Putin's Achilles' Heel [Europe and the U.S. have leverage against Russia, if they'll use it.]

Russia's Micex stock index fell 11% on Monday and the ruble hit an all-time low after Vladimir Putin's weekend invasion of Ukraine's Crimea peninsula. The sour reaction suggests that investors understand that Mr. Putin's Achilles' heel is the Russian economy and its access to world financial markets, if the West has the wit and will to exploit it.

The conventional wisdom in the pundit class is that Russia holds the economic edge because of its natural gas supplies to Ukraine and much of Europe. But that supply is a double-edged sword because Russia needs the foreign-exchange earnings as much as Europe needs the gas. With enough stockpiles to get through the rest of the winter, Ukraine and Europe are also less subject to immediate energy blackmail.

More broadly, the Russian economy is no global tiger. Last year it grew 1.3% and the ruble has been among the currencies hit hardest by the flight away from emerging markets as the U.S. Federal Reserve tapers its bond purchases. Russia's central bank raised its benchmark interest rate to 7% from 5.5% on Monday to stop further flight.

Russia's economy continues to be largely an oil commodity play that has diversified little thanks to Mr. Putin's treatment of foreign and domestic investors. As in most authoritarian regimes, Russia's economy is top-heavy and built on favors for oligarchs who do what the Kremlin wants. Do otherwise and you end up in Siberia like Mikhail Khodorkovsky, or dead like anti-corruption lawyer Sergei Magnitsky.

No one knows this better than the Russians themselves, which is one reason they are so eager to negotiate a bilateral investment treaty with the U.S. They know most foreign investors won't come in without more protective rules. The U.S. should shut down these talks.

Also, if we told China to go suck an egg on the debt they hold, what are they gonna do? We buy all thier junk. They would be back plowing fields with sticks and oxen, without a market here.

Apart from North Korea and Cuba, everybody in the world has access to the US market. The majority of these countries are poorer than China, and that poverty has nothing to do with that market access. With or without the US market, China will grow for decades until it reaches parity or near-parity with US GDP per capita. I expect American companies will become relatively much smaller compared to their international competitors if they lose access to a market that at its peak, a few decades from now, will be over 50% of the world economy. I foresee a day when China is not only the biggest single market for most Fortune 500 companies - it is bigger than the EU and the US markets combined. For KFC, China is already its biggest market. For Tiffany and Coach, China is their #2 number market, fast closing on #1.

Capitalism is working as well in China as it has anywhere in the world it's been adopted. The Chinese Communist Party mouths platitudes about socialism in a country that ended central planning 3 decades ago, legalized private property, ended government-planned assignments to communal work units, abolished ration cards and fired millions of government-appointed snitches from the secret police payrolls. It's clearly a dictatorship, but it's a capitalist one - closer to Imperial Japan in aspirations than the Soviet Union. It's not having the US export market that's fueling China's meteoric rise - it's taking production decisions out of the hands of Communist Party cadres and putting them in the hands of private entrepreneurs.

As to debt repudiation, the Chinese have done it before, so it might be amusing to declare the repudiation of Chinese-owned Treasuries as settlement for the debt repudiated by the Chinese 60-odd years ago:

China has a secret: It owes American investors hundreds of billions of dollars.

The Chinese government doesn't like to talk about it and the U.S. government doesn't want to raise it. But decades ago, Beijing defaulted on debt owed to Americans, as well as investors and governments around the world. In one case, it was paid. In the rest it was not. More than 20,000 American investors own this debt. The U.S. government may also own Chinese war debt, unpaid since World War II.

The story begins nearly 100 years ago, in 1913, when the government of China began issuing bonds to foreign investors and governments for infrastructure work to modernize the country. As the country fell into civil war in 1927, paying these debts became increasingly difficult and the government fell into default. Even so, in April 1938, the Nationalist government of China began to issue U.S.-dollar denominated bonds to finance the war against Japan's brutal invasion.

Locked in a pitched battle for survival, the government issued these bonds into 1940. As part of its wartime financial aid, the U.S. government further provided a $500 million credit to China in March 1942, shipping gold there and helping to stabilize the currency. In return, it appears that the U.S. government redeemed some of these dollar-denominated bonds. But China doesn't appear to have repaid this debt either, according to State Department records, and the declaration of the People's Republic of China in 1949 ended decades of political, military and financial cooperation.

While successor governments are usually bound by the debts of predecessor governments, the new Communist government refused to pay any of these claims. The issue lay dormant for decades, just as the bilateral relationship did. Then, in 1979, as part of normalizing relations, Washington released government financial claims regarding the expropriation of American property and appears to have dropped the matter of the war debt entirely. However, it is one thing for government decision-makers to let go of government debt, however questionable that is.

The Germans now seem willing to accept Russian expansion into eastern europe in exchange for Russian gas. I am stunned by the timidity of the Germans. They are not stupid and have to know Putin won’t stop with Ukraine. They don’t seem to care.

If Ukrainians want to keep their land, they need to fight. Nobody else is going to do their fighting for them. Every cause needs martyrs. The moment the shooting starts, I suspect the part of the world that loves underdogs will side with Ukraine, which is clearly the aggrieved party here. But without shooting and martyrs to the cause, nobody's gonna be shamed into supporting Ukraine. As I've mentioned elsewhere, it took the Afghans almost a decade to turf the Soviets, and 6 months to build up before the operation to eject the Iraqis from Kuwait began. This may be the calm before the storm, the Phoney War interlude.

If Ukraine will not fight it may end up becoming a province of Russia all over again. If it does, the pictures of heroic sacrifice against the Russian invader should get Ukrainian and other ex-Warsaw Pact emigres to open their wallets, not to mention get Ukraine material assistance from both the EU and US governments after some prodding from outraged citizens. Nobody cared about Bosnia until pictures of dead people started coming out. After that, Clinton had no choice.

Because of Germany's wartime history with Russia, it can't take the lead in confronting Russia, at least in public - its primary visible role will be as the moneybags supporting whatever measures are agreed to by the EU. In private, however, it might be orchestrating measures against Russia, with some other country as the public face of those efforts, perhaps a front-line state like Poland, which is clearly the aggrieved party in its relationship with Russia.

Depends on how you define “largest industry”

If you compare manufacturing vs. agriculture, I am taking manufacturing. If you divide manufacturing into auto manufacturing, steel making, solar panel manufacturing, detergent making (Proctor and Gamble), jet engine manufacturing (general electric, cincinnati) etc., then ok, I’ll take agriculture as bigger.

from here

http://www.ohiopoweredbymanufacturing.com/oma/ManufacturingCounts.pdf

Manufacturing is the largest of the 20 sectors of Ohio’s economy
with 17.8% of total output in 2008.
Ohio’s manufacturing sector produced $84.1 billion worth of goods

Go here to the Ohio Farm Bureau:

http://ofbf.org/news-and-events/news/1318/

Following up on comments made by Ohio Governor John R. Kasich in his State of the State address last week, Ohio Department of Agriculture Director James Zehringer, in celebration of National Agriculture Week, announced the department’s commitment to promoting economic development in the state by declaring “Ohio’s doors are wide open for agribusiness”.
“Agriculture is already Ohio’s largest industry, adding more than $98 billion to the state’s economy annually and employing one out of every seven Ohioans,” Zehringer said, “but there is still a lot of potential for further growth. Farming and food processing are staples of any thriving economy and we are only just beginning to see the exponential growth that is possible in Ohio’s agriculture-dependent fields such as polymer and bioproduct development.”

Ok, agriculture and related AGRIBUSINESS MAY BE the largest sector if you include FOOD PROCESSING AND ETHANOL.

But if you restrict yourself to “growing the crops” it is not.

From your source “we are only just beginning to see the exponential growth that is possible in Ohio’s agriculture-dependent fields such as polymer and bioproduct development.” “

Polymers and bioproduct development are not generally considered “agriculture”. They may be “agribusiness” as is ethanol production and sales.

And while we are at it, there is a significant marijuana crop grown in Ohio often in people’s basements. But I am not sure if that is “agriculture” or not.

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