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'Putin's Teapot' Guest Comments from Lyric Hughes Hale

David R. Kotok & Lyric Hughes Hale
Tue Mar 8, 2022

 

Cumberland Advisors Guest Commentary - Putin's Teapot by Lyric Hughes Hale

 

We read the following marvelous column by EconVue Editor-in-Chief Lyric Hughes Hale and immediately asked Lyric for permission to share it with our readers. We thank her for granting us permission. Readers may subscribe to Econovue newsletters at https://plus.econvue.com.

 


 

'Putin's Teapot' - 2019 Venn diagram of global sanctions regimes

 

Dear Readers,
 
This Venn diagram of global sanctions regimes is from 2019. Today not much has changed in terms of the countries named, which says something about the efficacy of economic punishment. In spite of this, in response to the current crisis in Ukraine, Western powers have targeted Russia with unprecedented new types and levels of financial sanctions.
 
The Ukrainians did not ask for this. Instead, they have urgently requested weapons, fighter jets, and most insistently, a no-fly zone which the US fears could result in direct NATO military engagement with Russia. Despite their entreaties, both NATO and the US have unswervingly refused; they are not prepared to risk kinetic conflict with Russia, preferring to erect an economic blockade instead. Despite the swiftness and intensity of their reaction, this strategy does not appear to be working to stop the invasion. The suffering in Ukraine continues.
 
Sanctions Theory
 
Economists have long debated whether or not sanctions are effective. They have proven especially unsuccessful with nuclear powers such as North Korea. I have included links below to some of the key theoretical arguments for and against, including an intriguing paper from the economics department of the National University of Kyiv, citing Iran as a case study.
 
Sanctions are not fundamentally economic instruments, although they have economic consequences. They are rather a projection of international law, highly dependent upon global institutions. A decision by the US to ban the import of Russian energy, if implemented, will be couched in legal terms legislated by Congress with legal consequences for those who do not comply.
 
The Value of a Human Life
 
Exerting economic pressure first is understandable. Americans emerging from the fatigue of the long fight against Covid and the shadow of the retreat from Afghanistan are not anxious to enter a new battlefield. Laws evolved to resolve disputes in order to avoid physical violence. However, once hostilities break out, can we really fight effectively from a distance with a series of legal actions that some, including China and India and perhaps the majority of humanity, do not acknowledge or support? A necessary linchpin in the current strategy, Beijing also knows that once established as the new norm, the same actions could someday be taken against China. Today, Wang Yi, China’s Foreign Minister declared that Russia is its greatest strategic partner. That is far from condemnation of its actions.
 
On Saturday, the orthodox Prime Minister of Israel Naftali Bennett flew to Moscow to meet with President Putin. The religious exemption that he used to travel on the Sabbath is called Pikuah Nefesh, meaning in the Jewish tradition that safeguarding human life is always the highest priority, taking precedence over religious tradition. Perhaps Western leaders are also acting under a similar precept, placing the value of the lives under their direct control above all other considerations, such as sovereignty and freedom, the principles we believe in as a people. We are no longer willing or confident of projecting them abroad at the cost of American lives.
 
Unintended Consequences
 
A newly invigorating coalition of Western powers might be mistaken in their actions, if not their intent, in terms of calculating overall negative outcomes. The exogenous shocks of the sanctions, in an environment where energy and food prices were already trending upwards due to Covid, will hit poorer households hardest. Given that both Ukraine and Russia are the world’s largest producers of wheat, warfare means that fields will not get planted this spring. Fertilizer is already in short supply, and in a world of interlinked supply chains, we really cannot predict where the weak links might be. In 2020, I wrote about the possibility of famine due to Covid, but if this conflict goes on for very long, it will become a probability in 2022. Malnutrition is also a disease.
 
In the financial realm, the same risk applies. Causing any part of the highly integrated global financial infrastructure to seize up can also have unintended consequences. While Russia represents just 2% of global GDP, and 1% of the revenues of a company like Apple, there are signs that sanctions might spread to other countries that have not joined us in banning all business with Russia.
 
Through the Countering America's Adversaries through Sanctions Act (CAATSA) the Biden Administration is now considering acting against both India and China, which would multiply current sanctions on Russia’s 145 million citizens to include at least another 3 billion people. This kind of contagion could result in a global financial crisis, accompanied by food shortages of unimaginable proportions, logistics bottlenecks, and a humanitarian crisis leading to political instability across the globe.
 
So what should we do? The sad and tragic truth as witnessed by centuries of human history is that military aggression is only countered by superior military might and no war has ever been won by threats or sanctions. However nuclear weapons have changed the calculus. Since 1945 and the bombings of Hiroshima and Nagasaki, major powers have not directly engaged in warfare. So how do we exit from this tragic imbroglio?
 
Putin’s Teapot

 

 

'Putin's Teapot' Guest Comments from Lyric Hughes Hale - Putin's Teapot Reflection

 

 

The reflection on Putin’s teapot reveals that although he appears to be speaking to an audience, he is actually facing an empty studio. It is symbolic to some of the hope that he is weaker than we first thought, and is bluffing. Others fear that escalation intended to lead to capitulation results instead in a step up to either nuclear warfare or broader conflict within the region, as a proxy war with Russia widens its scope.
 
Poland, a member of NATO since 1999, is especially at risk. The US is working with Warsaw to intercede by providing Ukraine with fighter jets that we promise to replace, positioning them in the crosshairs of the Kremlin. This is in addition to the hundreds of thousands of Ukrainian refugees they must now support. Polish markets and the zloty are already reacting to this new reality.
 
The Role of China and the Indo-Pacific
 
Another possibility, and in my view the most likely, is a partition agreement, if both sides can de-escalate sufficiently to have that conversation. However even if the current crisis is defused, some hope by China’s intermediation, the world might change forever as a consequence of this war. We thought Covid was an accelerant, but this conflict has added jet fuel to decoupling.
 
Putin and Xi Jinping have each clearly said that they are willing to build national economic fortresses in order to lessen their dependence on the West. In the National People’s Congress Two Sessions meetings this weekend in Beijing, “dual circulation” was dropped from the agenda and “self-reliance” was in.
 
In addition, the conflict in Ukraine has put cracks into the hoped-for Indo-Pacific alliance. Seventy-plus years of relative peace, prosperity and trade integration might be giving way to a much more inward looking, bifurcated world by 2050. A world with potentially two financial systems, two sets of telecommunications and transportation infrastructures, two versions of technological standards and parallel cross-national institutions represents a major shift away from globalization. It began with Covid, but now that it has started, it will not end there. This evening, Russia announced that all companies there must use the .ru extension by March 11th, effectively cutting off its Internet users from the rest of the world.
 
I live on the edge of Ukrainian Village in Chicago, which has a large population with ties to Eastern Europe. Feelings are running high; there was no joy when the mask mandate was lifted last week. Crime is at unprecedented levels even in formerly peaceful neighborhoods, and now there is a real fear of nuclear war for the first time since the Cuban Missile Crisis. Although the threat of Covid is receding, the world does seem to be in a far more dangerous place.
 
Many, many thanks again to Lyric for permission to share this commentary without readers.
 
We have two postscripts for consideration.
 
The first is from MEDPAGE-Today: https://www.medpagetoday.com/opinion/second-opinions/97542?xid=nl_secondopinion_2022-03-08&eun=g1674561d0r .  Does Russia's Invasion of Ukraine Constitute Biological Warfare?  — Invading in the midst of a pandemic surely begs this discussion by Gavin Harris, MD, and Joel Zivot, MD March 7, 2022.
 
The second postscript comes from Paul Schulte today.
 

“This is an excellent two hour video of Masha Essen. She grew up in the Soviet Union.  She is an award winning author who is an expert on Putin.  I listened to it dreadfully today.  It is from 2018 and is eerily prescient of what is happening.  As with many other authors I respect, Putin has invaded Crimea, Georgia, and Ukraine to restore the Soviet Union.  He is next after southern Finland, Latvia, Lithuania and Estonia.  NATO has nothing to do with it.  In addition, the agreement was US said they would no NATO troops would be placed in East Germany if Moscow allowed reunification.  Have a listen if you are willing to open your mind.  She is a global authority on Putin, his life, his family, his entire career, his thinking, his agenda, his personality.     He is a greedy, narcissistic cold blooded killer bent on restoring the glory of the Soviet Union.   He sees himself as the Patriarch of Russia.  The state is the regime which is Putin.”

 

 

 

“The Putin Files: Masha Gessen,”
https://youtu.be/Kk9igTqTx9s .
 



To all readers, we are in extraordinary and unprecedented modern times, as we noted yesterday. There has been much in history to guide us to a conclusion. This is a “Trifecta” of War, Money, and Disease.

David R. Kotok
Chairman & Chief Investment Officer
Email | Bio


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