Russia, Ruble, 2014, Indonesia, Rupiah, 1997
Oil prices are taking a big hit. Since 2008 financial crisis the global economy is bad and growth rates are dismal. This is finally showing its disastrous effects. Demand for commodities like oil and coal is down and so are the prices. Fracking, and increased discovery and production of oil in United States, the biggest market for oil, is pulling down the demand for oil, as well. Biggest adverse effects are, so far, seen on Russian economy which heavily relies on oil money. Russian currency, Rubble, has taken a nose dive. This has very serious implications not only for Russian economy, but, for Russian people, too. They are already facing the consequences of sanctions posed by United States and other major economies.
Inflation is the main issue as far as an average Russian is concerned. As money losses its value, the purchasing power of money goes down, too which means higher prices. Value of bank balances, savings and investments is on sharp decline, as well. Banks are having runs and people are taking out rapidly devaluing money to buy hard assets like homes and electronics that are more likely to retain their value. This, of course, is a threat to the stability of financial sector, as well which is rapidly losing its cash reserves. Just like 1997, the domino effects can already be seen in economies more closely connected to Russia.
China, India, Indonesia, Ukraine and many others are already being hit in terms of currency declines. Although, at a lower scale, effects can be felt globally. World is still recovering from 2008 crisis. It certainly cannot afford another one. If this spiral grows, it can certainly affect our already dismal recovery, as well. In this time of crisis, the sanctions against Russia are only making it worse for Russia, Russian people, related economies, us and world, as a whole.
In the middle of all this crisis, Obama is talking about toughening sanctions against Russia. This is plain ridicule, on many grounds. First of all, sanctions against other countries have almost never worked. Examples include countries like Iran and North Korea. Second of all, this is not just about teaching Putin a lesson. It is about people of Russia and many other countries. Third of all, Russia is not Iran or North Korea. When it goes down, many are going with it, just like 1997. Forth of all, the whole Ukraine drama is senseless. It is none of our business, what Russia is doing thousands of miles away in its backyard.
Russia and Ukraine are fighting on a mutual dispute. Points of view on both sides have positive and negative components. Let them resolve this dispute, by themselves. We cannot afford to threaten the wellbeing of people of Russia and many other countries for something that is not even remotely our business. Historically Crimea has always been a part of Russia. It was basically gifted to Ukraine by a Ukrainian-Russian dictator Khrushchev in 1954. Although, dubbed as bogus by U.S. and many western block countries, a vast majority of Crimean did vote for accession to Russia. Independent observers have declared the referendum as “mostly fair”.
We live in an increasingly globalized world. It has been shown, in many recent crises that significant economies have vast impact on other countries’ economic stability. Those adverse effects can ultimately affect our very fragile recovery. Other developing economies like China and India seem to be determined to help Russia, its way out of this crisis, basically, to save their own countries. If we keep making it harder for Russia in the times of this crisis, the highly speculated economic alliance between China, India and Russia can become a reality.
Russia also has world’s second largest cash reserves which may not be enough to get it out from a protracted crisis. But, along with financial aid from China, those cash reserves do have the potential to pull Russia out of it until the oil prices are stabilized, again. After that a very powerful regional economic alliance lead by China, India and Russia can cause serious problems for us. This, policing the world, business continue to compromise our future interests. Most of the Muslim block is already fed up of us. EU is taking its own course. Asian block is gaining strength.
Now, if added to all that fiasco, is another powerful eastern bloc then obviously we are doomed. The Eastern bloc poses same biggest threat as the EU. These two major blocks can ultimately dump dollar as their reserve currency. Only difference is that EU is relatively friendlier to us. But, eastern bloc, in the midst of all that tension, may not turn out to be so friendly. China is already dreaming to become world’s number one power. Putin, obviously, wants to become “The ultimate anti-American”. India cannot stay out of an alliance between these two powerful neighbors.
Eastern bloc also has a very high potential of taking advantage of anti-American sentiments in Central and South America. All that together can make life very hard for us. If any country, especially, China, sets up the precedent of dumping Dollar as the reserve currency, it will be extremely disastrous for our whole monetary system which is based on seventeen trillion dollars debt and growing. The value of Dollar will take a nosedive just like Ruble. Inflation will be enormous, and it will become very hard to sell bonds and get more debt. Reduced ability to print more money will make a default very likely.
There is one lesson in these global developments. We need a drastic change in our foreign policy. We must stop policing the world and we must stop, now, before it is too late. We cannot afford it, and it is seriously endangering our long term stability and security. Regardless of how powerful, resourceful and rich we are, the time is proving a long standing Libertarian position: We cannot fight the whole world. It is way too big, complicated and expensive. We must go back to the policy of, trade with everyone and war with none which our founding fathers coined for us.