We don’t seem to be discussing the probable Russian default lately. This subject is rather over my head, but I’d like to hear what you think the fallout will be. I know Blackrock may have some problems–are there others we should hear about?
Like you, the technical aspects and potential fallout of a major economy defaulting is a bit over my head.
Two things crossed my mind:
Is Russia, at this point, all that “major” of an economy? Seems like we (meaning everybody who counts and is not Russia) can find a way to live without them. Also, seems like a really golden opportunity to encourage / extort a long list of quid pro quos in exchange for #2 below.
If they go to default immediately a Genie will come out of the bottle (meaning everybody who counts and is not Russia) and simply keep them from defaulting. Maybe just with smoke and mirrors and words that mean what we want them to mean (which is how a lot of things get done) and simply declare them to be not actually in default and, therefor, no bad defaulty things will happen. This will come at perhaps a small price to us and a bigger or cosmic price to Russia depending on how charitable we feel and what we can extract from them.
When Russia owes governments, I suppose that can happen. When they owe banks or investment firms, not so much, although I suppose banks can suspend payments or something, but sooner or later they need to get actual money.
That’s true but banks can be shored up, placated, and told to get in line and talk nice. Ultimately they don’t really have a the gun. As far as paying it off later… debts can be almost perpetually “restructured” , excused, or “forgiven” based on circumstances and other favors.
Germany: WWI reparations:
This doesn’t speak directly to this particular issue but is illustrative of just how far and how long this debt thing can go. And I would add they wouldn’t lay these terms on anybody in today’s world.Germany Set to Make Final World War I Reparation Payment - ABC News
I do not have any numbers but from some recall the amount of debt is not major for the west. The Russians were not extended that much credit although that might be presented as the Russians did not want that much credit from the west.
The Russians have been selling oil and gas. Just at prices controlled by us and steeply discounted. The Russians are paying their bills and running their printing press.
There probably are no honest numbers on their inflation rate, unemployment rate and forced transactions for military expenditures.
Finance Minister Anton Siluanov dismissed the default status as a “farce”, since Russia has plenty of dollar and euro funds to repay the debt. Associated Press reported that the official default on Russian’s foreign debt would take time to be confirmed. Financial analysts described Russia’s situation as unique, since it has extensive amounts of cash to fulfill its debt obligations and very small foreign debt compared to USA.