Saturday, April 02, 2022

What Level Of Failure, Pain And Humiliation Will It Take To Make The West Stop Digging?

“What will Russia do with all those Euros it gets for its gas sales to the EU?”

The context of this question is of course, “what about those trade flows?”

This is the entire crux of the matter. Trade flows = rent extraction points.

Rent extraction points are moving from the West to the East. 

That’s the pivot around which all this commotion revolves.

The new situation for Russia:

a. Payments will be made to Russian banks, under Russian control and that removes the possibility of reserves-theft by the EU or the US. Goal 1 met.

b. Precedent set, expectations set, for preventing reserves-theft for other resource flows (grain, iron ore, oil, titanium, etc.). Goal 2 met.

Now the question comes “What can Russia buy with its Euros?”

A.1: Whatever the EU wishes to continue selling to the Russians. That’s the EU’s decision to make, and if the EU blocks those flows, then Russia steps it up one (crucial) click and says “Further purchases will be denominated in Roubles or Yuan or Rupees, which Russia can use to buy the things it actually needs” *

A.2: Whatever the rest of the world chooses to sell to Russia in exchange for Euros. Euros are used widely – not as much as dollars, but still pretty widely. If the EU decides to choke off that flow by sanctioning the intermediary banks that handle the exchange process, then Russia reverts back to a stricter version of A.1 above.

The demand for Russian resources isn’t going to abate. 

These irreplaceable natural material resources are the fungible key inputs to any modern economy.

Russia will concurrently ramp up its trade with China and India. 

That’s the long-term fundamental play. 

The thing the West fears most is Asian integration. 

And Eurasian integration is precisely my objective if I'm a Russian policy-maker.

Trade flows control economics, politics, and standards of living. 

Move the trade flows.

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Looking at the problem from the West’s point of view, I harken back to Dr. Hudson’s core question set out a few posts ago: “How can you have a good Western standard of living if you’ve hollowed out your national wealth-building capacity?”

Well, you can’t, of course. That’s what the smash-and-grab Western tactics are all about. 

We have to extract wealth from others, because we’re not creating enough of our own.

Russian/China have got most of the groundwork in place to prevent the smash-and-grab.

So when does the West “stop digging”, and start building Western domestic economies that actually work?

What level of failure, pain, humiliation and stupid will it take?

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* another key question is “what does Russia actually need from the West?”. Every week of EU shutting off exports to Russia, and possibly to China, is another week that Russia and China will devise alternatives to Western products.

Once the alternatives are in place, there’s no incentive to return to Western sources, even under very different political circumstances.

Habits endure.


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