Long Term Economic Fallout From War In Ukraine

[OldShooter]

... I'm not as optimistic as you are that the US standard of living isn't going down. ...

The handwriting has been on the wall for years, predicting the demise of the dollar as the world's reserve currency. The only thing protecting it has been that it is the least awful alternative. Certainly the Russian sanctions have sharpened the resolve of many countries, most notably China, to work on this problem. "When and how fast?" is really the only unknown. That and how far the dollar will fall in relative value -- IOW how bad the effect on the US standard of living will be. It won't be just expensive imports, either. Any product priced and sold on the international market will become more expensive, even if produced domestically. Oil obviously, ag products, metals, minerals, re-shored manufactured products, ...

 

[Markola]

+1. What viable alternative to the dollar exists? I heard the dollar described this week as “the cleanest dirty shirt in the closet.”

 

[Markola]

Great post gamer, you talk about renewable energy. Here's a thought what if everyone in the affluent countries used one car per family, lived in and owned one small house with one bathroom and didn't fly on jet plans? Most of us live with much much more yet have no problem telling people with one days food in their homes they need to go overthrow their oppressive government. I'm not as optimistic as you are that the US standard of living isn't going down. A bushel of corn ATM costs over 7.50 are you not going to eat..meat,dairy chicken.

I don’t disagree that we face a decline in living standards but I’m curious what you would have the U.S. and Europe do, or not do, differently than economic sanctions on Russia and support of all kinds for Ukraine. I personally cannot think of anything differently our government could do, short of WWIII, and I’m pleasantly surprised to see so many U.S. and British private corporations choose to assist in the Russian sanctions by ceasing operations.

 

[pb4uski]

+2 as long as the USD is the best looking horse in glue factory it will remain the world's reserve currency.

 

[OldShooter]

+1. What viable alternative to the dollar exists? I heard the dollar described this week as “the cleanest dirty shirt in the closet.”

That's the world's problem and our salvation. A few years ago there was a proposal to replace the dollar with a basket of currencies including the rouble, the yuan, IIRC the Brazilian Real, and one or two others. Kind of like the IMF's Special Drawing Rights. That's gone for obvious reasons. China would like the world to simply adopt the yuan, but nobody trusts the Chinese.

There have been some baby steps. Some oil was being sold based on an ad hoc currency basket but I don't know if that is still the case.

Lately I have read that China would like to see their central bank cryptocurrency used. I think other central bank cryptos have been proposed too but I am not smart enough to understand why the crypto aspect solves the dirty shirt problem.

 

[Markola]

^^^ From what I understand, a blockchain-based Central Bank Digital Token (CBDC), by definition, records in its ledger every transaction by every user. And, it could be instantly bought and used globally. The rub is, those transactions might well be only readable by the issuing government, making a CBDC a tool for surveillance. As you say, no one trusts China (or any other government?) enough to create reserve currency-level adoption.

 

[aja8888]

US Dollar as Reserve currency

Here's a brief article explaining where things stand with the global reserve currency:

https://wolfstreet.com/2020/12/31/u...ent-deficits-dollar-hegemony-in-slow-decline/

The US dollar’s position as the dominant global reserve currency is an immensely important factor in supporting the ballooning US government debt, the Fed’s drunken money-printing, and Corporate America’s ambition to offshore production to cheap countries, thereby creating huge and ever-growing trade deficits. They all have become dependent on the willingness of other central banks to hold large amounts of dollar-denominated paper. But from the looks of things, those central banks might be getting a little nervous.

The global share of US-dollar-denominated exchange reserves – US Treasury securities, US corporate bonds, US mortgage-backed securities, etc. held by foreign central banks – fell to 60.5% in the third quarter, according to the IMF’s COFER data release. This is the lowest since 1995. Over the past six years, the dollar’s share has been dropping at a rate of about 1 percentage point per year:

 

[BeachOrCity]

That's the world's problem and our salvation. A few years ago there was a proposal to replace the dollar with a basket of currencies including the rouble, the yuan, IIRC the Brazilian Real, and one or two others. Kind of like the IMF's Special Drawing Rights. That's gone for obvious reasons. China would like the world to simply adopt the yuan, but nobody trusts the Chinese.

There have been some baby steps. Some oil was being sold based on an ad hoc currency basket but I don't know if that is still the case.

Lately I have read that China would like to see their central bank cryptocurrency used. I think other central bank cryptos have been proposed too but I am not smart enough to understand why the crypto aspect solves the dirty shirt problem.

I think the freezing of FX reserves changed everything. What govt wants to have their reserves subject to being in the good graces of the USA or its "by by savings account"?

I don't know what the answer will be, but though the dollar is rising bc of the war and uncertainty, strategically every country will want to be less dependent on it.

 

[gman1234]

From a purely stock market view, what about Boycotts of Russia? For example, if Burger King boycotts Russia, they lost that revenue. No else is buying more burgers to make that up - the sales are just lost. Thus, if Russia is, say 5% of sales, their revenue will be down that amount. Thus, many businesses that are boycotting Russia will have earnings reduced...which usually shows up in quarterly revenues and profits.

 

[EastWest Gal]

From a purely stock market view, what about Boycotts of Russia? For example, if Burger King boycotts Russia, they lost that revenue. No else is buying more burgers to make that up - the sales are just lost. Thus, if Russia is, say 5% of sales, their revenue will be down that amount. Thus, many businesses that are boycotting Russia will have earnings reduced...which usually shows up in quarterly revenues and profits.

Russia is a nation of 144 million people, many who cannot afford to eat out. According to Forbes, there were 847 McDonalds in Russia, and over 39,300 worldwide. So Russia has 2% of all the McDonalds. I don’t think we really appreciate how small the Russian economy is.

 

[yhoomajor]

+2 as long as the USD is the best looking horse in glue factory it will remain the world's reserve currency.

I would disagree with this conventional wisdom (as Russians found out the hard way). "best looking horse in glue factory" would be the case if you could use that horse in a time of true emergency. But, for Russia, Euro/USD reserves turned out to be totally illiquid. Can't use it at all when they needed it most.

Also.. there is no law that other countries HAVE to use USD as the currency to trade. Turkey is already working with Russia to trade in Ruble/Lira. So is China (trade in Yuan/Ruble). Iran has been trading via Barter with several countries.

As I have said few times before, having USD as the world's currency, has allowed us to print $28 Trillions of virtual money.. and other countries ship us their hard-labor-produced products for this funny money. It's great for US, as long as we can keep this trick going. Eventually China, India and rest of world will wake up.

Gold may get its Mojo back, sooner than we think.

 

[Gearhead Jim]

(Subscribed)

 

[pb4uski]

...Gold may get its Mojo back, sooner than we think.

Yeah.... right.

 

[captain3d]

Gold is up about 12% in the last three months so someone is buying

 

[Markola]

I read that Russia still has $200 billion in gold within its borders, and that sanctions will prevent them from selling it to the west. Maybe China would trade for it, but at a likely discount, from what I read. We’re all getting a crash course in the ultimate efficacy of one’s financial reserves, including portable yacht wealth and luxury real estate wealth, when more powerful entities don’t want one to access them.

 

[yhoomajor]

I read that Russia still has $200 billion in gold within its borders, and that sanctions will prevent them from selling it to the west. Maybe China would trade for it, but at a likely discount, from what I read. We’re all getting a crash course in the ultimate efficacy of one’s financial reserves, including portable yacht wealth and luxury real estate wealth, when more powerful entities don’t want one to access them.

One benefit of Gold as a currency for a country (in its possession) is that other countries can not seize it or sanction it. And Gold is Gold. There is no discount needed. You melt it and it is still Gold, exactly same. No markings as to where it came from. So Sanctions on Gold will be a moot point when other countries trade with each other via Gold.

 

[Chuckanut]

According to a report on NPR, Russian airlines lease about 70% of their planes from western companies. Now, the airlines can't make their lease payments and the lease companies are wondering how to get their planes back if they are all sitting at airfields in Russia.

Lots of luck.

 

[Mr._Graybeard]

I read that Russia still has $200 billion in gold within its borders, and that sanctions will prevent them from selling it to the west. Maybe China would trade for it, but at a likely discount, from what I read. We’re all getting a crash course in the ultimate efficacy of one’s financial reserves, including portable yacht wealth and luxury real estate wealth, when more powerful entities don’t want one to access them.

I would hate to live in a country that China has over a barrel. See Tibet, North Korea.

 

[skipro33]

According to a report on NPR, Russian airlines lease about 70% of their planes from western companies. Now, the airlines can't make their lease payments and the lease companies are wondering how to get their planes back if they are all sitting at airfields in Russia.

Lots of luck.

Air travel in Russia is not grounded. Check out Flight Radar. Lots of flights to non-NATO nations.

https://www.flightradar24.com/51.4,29.82/4

 

[Pellice]

I read that Russia still has $200 billion in gold within its borders, and that sanctions will prevent them from selling it to the west. Maybe China would trade for it, but at a likely discount, from what I read. We’re all getting a crash course in the ultimate efficacy of one’s financial reserves, including portable yacht wealth and luxury real estate wealth, when more powerful entities don’t want one to access them.

I am curious about the real estate. We are hearing more about yachts and planes, but the real estate is where the most "reserve" of the reserves are - I know owners are hidden, hidden, hidden, but assuming much more is known about them than WE know, then will lawsuits, brought by the Hidden Ones' proxies, allow us to smoke 'em out?

 

[OldShooter]

I am curious about the real estate. We are hearing more about yachts and planes, but the real estate is where the most "reserve" of the reserves are - I know owners are hidden, hidden, hidden, but assuming much more is known about them than WE know, then will lawsuits, brought by the Hidden Ones' proxies, allow us to smoke 'em out?

There are various places around the world where the oligarchs are known to have residential property, most notably London. Boris has been quoted as saying the Brit authorities are busy digging out the true ownerships. I think Southern Spain is also popular and there are others. Non-residential property? Who knows?

 

[Markola]

…..and New York City, Miami, etc. https://www.ny1.com/nyc/all-borough...ges-in-exposing-oligarchs--property-purchases

 

[Chuckanut]

Air travel in Russia is not grounded. Check out Flight Radar. Lots of flights to non-NATO nations.

https://www.flightradar24.com/51.4,29.82/4

Who said air travel in Russian is grounded? The Russian owned airlines can still fly within Russian. I doubt if Mr. Putin will enforce a Western company repossessing a plane from a Russian owned airline that can't pay the rent due to Western economic sanctions.

The problem isn't the airline's problem at the moment. It's the leasing company that owns the planes and leased them to the Russian airlines that have the problems. They can't get paid, and as long as the planes remain in Russian they will be difficult to repossess.

 

[Gearhead Jim]

^^^
It seems to me that for flying within Russia, the Russian airlines can tell the leasing companies to go pound sand. "We'll start paying you for your airplanes when we can start service around the world."

The sanctions will have an effect on parts, but to a place like Russia, airplane parts are a fungible commodity. They can cannabalize the "grounded" airplanes for parts, or quietly buy the parts in the gray market around the world. Not convenient or easy. but do-able.

 

[skipro33]

When you look at those planes on Flight Radar, move your cursor over a plane and click on it. It will tell you info about the flight including it's origin and destination. There are plenty of flights out of Russia to other nations, just not NATO nations. It's a big world folks. Many nations are staying out of this or outright support Russia.
What I read in your posts is that the rest of the world is under a no fly zone for Russian commercial aircraft. That simply isn't so.