Is It Too Early To Just Call The Game For Putin?

Uncle Volodya says, “Hey, John; I had a dream about you. We were racing to see who could be the slowest person on earth. You were winning.”

“…Except in a very few matches, usually with world-class performers, there is a point in every match (and in some cases it’s right at the beginning) when the loser decides he’s going to lose. And after that, everything he does will be aimed at providing an explanation of why he will have lost. He may throw himself at the ball (so he will be able to say he’s done his best against a superior opponent). He may dispute calls (so he will be able to say he’s been robbed). He may swear at himself and throw his racket (so he can say it was apparent all along he wasn’t in top form). His energies go not into winning but into producing an explanation, an excuse, a justification for losing.”

C. Terry Warner, from “Bonds That Make Us Free”

“You know what makes a good loser? Practice“.

Ernest Hemingway

What’s the state of play in The Great Wreck The Russian Economy Invitational, hosted by the United States with support from Europe (especially the UK), Australia and Canada, having been in play since Euromaidan? Let’s look. Are sanctions having the desired effect?

They are not. In fact, consensus looks to be that sanctions are a dismal failure at everything except causing the income of ordinary Russians to fall for the first time since Putin took over the job of running the country. It’s hard to imagine that results could have been otherwise, given the effort the west put into it. But reducing the incomes of ordinary Russians was not an end in itself. No; they were supposed to blame Putin for their troubles, and rise up in revolution to throw him out. A new revolution in Russia is something the west wants so badly it makes its mouth water. It can almost taste it.

But the sanctions have had the opposite effect.

According to Ivan Nechepurenko, a staff writer for The Moscow Times – no friend of Putin – Putin is as popular among his voters now as he has been since 2008. Rather than blaming Putin for economic upset directed against Russia with a view to pushing its behavior in a direction the west wants it to take, civil society has instead rallied around national pride; “The logic was that as the country’s economic situation worsens, ordinary Russians will direct their anger at the government and at Putin himself, forcing him to withdraw his support for the pro-Moscow insurgents in Ukraine…When 85% of Russians say they approve Putin’s actions as Russia’s president, what they mean is that they approve and support the Russian state as such. According to leading sociologists from the independent Levada Center public opinion organization, by absorbing Crimea last March, Putin has made himself a symbolic figure who is viewed as not directly responsible for the economic perils of the country.”

Who do the Russians blame for their problems? Blame goes squarely where it belongs, to the EU and the United States.  But those entities are unprepared for how deep and how lasting that blame, and its attendant acrimony, will be. Anti-Americanism is at its highest levels ever in the Russian Federation, higher than those seen in the Soviet Union; a fact acknowledged by the Washington Post even as it pooh-poohs the sentiment as groundless and undeserved, since America is not doing anything to Russia and its interference in Ukraine is all in Russians’ heads. Hostility in Russia toward the EU’s leadership is hardly better, down to a paltry 6% approval in summer 2014 and doubtless scraping negative territory by now.

Western sanctions have had the effect of cementing Vladimir Putin’s position as the most powerful leader of his time, with over 85% approval ratings and an electorate among which 74% would vote for him. The efforts to ruin Russia have been blamed on the United States and European Union. What does that mean?

To the United States, not much at present. It now has, as the Washington Post described it, a shrinking pool of friendly faces in Russia, so its ability to influence policy in Moscow is now severely curtailed as being pro-American is viewed with suspicion and hostility. But it means much more to the European Union, which did a lot of trade with Russia and remains dependent upon it for energy supplies. And the EU, too, will come to blame America for the soured relationship with Russia that hurts it directly, which will make it that much harder for the USA to push Europe into a land war with Russia.

The USA’s trade with Russia has worked out to about the same as before, considering it regularly runs a trade deficit with Russia; both exports and imports have fallen steadily since 2011, but the USA continues to have little exposure to Russia. Not so the EU.

In the Eurozone, projected growth of .5% for the quarter is greeted with feverish excitement, the fastest growth in four years. Not only does this signal “the brightest spring in years”, and “a solid pace of expansion”, it will outpace quarterly growth in the USA, which eked out a miserable .1%. That staggering leap in European growth comes on the heels of ECB head Mario Draghi’s committing to a € 1.1 Trillion Quantitative Easing program which will flood Europe with cheap money as the bank prints more euros and buys up its own debt. You can see how well that worked in the USA. Well, maybe you can see it, but the mantra in European financial circles is “trust Mario”.

Is everyone satisfied that they understand what Quantitative Easing, or QE, actually is? No? Well, it’s printing money. No more complicated than that. Typically countries with a strong currency finance their operations by sales of government bonds to other countries, which is another way of saying, “borrowing from other countries”. But when your financial habits begin to get too embarrassing, other countries won’t buy your bonds. So the government just loans money to itself, by printing more. Have you seen that happen before? Yes, you have. And those who have come to know QE better than anyone else say it’s very easy to start, and unbelievably difficult to stop.

There are a couple of lessons there – one, the USA cannot engineer an economic war against Russia without affecting development, and subsequently the pace of economic activity, everywhere. Flooding the world with oil so as to drive down the price has had the effect of paralyzing the American shale extraction industry, which is expensive and not cost-effective in an atmosphere of low prices. Two, the west is in a singularly bad position to launch an economic war at all, considering the western “recovery” from the subprime meltdown is more a matter of inference than substance.

Speaking of recovery, how’s that spunky little star in the Euro-Crown, Ukraine, doing?Oooohh…not good, I am afraid. This BBC article takes a lot of words to say that Ukraine is doomed to living on international handouts for as far as the eye can see unless it (a) gets control of the eastern region, which now hates the Kiev government after months of shelling civilian population centres  and will never accept its rule, and (b) restores its trade with Russia. More cash from the IMF depends on reasserting Kiev’s control over the east, because it is the center of Ukrainian industry and grant money cannot be spent on war, while the EU has already made clear it is not in a position to buy Ukrainian goods which it formerly sold to Russia. The Kiev government has made zero progress against corruption and little progress on the reforms the IMF demands before it approves more grant money, although it has raised the price of gas what it reports as 50% even as the national currency tanks. Good times. But the west continues stubbornly trying to do it without Russia, because it is all about taking Ukraine away from Russia. Which will not be possible unless Russia helps, because the west can’t afford it. What are the chances?

Another unecessarily unanticipated effect of the west’s crusade against Russia has been the cementing of a powerful alliance between Russia and China. There is no way the alliance of the world’s second-largest economy and the world’s largest energy producer can bode well for a west bent on forcing the latter to submit to its will. The Russian and Chinese navies kicked off 10 days of war games in the Mediterranean yesterday, making the LA Times so excited that it forgot Russia and China agreed to a gas price last winter; saying instead that they had not yet agreed on a price, and that this means bad news for Russia because it is in a weak negotiating position. If it were true that they have not agreed on a price – which it isn’t – how would that indicate Russian weakness? Wouldn’t they just take whatever they could get, if their position was weak?

Russia has agreed to two major pipeline deals with China – the “Power of Siberia” line and the “Altai” western route. Between them they will eventually deliver 68 Bcm of gas to China, nearly half what Russia supplies to Europe. That also seemed to excite the LA Times into error, as they announced confidently that there was no way Putin would be able to begin supplying gas to China by the end of 2017. Probably not – good thing the contract, to which the LA Times is somehow not a signatory, says 2019. But you can see why the Times is excited; Gazprom supplied Europe with 161 Bcm of gas in 2013. How does Europe foresee replacing that supply, considering it is insistent it will wean itself off of Russian gas? Not from any suppliers they have identified thus far; not even close. Of the other sources from which Europe currently receives gas, mostly its own member states, only the UK, Poland, Italy and Germany have significantly increased delivery, while most others have declined markedly since 2005, some by nearly half.

Let’s summarize what we have concluded so far: (1) The western sanctions against Russia have failed to mobilize the Russian electorate, and have instead spurred patriotism, disempowered internationalists and made Putin more popular than he has been in the last 7 years; (2) The west is in a poor position to sustain an economic war against Russia, as the Eurozone is experiencing anemic growth – and even that appears to be due to false optimism over Quantitative Easing – while American growth is stagnant for the first quarter; (3) Europe is increasing its debt load markedly by embarking on a program of simply printing and circulating more money, while it will probably hurt the currency in the medium term; (4) Ukraine’s economy is imploding, while the west has insisted on taking responsibility for it although it remains unable to pull it out of its power dive. Kiev has not regained control over Ukraine’s eastern regions, which hate it more than ever. Ukraine will not be able to recover unless it regains access to its Russian markets; (5) The western sanctions have resulted in large-scale market replacement of European goods, and those markets are likely to remain closed to Europe for a generation at least, perhaps forever. Meanwhile, (6) Russia has been pushed into a powerful alliance with China, and has proactively negotiated new markets for its energy exports that depend far less on Europe’s tantrums and foibles. The knock-on effects of economic warfare between Russia and Europe have hurt European economies and resulted in European anger against the USA, making it more difficult for Washington to secure European cooperation.

The west is not winning. Since both sides can not be simultaneously losing, Putin must be winning.

How does the west react to losing? I’m glad you asked. Like this. The Telegraph chuckles uproariously at the antics of Russian soldiers attempting to load a tank onto the back of a flatbed truck. On the third attempt, the vehicle ends up too far to the right, and capsizes onto its roof as it falls off the truck. Oh, those Russians! Probably drunk, as usual.

Except the vehicle is not a tank, it is a self-propelled howitzer, an artillery piece. The source clearly identifies the operation as depicting a Ukrainian unit, and if you look just behind the three guys watching just as the howitzer falls off the truck, you will see an oil drum with a Ukrainian flag standing in it.

The first principle of Gambling For Idiots – when you’re losing, double down.