https://www.nytimes.com/2022/02/28/opinion/putin-military-sa…
**Russia Is a Potemkin Superpower**
**By Paul Krugman, The New York Times, Feb. 28, 2022**
**...**
**I was being generous in describing Russia as even a medium-size power. Britain and France are medium-size powers; Russia’s gross domestic product is only a bit more than half as large as either’s. ...**
**Russia's standard of living is sustained by large imports of manufactured goods, mostly paid for via exports of oil and natural gas.**
**This leaves Russia’s economy highly vulnerable to sanctions that might disrupt this trade, a reality reflected in Monday’s sharp plunge in the value of the ruble despite a huge increase in domestic interest rates and draconian attempts to limit capital flight....**
**Before the invasion it was common to talk about how Putin had created “fortress Russia,” an economy immune to economic sanctions, by accumulating a huge war chest of foreign currency reserves. Now, however, such talk seems naïve. What, after all, are foreign reserves? They aren’t bags of cash. For the most part they consist of deposits in overseas banks and holdings of other governments’ debt — that is, assets that can be frozen if most of the world is united in revulsion against a rogue government’s military aggression....** [end quote]
Before the Russians invaded Ukraine, the financial markets were focused on the U.S. Federal Reserve, which announced its intention to begin tightening monetary conditions in March. Monetary tightening cycles are often followed by recession but the Fed is being forced to tighten by high inflation.
Even without the Ukraine invasion, supply chains have been slow to unsnarl themselves. The U.S. economy grew rapidly due to massive fiscal injections but the forecast has slowed dramatically. The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 0.0 percent on March 1, down from 0.6 percent on February 25.
https://www.atlantafed.org/cqer/research/gdpnow
https://www.wsj.com/articles/ukraine-war-means-another-suppl…
**Ukraine War Means Another Supply Shock to Global Economy, the Last Thing It Needs**
**Shortages of oil, gas and other commodities will exacerbate inflation just as central banks are trying to tame it**
**by Jon Hilsenrath, The Wall Street Journal, 3/1/2022**
**Russia’s invasion of Ukraine threatens to restrict global energy supplies, with the resulting rise in oil and natural-gas prices likely to hit Europe hard and potentially ripple out to the U.S. and other global markets.**
**It’s the last thing the global economy needs: Another “supply shock,” or a sudden shortage of key products—in this case oil, natural gas and other commodities—that is likely to exacerbate a global inflation problem and make matters harder for the Federal Reserve and other central banks, which are trying to prevent consumer prices from rising out of control....**
**Russia is also a big player in global markets for copper, aluminum and palladium. Disruptions in Russia’s production or delivery of those products could throw off supply chains for catalytic converters in cars, capacitors used in cellphones and even dental crowns...The country is also a producer of urea and potash, components of fertilizer....**
**[https://www.wsj.com/articles/western-sanctions-bite-russian-...](https://www.wsj.com/articles/western-sanctions-bite-russian-economy-but-pose-unpredictable-risks-11646143908)**
**Western Sanctions Bite Russian Economy, But Pose Unpredictable Risks**
**Despite short-term recession and long-term harm, Russia’s behavior may not change, and Western governments face complex potential repercussions**
[end quote]
A lecturer on Ukrainian history said, “Russia alone is a country. Russia with Ukraine is an empire.” He also made the point that each generation creates its own history.
To say that Putin is crazy because he is violating the peace that characterizes the 21st century is invalid. The 21st century will only be peaceful if nations keep the peace. Putin is a standard, garden-variety imperialist who has no intention of keeping the peace. He has hundreds of years of Russian history to pick and choose from. He has chosen Russian imperial history during the reign of Catherine the Great where Ukraine was taken over and called “Little Russia.”
Putin is unlikely to stop trying to assemble his empire because his motivation isn’t financial but egotistical. Russia’s economy is vulnerable, but the rest of the world is also vulnerable to blowback due to the supply chain issues and inflation caused by the sanctions.
I predict that 2022 will be an “interesting” year that will make us nostalgic for the peace of 2021.
If the Fed doesn’t raise interest rates we will see high inflation. If the Fed does raise interest rates we will see a slowing economy at best and likely a recession in late 2022.
Russia will conquer Ukraine. It will be destructive. It will be a bloodbath. That’s totally consistent with the Russian method. Putin will ignore financial hardships on the Russian people. That’s also consistent with the Russian method since time began. Putin will arrest any protesters. Stalin arrested and killed millions. Putin can do the same. (cf. “The Gulag Archipelago,” by Alexandr Solzhenitsyn, a deeply shocking and depressing book.)
NATO had better start seriously reinforcing the Baltic states because those are next on Putin’s empire list.
Wendy