Tuesday, December 16, 2014

Soft power works


From time to time I copy a post from my Kamaaina Loan blog here. Like now. And mainly just to needle the rightwing dimwits who were sure weak-kneed Obama was not warlike enough to earn respect in the rest of the world like, say, Dick Cheney.

Dick Cheney, who around the world doesn't respect him?

It seems pretty obvious from here that Obama's policy of using sanctions -- which never work, right? -- is working. Whether that is an unblemished good thing is an open question but it's a lot cheaper than starting wars and losing them. Now to copy myself:
When asked about the direction gold will take, Big Rich always says, “It will go up, or it will go down, or it will stay the same.” Seldom does it do both so enthusiastically during one 24-hour period than it did Monday and today, however. As Bloomberg News reports:
Gold rebounded from yesterday’s biggest drop this year as investors sought a haven amid turmoil in emerging market economies and falling commodities.
Russia’s ruble plunged to a record low after the country’s largest interest-rate increase in 16 years failed to revive confidence in the currency. The Turkish lira also tumbled to an all-time low.
Your Christmas (or Hanukkah) present is you don’t have many Turkish lira. Lucky you.
(Silver did not get the same kind of love. When nervous people with money look for comfort, they don’t look to silver — usually.)
The New York Times has much more about why gold did the big turnaround. It’s the ruble. It was less than 20 years ago that Russia defaulted, bringing down Long-term Capital Management and its two Nobel prize-winning advisers who didn’t understand that things can change on a dime — or 10 kopecks.
The economic news had another victim not mentioned in the news reports: Obama haters. Remember how they were sure that Obama’s “soft power” tactics were making the United States a pitiful has-been? Well, the five countries that are subject to US (and to some extent international) economic sanctions are all on the verge of economic collapse: Russia, Iran, North Korea, Venezuela, Cuba.
It might not be a great idea to collapse countries with nuclear weapons, but the sanctions were meant to have an effect and they are having it.
As always, Kamaaina Loan is ready to buy or sell gold for you at whatever the day’s price is. We don’t care about the ruble.
#mauipawn #mauiretail
UPDATE Wednesday

For a moment there, I thought I had found a source ready to credit Obama's foreign policy for its success.  Matt O'Brian's lede was promising:

A funny thing happened on the way to Vladimir Putin running strategic laps around the West. Russia's economy imploded.

But then he went off to write about something else. That something is worth reading: Russia is caught in a classic liquidity trap.

Individuals, firms and even sectors can get caught that way, but when it happens to a whole national economy (at least under modern conditions), it is almost always the result of national government policy. The Republicans did it to America in the 1920s and again in the 2000s, and as we learned -- or, some of us, didn't learn -- both times, a deflationary spiral is almost impossible to deal with.

That's why you want to accept plenty of perhaps otherwise suboptimal conditions to avoid one.


Paul Krugman has cogent comments (all from an interior Russian perspective, nothing about US policy), but being a city boy he leaves out Russia's intractable problem: food.

Putin, also a city boy, has done nothing about it and perhaps nothing can be done (although I think something could). The tsars couldn't do it, the peasants on their own couldn't and the Bolsheviks couldn't. All at least tried.

The USSR did not fall because Reagan scolded Gorbachev. It failed because it could never devise a workable agricultural policy. It increased grain production enormously -- faster even than its very rapidly growing population -- but it was very costly grain. Eventually, the uncovered costs emptied the Russian fisc.

To some extent Putin did the same with oil. Some years ago, it was freely predicted that Russian petroleum production was going to contract. It did not. But its costs were uneconomic compared with efficient producers.

Oil is a funny thing. For longish periods even inefficient producers can appear to be getting rich. But not indefinitely.

(In a peculiarly Russian wrinkle, too much of the grain was used to make vodka with terrible social consequences. Lucky for Russians, you cannot drink oil.)

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