaging in until it was too late.

Anyway, this the wrong board so I’ll bow out. Back to BRK

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