By Jorge Vilches for the Saker Blog

Russia is currently “defaulting” or — in the best of cases — on a very direct and firm path to an inevitable “default”.

Or at least this seems to be what the Western press and international rating agencies are pushing and rooting for, same as specialized academia, think-tanks, the political-financial-military establishment… and pretty much the whole Western Hemisphere including the US and Europe + South Korea, Japan, Australia and New Zealand. And it can reasonably be assumed that the above is most probably due to the fact that Western governments have officially and unequivocally dictated that it is not only “fair” but also wise to

(1) freeze and/or eventually “arrest” Russia´s reserve currency stockpiles held in international banking accounts

(2) force Russia to pay its international financial obligations from abundantly solvent banks within Russia

(3) declare that Russian payments in rubles instead of US dollars or euros or yens or GBP are not valid

(4) declare Russia to be “defaulting” on its obligations by not following the above mandates

(5) in case of doubt, Western governments remind us that Russia´s mandated “default” will necessarily be contested in UK Courts… which of course will always decide fully against Russia… undoubtedly and conveniently leaving aside whatever could be left of the once-traditional British “fair play” of yore.

And the West does not beat around the bush regarding this official policy with US Treasury Secretary Janet Yellen and US Federal Reserve Chairman Jerome Powell walking out of the recent G-20 meeting as soon as the mike was switched over to the Russian representative. The staged move was also well coordinated with multiple “unfriendly” finance ministers and central bank governors while others present virtually shut off their cameras immediately after the Russian official uttered his first word. And leaving no room for any doubt, White House Press Secretary Jen Saki tweeted in no uncertain terms that “We support her (Janet Yellen´s) steps, and it’s an indication of the fact that President Putin and Russia have become pariahs on the global stage”. By the way, with some notable exceptions, for the same “Ukranian reasons” many of the above have openly proposed to kick Russia out of the G-20 group ASAP.

So, to make a long story short, for all practical purposes Russia will necessarily “default” soon enough per the Western strategy of “we won’t let you pay but you must pay”… or thereabouts.

[ Ref #1 https://www.reuters.com/world/delegate-protests-over-russia-upstage-g20-meeting-2022-04-19/ ]

[ Ref #2 https://www.rt.com/news/554236-g20-summit-boycott-russia/%20%20- ]

Of course, Russia says that (a) the above is false argumentation for an “artificial default” of sorts tailored-made to unnecessarily hurt Russia yet again and (b) it´d be business as usual had the West not frozen Russia´s international banking accounts. Russia adds that the West´s blocking of payments is the real default at hand, leaving on record that the freeze on Russian funds and private companies and individual assets is simple “theft” per Russian Foreign Minister Sergei Lavrov´s view of the unprecedented dictats which no one could have foreseen from supposedly civilized and world-leading countries in the 21st. century. [ Ref # 3 https://interfax.com/newsroom/top-stories/75126/ ]

  • In passing, all-important China thinks pretty much along the same Russian lines by leaving on record that “Arbitrary freezes of foreign exchange reserves of other countries constitute a violation of sovereignty and is tantamount to weaponizing economic interdependence”.The Chinese ambassador to the UN, Mr. Zhang Jun, made such remarks at a UN Security Council meeting on Ukraine thus clearly “blasting arbitrary seizures of countries’ assets” (sic).

[ Ref #4 https://www.rt.com/business/554226-china-west-freezing-assets-violation/ ]

So then, actually the real problem that still remains is to analyze the possible consequences of Russia´s 99.99% certain “default” and most specifically if it could possibly lead to yet another Western World self-shooting spree as has happened with other fully-backfiring sanctions temporarily “swept under the rug” so to speak. Accordingly, let´s ask two basic and always ever-important questions since time immemorial, i.e.,

Cui bono ? (who benefits ?) and cui nocere ? (who loses ?)

To find some answers, let´s take a closer look at some of the consequences of the West-mandated Russian “default

  • 1. Absent Russia

Russia currently exports many hundreds of key produce 101% essential for Western countries as we know them today. All hell will break lose the instant Russia trades less or stops trading altogether with – and getting funding from — the 20% of the Western world… while openly trading and funding itself with the remaining 80% without using the dollar/euro financial system but their new Bretton Woods III arrangement instead. As a matter of fact, the US has already banned Russian ships while other Western “unfriendlies” would follow.

[ Ref # 5 https://www.rt.com/russia/554281-us-bans-ships/ ] Meanwhile, Russia´s economic and financial plans

continue steady under Elvira Nabiullina´s very recent renewal as central bank governor for another 5 years.

  • 2. Inflation

The knee-jerk reaction to the above will be further unmitigated money printing with readily visible impact on the Western world while middle-class incomes collapse behind the very thin productive veneer of Western consumer economies. Additionally, think supply-less price increases with Covid impact + Russia sanctions + China´s reaction regarding supply chain disruptions as addressed by the BIS General Manager, the Central Bank of central banks, Dr. Agustín Carstens [ Ref # 6 https://www.bis.org/speeches/sp220405.htm ]

Plus guru David Stockman´s perspective in ”having the US Federal Reserve decades-long experiment in egregious, inflationary money-pumping splattering ignominiously all over the Eccles Building (sic)

[ Ref # 7 https://internationalman.com/articles/david-stockman-on-inflationary-hell-thats-about-to-break-loose/ ] …

  • 3. Non-payment

Investors in Russian defaulted debt (think Western companies & banks) will not get paid a single cent on Russian debt instruments per sé… nor possibly neither from their Credit Default Swap (CDS) hedge they most probably bought for CYA “insurance” purposes. Furthermore, investors would need to make their claims also against the blocking banks thus definetly facing an utterly complex yet most probably unsuccessfull legal road with corresponding expenses. All the while Russia will no longer accept seizable / freezable dollars or euros for its much-needed produce … only rubles or gold bullion from the many Western “unfriendlies”…

[ Ref # 8 https://fortune.com/2022/04/21/russia-debt-credit-default-swap-ruble-payment-sanctions-ukraine/ ]

  • 4. Bye bye SWIFT

Russia has already replaced the SWIFT payment messaging system by its own equivalent SPFS which apparently works just as smooth as 52 foreign organizations from 12 countries have joined.

[ Ref # 9 https://www.rt.com/business/554221-russia-payment-system-members-secret/ ]

  • 5. IPR rights

Russia will take full advantage and make full use of patents, models, intellectual property rights, designs, etc. with no compensation per Presidential Decree No 299, 6 March 2022

[ Ref # 9 https://www.lexology.com/library/detail.aspx?g=39ef25c3-1bf0-4029-bac2-de0ac11965da ]

  • 6. Property rights

The Western financial world has openly declared that property rights are no longer valid so, for example, dollar and euro and other bank accounts anywhere – or other assets — are vulnerable to freeze / seizure.

  • 7. Ukraine claims

Tatiana Orlova — lead emerging markets economist at Oxfo9d Economics — points out that another problem for bondholders and creditors at large is that Ukraine may lay a claim to Russian assets in international courts (a.k.a. UK courts…) to pay for the rebuilding of the country.

[Ref#10 https://www.businessinsider.com/russia-debt-default-us-could-seize-assets-resolution-ukraine-sanctions-2022-4 ]

  • 8. Corporate debt defaults

Tatiana Orlova has also warned about a probable “avalanche” of Russian corporate debt defaults given that the US is taking a hard line and banning American banks from processing payments. There were roughly $98 billion of Russian corporate foreign-currency bonds originally outstanding as the war began in February, according to JPMorgan while Western governments have already frozen at least 50% of the $600+ billion Russian stockpile of foreign reserves.

  • 9. Massive migrations

Europe better react ´efficiently´ (?) to a sudden exposure of many millions of unprecedented & unexpected migrants for which it is not anywhere closely prepared for either politically or economically… if it could ever be.

  • 10. Oil & gas & coal

Not having the “right” Russian grade fuels which EU refineries, power plants and equipment specifically need means seriously upending all manufacturing and production, food, heating, power availability, A/C, tourism, etc. etc. with freezing cold and severe scarcities in Europe for too long a period for even to consider finding valid alternatives, if any exist, in a coming logistical nightmare. Let alone achieving self-sufficiency with relatively climate-friendly fuels all year round. So Europe wants to angrily divorce Russia while conveniently forgetting the many offspring it has to feed. Some pundits are entertaining the idea of $500 dollar oil… meaning that Russia could export less fuels than today but – counter-intuitively — still collect much more.

  • 11. Reserve currency blues

Obviously affecting not only the US dollar de-dollarization process but also the euro, the GBP and the yen.

The idea being that these reserve currencies – with Russia absent – will necessarily lead to implosion as their

underlying economies & finances will keep performing ever worse with no reasonable future in sight.

[ Ref. # 11 https://www.bloomberg.com/opinion/articles/2022-04-20/euro-weakness-may-lead-to-a-currency-

crisis-if-the-ecb-doesn-t-act-soon ] Case in point: “Israel Dumps The Dollar For China’s Renminbi

[ Ref #12 https://quoththeraven.substack.com/p/king-dollars-demise-israel-dumps?s=w ]… same as Saudi Arabia.

  • 12. US mission impossible

US finances rely on foreigners constantly lending the US huge amounts of ever-growing money non-stop. Full credit to David Goldman´s article per Ref. # 13 below. In sum, since 2008 alone, at negative effective rates the US has borrowed $18 trillion from foreigners… who now might not renew at least some of such loans. Furthermore, foreigners keep about $16 trillion in overseas bank deposits to finance international transactions. And while struggling with highly adverse conditions in the US economy, simultaneously the Federal Reserve also has to be perceived as un-winding a $9 Trillion dollar balance sheet. The US stock market now trades at nearly thirty times earnings with foreigners also having enormous exposure to it and real estate markets also. Please I encourage reading the full Goldman article at Ref # 13 https://americanmind.org/memo/fatal-dependency/

On the other hand, since the get-go Europe´s ECB has found itself constantly defying the laws of gravity. But Europeans have been doing this for decades – Target 2 et al shenanigans included — until they reach the end of the road where the proverbial can-kicking theater stops dead in its tracks with no further gimmicks left.

So, who wins and who loses ? As always, the answer is not perfectly clear-cut although some general guidelines can be inferred albeit depending upon how events unfold. Of course, Europe at large is a very clear loser that at this point in some respects should be considered a US Protectorate. Russia has started a whole new ball game with so far them losing 1 goal to 0 but with the great advantage that (a) this game has just started and (b) it´s played with Russia´s ball — so to speak — which they might take away if they ever wanted to… in which case the score would not matter.

So who wins ? The short answer is, despite enormous difficulties to overcome, in many important senses probably the new Russia-led Bretton Woods III economy & financial system, including China and the BRICS. So who loses ? Again, the short answer seems to be the Western economies & their financial systems at large, most particularly Europe. The post-Brexit UK may find some tricks to enable a temporary better outcome, but not for long as the Brits need a healthy European economy to survive while the Global Britannia project never left the Last Night of the Proms.

What´s probably 100% safe to assume is that Western strategists and its establishment elites — the Davos crowd included — have all acted and reacted to Ukraine events in a very childish & visceral manner and have not thought out the consequences of their respective decisions far enough and well enough. In other words, as cognitive psychology would have it, in traditional Anglian style Europe has unexplainably cut its nose off to spite its face. Go figure…