The horizon is not so far as we can see, but as far as we can imagine

Russian Debt Default + Consequences, Simply Explained

I don’t want to spend a lot of time on this, but the fundamentals are worth a quick review.

Russia had hundreds of billions of dollars on reserve at central banks. We have frozen them so they can’t spend them, and we’ve also forbidden banks, in general, to do almost any business with them in dollars.

So they have the money to avoid default, but are not allowed to use it to pay their debts.

This is like if you personally had an account at the bank for $10 million and they said, “We’ve frozen it so you can’t spend it, and we won’t accept money from anywhere else, but we still expect you to pay your mortgage.”

It’s obviously unfair, and everyone outside of the West knows it, as many countries have invaded other countries and none of them were hit this way. This punishment is so harsh because Russia is outside the club and didn’t have the nod or a similar punishment would have been doled out over Iraq, Libya, and Yemen, among many others.

It has made other countries scared for their money. Even countries that have license, like Saudi Arabia — who is currently bombing the hell out of Yemen with a sanction in sight.

Saudi Arabia is considering accepting the Yuan for oil payments.

Of course, the US is pushing back hard — that oil is priced in dollars, and it’s one of the main reasons the dollar is the global reserve currency.

But while the Sauds are in good for now, who is to say they always will be? What if one day the US decides to sanction them? Perhaps they see it as in their interest to diversify their reserves. Perhaps they also see Beijing as FAR less likely to sanction them? If they do, I agree. Just don’t piss China off about Taiwan, and the odds of China ever freezing your Yuan reserves or sanctioning you is essentially zero, not least because in order to grab reserve status from the US, they need to be more trustworthy.

I don’t know if the Sauds will do this yet; the pressure the US must be bringing is immense. But I do believe that when we look back on these massive sanctions, we will see that forcing Russia into default was the end of the dollar’s hegemony. This weapon has been used before, but only on marginal states. To do it to a Great Power is quite different.

The US can’t be trusted with your money. Before, people was perceived the US was the safest place.

For most countries, the dollar hegemony has been terrible; they sold American stuff and got numbers on a computer in return. (China on the other hand, played the game smart. They got the US industrial base in return and, even if the US freezes every dollar they have, they’ll still be ahead.)

Most countries will be better off in a de-dollarized world. But the US won’t, and if Europe stays a US satrapy (which most indications suggest it will) then it will be bad for them. Ironically, back in the early- to mid-2000s, the Europeans had the opportunity to make the Euro an independent reserve currency, but, as usual for Europe in the age of American dominance, they lacked the guts.

None of this will happen immediately. But I believe we’re either at, or within, a year of when we will be able to look back and see this as the tipping point.



The Superpower of Admitting the Obvious


The Features of Good Leadership In Societies & Large Groups


  1. ptb

    “China on the other hand, played the game smart: they got America’s industrial base in return”

    The whole thing in a nutshell, right there.

    And that was as of Janurary 2022. Now China got America’s industrial base and Russia’s natural resources.

  2. jemand

    Correct me if I’m wrong, but I remember a narrative that goes like this:

    The US invaded Afghanistan and the entire western banking system froze Afghanistan deposits– the invaded nation’s reserves– certainly not the invader’s. Then decades later when they’d finally outlasted the US appetite for continued occupation and regained sovereignty, the majority of those reserves were confiscated to the US. Now Afghani citizens are starving.

    While they starve with no money to import the quantities of food needed, the US, as described in this post, forces a default on Russia while pretending it is entirely voluntary on Russia’s part they are not paying as agreed.

    The US also pretends there are moral principles involved here and not just the powerful doing as they will and weak suffering as they must. The astonishing piece to me is how normal people actually seem to believe this at they are told, but I don’t know why that is astonishing to me. It is very common.

  3. Willy

    As I’ve said before, and before that even, the invasion of weaker nations must be done more delicately (and more quietly, if possible) than in times past. And not just because it’s better for the citizenry being invaded, since the PTB don’t care much about that.

    What the PTB care about is to get a higher quantity and quality of ‘alliance’ from other neoliberal nations, where the PTB are trying to keep their own neoliberalisms from being overthrown by their own mobs. Free trade not wars!! they say. But if wars we must turn the conquered nations citizenry neoliberal and not into a buncha pissed off terrorists since that tends to ruin the neoliberalism. (See Afghanistan, where few globalized shoemakers want to open up a shoelace factory).

    So yeah, the Chinese leadership are up on all this and have crafted their own strategies in response, even if they did tip their hand due to circumstance. They still seem pretty good at the game, of late, so we should probably watch and learn.

    Which makes the Putin situation all the less puzzling. As I’ve said earlier, he’s looking like a big brother bloodying his little sister in an attempt to get the popular NATO kids to quit calling him a bully. He knew that NATO is weak when it comes to hot wars against big bullies. Hell, Truman and JFK were ten times as bold with Korea and Cuba. He ignored that they’ll make him unpopular and try to turn his sister into a pissed off terrorist, probably because he’s so well insulated from such things, personally.

    My apologies for this level of nuance. I’m usually far more blunt. But it’s becoming increasingly evident that neoliberalism is all about the trickery. A lesser evil than open warfare for sure, but still pretty evil in intent.

  4. Mark Level

    Yes, Ian. As usual, clear, correct and cogent. . . . I know Michael Hudson had covered this extensively, as Naked Capitalism and others have as well . . . the U$-led Reactionary Neolib Empire is cutting its own throat, since the financialized economy is hollow and does not produce much real “goods” as in the past (as you point to with industrialized production being moved to China and other places where workers are paid less.) So the Elites cut off their nose (or throat) to spite the Russian face, after provoking the Ukranian leadership to directly threaten Russia (as a proxy for US “power,” including putting nukes right on the border– which couldn’t be accepted by Putin or ANY Leader) . . . this won’t end well for the US populace or the Europeans as long as they continue in their boot-licking servility to the failed Empire. But every Empire becomes overly blind and predatory over time and ends its own dominance. I’m glad I lived to see it happening (since I’m in my early 60s, hated the Empire ever since I saw friends’ older brothers returning from Vietnam as junkies, or basket cases) . . . In the meantime, the MSM lies and urges the populace to support their own economic & environmental impoverishment with simian-like “loyalty” and “patriotism” to an Elite that does not reciprocate to the herd of followers . . . well, I guess given failings in human evolution, plus the removal of even the concept of Public (or community, etc.) responsibility in the Media-ted herd such an outcome was entirely predictable. As to the war-drums beating, here’s a nice link to the Citations Needed podcast on the orchestrated beating of war drums by the nice people who brought us Iraq & Afghanistan (& Vietnam, Guatemala, ad nauseum) on the five worst recent media takes on “Putin v. Ukraine”). PS– I clicked on the free SoundCloud link, anyone linking in 2 or 3 days may see a later update, but title is “News Brief: 5 Worst Media Reactions–“, etc.

  5. jsn

    The new exchange system Russia and China are discussing ties currencies to export commodities.

    I haven’t seen details yet but that doesn’t strike me as enough to force a diversification of reserves which I believe (but may be ignorant) is necessary to avoid the burdens concomitant with the “Exorbitant Privilege”: the export of skill with which the US paid for it.

    I expect the Chinese to be looking for something more like Keynes Bancor that has a mechanism to force rates to balance exchange and productivity and prevent mercantilism.

  6. Astrid

    Interesting to me is how the western stock market indices are reacting. Commodity prices have shot up. Logistics disruptions from Ukraine and China’s covid lockdowns are likely to be huge, maybe an order of magnitude greater than what we’ve experienced so far. Omicron variant and long covid effects are likely to manifest strongly in Q2.
    Dollar hegemony appears to be on the way out, even getting pushback from KSA and India. Europe literally can’t find enough non-Russian energy sources to keep its lights on.

    But stock indices are already bouncing back significantly from their lows. What do they know that I don’t?

  7. Dan Lynch

    Three issues: 1) the safest place for the rich to park their money, 2) who makes stuff that the rest of the world wants to buy, and 3) and how/where to settle accounts.

    Since WWII the U.S. has been viewed as a safe place to park money, plus in the post war years the U.S. made a lot of stuff that the rest of the world wanted to buy. Now the U.S. will be viewed as a less safe place to park money, and the U.S. no longer produces much stuff that people want to buy. That makes the dollar less attractive — but compared to what?

    As long as the U.S. imports Saudi oil, the Sauds will continue to have a pile of cash. If the Sauds don’t want to hold that cash in dollars, they can easily exchange their dollars for Swiss francs or whatever on a currency market. But then what will the Sauds do with their Swiss francs? Do the Swiss make anything that Sauds want to buy? A guy only needs so much Swiss chocolate and so many Swiss watches.

    Well, China and Russia have stuff that people want to buy. So maybe the the world will increasingly prefer to hold renminbis and rubles, and maybe banks and credit card companies will increasingly prefer to settle accounts in renminbis and rubles? But the sky did not fall for Britain when the pound stopped being the most popular reserve currency. The Swiss franc is not a popular reserve currency, but the sky is not falling in Switzerland. So I think the importance of being a reserve currency is overrated.

    If the dollar stops being a reserve currency, and devalues, Americans might have to pay more for Saudi oil and Chinese teevees, but that’s not necessarily the end of the world. We need to kick our oil habit and manufacture more stuff ourselves.

    But what about the budget deficit? The budget deficit exists because of the trade deficit. If the trade deficit shrinks, the the budget deficit will shrink, also, so that sorta takes care of itself.

    In sum, I don’t see de-dollarization as a huge deal, and it might even help in some ways. But … it would be a huge deal to Wall Street, and Wall Street owns the politicians, so expect policies that attempt to discourage de-dollarization.

  8. Ian Welsh

    My mother was British. She remembered the 50s and 60s well. They weren’t good times for most British, they were poor times. Then in the 70s things got so bad that Britain had to ask for an IMF bailout and join the EU to get helped. Then Thatcher/Blair decided to complete as much of the de-industrialization of Britain as possible.

    Ruin is not immediate, but the idea that it doesn’t matter is just wrong.

    And folks, remember. 90% of all electronics, for example, are assembled in Shenzen (and plenty of the parts are made in China). China is the #1 industrial producer. Russia is the number 1 exporter of grain and a huge exporter of hydrocarbons and minerals (and the alternate source for advanced military gear.)

    Get rid of the dollar as primary unit of exchange and you’ll be able to get most of what you need with the Yuan, especially as China is the #1 trade partner with more countries than the EU or America. They’ll take Yuan.

  9. Z


    I want ordinary Western people hear me, too. You are being persistently told that your current difficulties are the result of Russia’s hostile actions and that you have to pay for the efforts to counter the alleged Russian threat from your own pockets. All of that is a lie.

    The truth is that the problems faced by millions of people in the West are the result of many years of actions by the ruling elite of your respective countries, their mistakes, and short-sighted policies and ambitions. This elite is not thinking about how to improve the lives of their citizens in Western countries. They are obsessed with their own self-serving interests and super profits.

    This can be seen in the data provided by international organisations, which clearly show that social problems, even in the leading Western countries, have exacerbated in recent years, that inequality and the gap between the rich and the poor is widening, and racial and ethnic conflicts are making themselves felt. The myth of the Western welfare society, the so-called golden billion, is crumbling.

    To reiterate, the whole planet is now paying for the West’s ambitions and the West’s attempts to maintain its elusive dominance by any means possible.

    Imposing sanctions is the logical continuation and the distillation of the irresponsible and short-sighted policy of the US and EU countries’ governments and central banks. They themselves have driven up global inflation in recent years, and with their actions caused rising global poverty and greater inequality across the world. The question now arises – who will answer for the millions who will die of hunger in the world’s poorest countries due to growing food shortages?

    Let me reiterate, the global economy and global trade as a whole have suffered a major blow, as did trust in the US dollar as the main reserve currency.

    The illegitimate freezing of some of the currency reserves of the Bank of Russia marks the end of the reliability of so-called first-class assets. In fact, the US and the EU have defaulted on their obligations to Russia. Now everybody knows that financial reserves can simply be stolen. And many countries in the immediate future may begin – I am sure this is what will happen – to convert their paper and digital assets into real reserves of raw materials, land, food, gold and other real assets which will only result in more shortages in these markets.

    Where’s the lie?


  10. Z

    Ukrainian leftist criticizes Western war drive with Russia: US is using Ukraine as ‘cannon fodder’

    The overwhelming support that Western governments and media outlets have poured out for Ukraine since Russia invaded on February 24 is not actually motivated by concern for the Ukrainian people. They are using us to advance their political and economic interests.

    We know this because Washington overthrew our government twice in a decade, imposed neoliberal economic policies that made our country the poorest in Europe, and has fueled a devastating civil war that in the past eight years took the lives of 14,000 Ukrainians and wounded and displaced many more.

    Where’s the lie?


  11. Lex

    Putin’s public discussion on economics (yesterday) indicates that Russia’s primary economic response will be similar to the Chinese economic model. There’s quite a lot of socialism in it with free markets. Essentially, the Russian government is saying it’s going to fund massive infrastructure projects and internal economic development, but much of the actual work will be performed by private enterprise.

    He’s walking a domestic political tightrope since his main political opposition are actual socialist/communists. So he worked hard not to admit they’re right. But he gave them a lot of what they’d want. It also sounds like he gave a not so veiled threat to the oligarchs: invest your money here or go ahead and leave.

    And Gasprom signed a deal with China to build a new pipeline that will allow connection to Ural fields and transmit east. In the US it would take a decade to build that, I won’t be surprised if the Chinese finish it in a year. I can’t help but conclude that the west is decision making on a timeline of months and the east is decision making on a timeline of decades.

  12. ptb

    someone should save this epic twitter rant (re: India “rejecting” the noble request of the “west” to starve itself for sake of the self-described greater good)

  13. someofparts

    Here is some interesting information about supply chains.

    Turns out that supply chains fall into extreme dysfunctional whipsaws even faced with mild stable shifts in demand. It seems to be baked into the structure of supply chains where each stop in the chain operates independently to maximize its own interests and none of those stops in the chain communicate with each other.

  14. ptb

    cool link re. supply chain!

  15. someofparts

    another handy bit of information –

    If Twitter decides to censor/remove something you are trying to view, try this – go up to the address line/location for the thing you are viewing – in the part of the address that says “”, remove that and replace it with “”. That will take you to an alternate, uncensored version of the original Twitter thread.

  16. someofparts

    As to the consequences of the economic warfare the US is waging against Russia, here is a link from someone who has Russian friends, reporting on how the people of that nation are experiencing our sanctions. It lines up with what Ian is saying.

  17. Mark Pontin

    Regarding the fall of the UK pound sterling as global reserve currency , pretty much what Ian said.

    In 1946, in the wake of WWII, UK national debt was equivalent to 252 percent of its GDP. Not coincidentally, 1946 was the year the British left India.

    A de-dollarized world where the US can’t just print more money to pay for its wars and has to live within its means is going to be a world that experiences much less US imperial hubris. Though there’ll be prolonged denial in Washington, just as the British stayed longer in India than they should have.

    Although note: that extreme British national debt 1946 wasn’t just war debt, as 1946 was the also same year the National Health Service and National Insurance Acts were enacted and the NHS commenced operation.

    This was an act of enormous ambition by the Attlee government considering the country was broke, and clear evidence in support of Keynes’s comment that “Anything we can actually do, we can afford to do.”
    Of course, a government would have to prioritize the well-being of its own population and *want* to do something like that in the first place.

  18. Mark Pontin

    someofparts: “It seems to be baked into the structure of supply chains where each stop in the chain operates independently to maximize its own interests and none of those stops in the chain communicate with each other.’

    And that’s clear evidence that Friedrich von Hayek and Charles Koch are wrong about the supremacy of the Market as Supreme Information Processor.

  19. Willy

    Interesting how Trump sounded just like Putin before he reverted back into being Trump.

    These people know what they’re doing.

  20. Ché Pasa

    Kudos to someofparts for the supply-chain link. It was obvious something peculiar had been going on with the supply chains, and nothing proposed as the cause was the real issue. To find out that it’s something intrinsic to the system itself, such as it is, makes perfect sense and should have been noted at the outset of the supply chain breakdowns. Was it?

    What I mean is, had our fine elites and god-like rulers pre-planned to profit from what they knew was going to happen? Well, I guess the answer is obvious, innit?

    As for Russia’s default — which hasn’t happened yet — and the Motherland’s resistance to sanctions through divorcement from the West…. hmmm. As we know, Russia is ruled by a kleptocratic oligarchy, like the Ukraine and much of the West. so divorce isn’t really possible as all of these kleptocracies are interrelated, like the aristocracies and royal houses in 1914.

    So what happens? You get what you’ve got. Kleptocratic rule leads inevitably to where we are at the moment, and it inevitably tips over into mass slaughter. The nuclear option is not in any way off the table, and its use is not considered an extinction event by our overlords at all. They think they will be safe, and even if they aren’t, it won’t be that bad for their kind. Some will survive, they always do.

    As for the rest of us, 85m casualties off the top isn’t so bad, is it? Hardly a dent in overpopulation, eh? Hiroshima and Nagasaki arose like phoenixes from the ashes, no? Chernobyl and Fukushima and so on and so forth haven’t really been all that bad, either, have they? And on and on. The nuke peril is real enough, but it turns out not to be terminal, at least in the minds of our overlords.

    So why not give it a shot?

    We’re that close.

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