Who Will the “Economic Iron Curtain” Harm More, Russia or the West?

On Feb. 25, Moody’s and Fitch downgraded Russia’s sovereign debt to junk, with Moody’s downgraded it again on March 6, to Ca, the second lowest on its scale. A default on Russia’s $100 billion foreign debt is now given an 80% probability. Rating agencies are known to be tools of financial warfare, and their latest move shows how they are being used in the current push by US-UK-NATO-EU to destroy the Russian economy.

While the centers of financial power may be evil, they are not so stupid as not to know that it could produce a backlash on Western financial institutions that own Russia’s foreign debt, triggering a systemic meltdown. “We are actually in uncharted territory,” said Clay Lowery, executive vice president at the Institute of International Finance, a trade group of global banks. “We know there are consequences that we cannot predict.’

As wallstreetonparade wrote March 7, “There is a known $41 billion in Credit Default Swaps (CDS) on Russian debt. There is likely many billions more in unknown amounts. There are also billions more in Credit Default Swaps on state-owned Russian corporate debt and non state-owned Russian corporate debt.” What is shaping up are “the makings of a replay of the 2008 banking crisis when banks backed away from lending to each other because they didn’t know who would fall next from toxic subprime exposure. That led to a liquidity crisis and the unprecedented involvement of the Federal Reserve secretly pumping trillions of dollars into the megabanks on Wall Street and their foreign derivative counterparties.”

Central banks are already preparing to again pour trillions of dollars and euros into the financial system, scrapping all plans for “tapering” and ending QE. At the same time, Western sanctions against Russia have managed to create an “economic Iron Curtain” which is having a devastating impact on energy prices, food commodities and supply chains.

“Hundreds of tankers and bulk carriers have been diverted away from the Black Sea, while dozens more have been stranded at ports and at sea unable to unload their valuable cargoes”, AP reported March 4. Ukraine and Russia account for 30% of the world’s exports of wheat, 19% of corn and 80% of sunflower oil, which is used in food processing. None of those items is now being shipped from the Black Sea ports.

Russia controls as much as 44% of global palladium supplies, Ukraine produces a significant 70% of the global supply of neon — the two key raw materials that go into making chips. That, in turn, means that the car industry for one – but also computers, mobile phones and airplanes — is going to suffer again under a lack of microchips as they did last year.

Beyond the impact of sanctions such as a ban on SWIFT financial transactions, the embargo of some technologies and air flights, a general political climate has prompted industrial, commercial and financial companies to flee from Russia for fear of being caught in some kind of violation. A collective insanity has captured countless global corporations, which are closing down production, disinvesting or leaving the Russian market.