Russia's laughable economic threats against the U.S.A

Fortune ^ | 03/05/2014 | By Christopher Matthews

[SeekAndFind]

While stock markets believe that the U.S. and Russia will avoid an economy-destabilizing conflict, representatives of both countries continue to lob threats of sanctions at one another.

The latest came from Sergei Glazyev, an advisor to Russian President Vladamir Putin, who said on Tuesday that the Russian government would consider selling its stockpile of U.S. government debt if America and the EU went forward with threatened trade sanctions, according to the Russian news service RIA Novosti.

"We hold a decent amount of treasury bonds -- more than $200 billion -- and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner," he said. "We will encourage everybody to dump U.S. Treasury bonds, get rid of dollars as an unreliable currency, and leave the U.S. market."

The saber rattling of great powers is often made up of empty threats, but this one is particularly laughable. Russia's $200 billion in U.S. government debt is part of its foreign exchange reserves, a fund built up by the Russian government to help protect it against financial crises, stabilize its own currency, and to enable banks and other businesses to function during financially stressful times.

In other words, Russian investment in U.S. government debt isn't some kind of altrusitic action to help their buddies over in North America pay their bills. It's a fund that the Russian government has built to help its economy function in a world that trades primarily with U.S. dollars.

[chris37]

Uh.

If the rest of the world decides to isolate America economically and politically, we’re f***ed.

[SeekAndFind]

RE: If the rest of the world decides to isolate America economically and politically, we’re f***ed.

Of course. But why would they want to do that?

Russia is more “isolatable” at this point in time than the USA IMHO.

[agere_contra]

Isolation of the US isn’t on the table.

However the loss of reserve currency status for the FRN (Federal Reserve Note) is.

The shift would probably be to the SDR, at least if it happens before the Gold price resets. The renmimbi isn’t ‘large’ enough to be a reserve currency at this time.

After the Gold price resets the new reserve currency - whatever it is - would have to be gold-backed.

[SkyPilot]

Laughable? Really. Russia and China, united politically, economically, and militarily give the US a very real warning about our precarious US Dollar and it’s uncertain future as the World’s Reserve Currency, and it is “laughable?” I would say this smells of cold sweat fear masquerading as bravado. Mr. Matthews, no doubt, fears for his portfolio.

[scooby321]

German imports 70% from Russia its Fossil fuels. Europe is broke and has nothing but debt and are so weak to do anything.

Putin knows all this and had the luck of Obama as US President its over plain and simple.

[agere_contra]

As you say, energy is power.

If Palin were President and fast-tracked LNG export permits, America would be exporting natural gas and able to vastly undercut GAZPROM.

Unhappily: Obama is President. Not only is he an immature homosexual man-child; his energy policies have allowed Russia to start growing back into the original footprint of the Soviet Union.

[chris37]

Because they can.

And there is not a thing we can do to stop them if they do.

[11th Commandment]

Clearly the US Dollar is not the solo world currency anymore. Regional currency are emerging with the Euro and Yuan. But here is some interest points--

When China established regional Yuan trade, this only increased its USD reserve because they were not paying for import with USD reserves... ops on their part.

When the EU trades with Ukraine it is in USD- WHY- because its agriculture export is all in USD.

Article points out that USD reserves in Russia helps prop up the Rubble. Without $200B in USD, the Rubble would easily lose half its value.

As long as the Dollar is the currency of trade for Oil (and add grain), it will continue to be the primary world reserve currency. With the US dominate in Agriculture and now oil, USD will be around a while..

[wolfman]

Hardly laughable. Russia and Chinahave been working on destroying the dollar as the world’s reserve currency. They will succeed.

[riverdawg]

In addition to the points you made, the US is still the second-largest exporter in the world. Other countries must buy these exports with USD, regardless of its reserve currency status. The only exports from Russia that are viable on the world market are energy, precious metals, and military equipment (and most of the latter are bought on credit from shaky third-world countries). The US will likely become the largest oil producer in the world in 2016, despite the best efforts of the Obama administration to prevent this from happening. The US energy revolution has completely transformed the power relationships we took for granted in the second half of the 20th century. That is why Putin is grabbing what he can now; it's a defensive play for what portends to be a century of decline for the Russia of 1990.