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Saturday, April 26, 2014

Sanctions and Russia

For John, BLUFRussia is "looking" good, but faces problems.  Nothing to see here; just move along.

Here The Wall Street Journal has an article on sanctions against Russia and the Standard and Poors downgrade of the Russian Central Bank.  The Russian Central Bank, in turn, raised its key lending rate to 7.5%.  The title is "Russian Rate Increase Follows Rating Cut as Ukraine Crisis Deepens".  Yes, all financial-speak, but it shows sanctions are working.

Retired Army Colonel and Managing Director of Kermit's Key West Key Lime Shoppe, John Meyer, has a lot of insights in the following four paragraphs.  I commend them to you.

The following article from The Wall Street Journal is focused on the Russian central bank raising its key lending rate to 7.5%, following the rating downgrade by Standard & Poors (S&P) Ratings Services to one notch above junk status.   In the article, it mentions the effects of sanctions on the Russian economy, resulting in an outflow of cash, a fall in the ruble (making imports more expensive) and fueling inflation, and the lowering of the forecast of growth in the gross domestic product (GDP) from 2.5% to 0.5% (some economist think it could be lower).

The article is also an important indicator of the results we should be seeking in our actions against Russia over its takeover of Crimea and continued threats against Ukraine.   As the article conveys, there is a degree of confusion in the economic markets.   In general, everyone agrees Russia has a problem, but there is uncertainty over what to do about the problem.   In that regard, it is not unlike the confusion in the United States over how best to counter the great recession.   There are many options, but few clear choices.

In Russia, their center of gravity is President Putin and his well heeled cronies.   To this point, President Putin has been executing a plan, and by many measures, doing quite well.   Our response, through NATO and the European Union, or even unilaterally should be to overload Russia's decision making capability.   In tactical terms, we would be working within Russia's decision cycle.

It is with that in mind that sanctions should be applied fully, fast, and hard.   If additional sanctions come later, they can be heaped on the pile.   Attacking Russia's economic instrument of power will effect the high and the low in Russian society.   Add to that, as has been suggested on the Loop, a psychological attack on Mr. Putin's and crew's misuse of history and outright lies, and the diplomatic and political instruments of power are undermined.   Add the NATO response, even the light response of troops to Poland and aircraft on patrol, and Russia is faced with many variables all at once.   Even as the decision making circuits become overloaded, it will become obvious that the cost of continuing with whatever is Mr. Putin's plan is carrying a high and increasing cost, which will last long after any gain from military conquest, be it conventional or unconventional, or some combination.

The non-military instruments of national power are still very much in play.

Regards  —  Cliff

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