Finance – Politics Trumps Economics, Again

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February 22, 2022 by Scott Crosby - Views: 69

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Finance – Politics Trumps Economics, Again

The hidden card in the economic deck is the Russian build-up of troops along the Ukraine border.

News outlets report that Russia has 83 battalion tactical groups, with 750 men each – more than 62,000 troops – stationed and ready for an assault.  That number is up from 30 two weeks ago.  With additional personal to supply air power, bridge-building units, logistical and medical support, that number is over 100,000.  Russia also has 20-30 ships in the Black Sea positioned for an assault.  

S256-1.jpg“You don't park battle groups on the border of another country and do nothing."  

Such an invasion would be the largest military action in Europe since World War II ended, in 1945.

The invasion, if it happens, is unlikely prior to the end of the Olympics, in China.  Russia does not want to embarrass its closest ally.  That suggests an invasion between February 20th and the end of March, when frozen rivers would make the military’s travel easier.

Estimates suggest Kiev, Ukraine’s capital, would fall within three days.  The civilian death toll would be as high as 50,000 and the number of refugees fleeing Ukraine into Europe would be massive.  About 8,000 Americans are currently in Ukraine, plus about 300 military advisers.  European governments and the U.S. have been in ongoing contact with Russia’ Putin, urging him to keep the peace.

It is clear to everyone, as one news source reported, that the market has not priced in the impacts of the invasion.  Such an adjustment, of course, would result in falling stock prices.  

Prices for some commodities would increase.  

Russia and Ukraine together constitute 29% of the world’s wheat producers.  An invasion would be likely to seriously disrupt Ukraine’s wheat production, and a Russian takeover of Ukraine could affect the economies of countries which currently import Ukraine wheat but vocally oppose a Russian invasion.

Similarly, the U.S. is making arrangements to maintain Europe’s oil supply in the event that Russia shuts down its pipelines.  The price of oil is likely to go above $100 a barrel.

The U.S. and the U.K. have promised swift economic sanctions against Russia, should the invasion occur.  They would be targeting Russia generally, its industries and financial institutions, and the personal accounts of members of the Russian oligarchy.  

Those sanctions, plus anything Russia might do in retaliation, would cause additional ongoing repercussions for the stock market for quite a while.  

War is utterly destructive.  Not only would a Russian invasion disrupt Ukraine productivity, but would certainly have long-term reverberations for productivity in the rest of the world.  

War is the final, most oppressive instrument of politics.  Economics is only the composite efforts of each person in pursuit of his well-being.  A military effort of the size and nature Russia is clearly considering will have an enduring world-wide impact, as individuals work to maintain and restore their lives in the face of war’s barbaric destruction.■


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