Zero-Sum Games

How to destroy a currency, ruin an economy and impoverish the masses

(Source: Getty Images)

Bill Bonner, reckoning today from Buenos Aires, Argentina…

The surest way to ruin a nation is to debauch its currency.
~ Vladimir Lenin

The first thing we noticed were the zeros. Where did they get so many of them?  Imports from Venezuela? We don’t know. But we’d like to own the company that makes them. 

When we first came to Argentina more than 20 years ago, a trip from the airport into town was about 35 pesos. Now it is 7,600. Every whole number is followed by at least one zero… and usually a whole line of them. A digit without a zero is worthless, since it takes at least 10 pesos to equal half a US penny.

(Photo: The McMenu here in Buenos Aires… as weighed in pesos)

How do you destroy a country… ruin its economy… impoverish its people… and corrupt every institution in the nation? Just add zeros.

Yesterday we wondered about how cutting Russians (and many others too) off from their money might blow up in our faces. Today, the Washington Post wonders too:

One former Obama administration official that worked on sanctions, who agreed to talk on the condition of anonymity to speak candidly, said the scale of the restrictions on Russia has been so huge and unprecedented — so its knock-on impact could be huge and unprecedented, too. The former official noted that Russia’s central bank, which had its assets frozen by the United States in a Rubicon-crossing move, had more assets than the entire economic output of Iran.

Yes, the “shock and awe” financial attack is having an effect.  

Oil trades at over $112 a barrel. And Sberbank, the largest bank in Russia, swirled closer to the drain yesterday. The stock trades at only 90 cents, down from $20 in October. But what did Sberbank shareholders do wrong? Why are they being punished?

A large Russian stock fund, based in London, in which we have a small investment, sent out a notice; if we wanted to get our money out, it said, we can go fish. It’s too late. Trading has been halted. We don’t know what our investments are worth (probably not much) and we can’t sell them anyway.

Debauching the Dollar

US markets, meanwhile, rallied; investors were said to be buoyed up by the latest news. As expected, Jerome Powell, Fed Chief, told the world that he is getting serious about whipping inflation now. He’s calling up a platoon of very mean girl scouts to lead the charge. Fox:

"With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month," Powell testified before the House Financial Services Committee, saying that he is "inclined to propose and support a 25 basis point rate hike" at the Fed's March 15-16 gathering. 

Is he kidding? A quarter point increase? That will bring the Fed’s key rate to about MINUS 7%. Is this ‘tightening?’ Of course not. Powell is not fighting inflation; he is enabling it. And he’s debauching the dollar, not the ruble; he’s ruining the US, not Russia. (Russia’s central bank is lending money at 20% interest!)  

Once again, the elite – media, experts, universities, politicians, Wall Street – line up like zeros behind the feds… as they have every time this century. Yes, there were ‘weapons of mass destruction’ in Iraq in 2003. Uh huh... no question about it. Yes, in 2008, ‘we may not even have an economy on Monday.’ Sure. If Ben Bernanke says so. And yes again in 2020; ‘shut down the economy or the Covid will kill us all.’

Now… Putin has a devil’s tail, the press reports. He’s a ‘killer.’ And yet, it was only 10 or so years ago that the media celebrated Mr. Obama because he approved the ‘kill list,’ himself. Apparently, he – along with George W. Bush and Donald J. Trump – were good killers. Mr. Putin is a bad killer. Sure, whatever.

But there are always more dots to connect. And now we have a new war… a new enemy… and a new reason to print money!   

Up until fairly recently, the misdeeds of politicians were settled in political ways – by bullets, ballots, bombs, backstabbing etc – directed at the malefactors themselves. “The best form of government is monarchy,” said Voltaire, “with an occasional assassination.”

But this time US authorities are using ‘soft power.’ No assassinations. No bombing. No killing.  

Just stealing.

Soft Bombs

Led by the US, the busybodies take aim not at the people who squander wealth, politicians and the military/industrial/surveillance industries, but at the people who produce wealth – consumers… banks… manufacturers… and raw material producers. (For purely selfish reasons, they have spared the energy companies… but subjected them to severe collateral damage. Gazprom, for example, one of Russia’s state-owned energy producers, has watched its stock fall from $10 a month ago to just $2 this morning.)  

By sending troops to the Ukraine, Mr. Putin has violated the ‘rule of law,’ sayeth the papers and the politicians. In retaliation, sanctions have been imposed. People with money in Russia cannot get it. Russians cannot get their money from abroad.  Russian companies cannot sell their products. Western consumers cannot buy them.

By long standing convention, the rule of law requires certain procedures before a ‘taking’ can occur. You must be charged with a crime. You are entitled to a swift and fair trial. Only then, should the judgment go against you, is your punishment meted out. But here, billions of dollars have been taken away, sequestered, or lost because of the sanctions. What was the charge? Where was the jury? Did we miss something?

Thousands of innocents – businesses, households, investors who had nothing to do with Russian politics or the invasion of the Ukraine – have had something taken away from them without due process. Where was the rule of law?  

We raise the issue not out of a sense of counterfeit moral outrage; there’s plenty of that already. We’re just trying to connect the dots. And it looks as though the sanctions – like America’s other misbegotten wars of the 21st century – could do more harm to itself than to the Kremlin.

The soft bombs don’t fall on Putin or his army. Instead, they explode on key elements of our own prosperity – energy, money and commerce. Cutting off trade with Russia puts supplies of energy and essential raw materials in jeopardy.  Imposing sanctions on the Russian economy takes wealth from innocent people without due process. And by ‘weaponizing’ its own money, the world sees that the dollar can no longer be trusted.  

Here at BPR, we don’t pretend to have any real idea where this will lead. Our high-probability hunch is that we’ll end up with a lot more zeros.

And tomorrow, we’ll deepen our wondering… Are we entering a New Era, where energy will be hard to come by, you can’t trust the money, and you can’t depend on the rule of law? What kind of world is that?

Stay tuned... 

Regards,

Bill Bonner

Ed. Note: Dear Readers want to know…

“How will inflation be affected by this Russian kerfuffle?” wonders Dean M.

“Might we get to the point beyond inflation when there is little to no supply of commodities and goods to be purchased?” asks Pamela.

“Oil is rocketing higher. However the oil stocks are slow out of the gates [...] Will this persist? Why is it happening? Does the market ultimately not believe the oil price is sustainable for long?” Luke C. wants to know.

BPR subscribers are invited to a special live event this afternoon, Thursday, March 3rd, 2022, at 1pm EST, when our resident energy expert, Byron King, will be leading a discussion thread right here on Substack, to field a slew of Dear Readers’ questions and concerns. Byron will cover the war in Ukraine and, in particular, what he sees as the major implications for your investments over the rest of this year… and beyond.

If you’d like to join in the discussion - and be privy to more like it in the future, including private Zoom calls with Bill and his team, plus monthly investment research from Dan and Tom, their twice-weekly updates and a whole lot more - you can become a paid-up member for as little as $2/week, right here.

For our money, it’s about the best investment you can make…