Economics and the Russo/Ukrainian War

By Rich Kozlovich

All geopolitics are predicated on geographics, demographics and economics.  Let's talk economics and this Russo/Ukrainian War.  

President Zelenskyy (and yes, that's the correct spelling) says the Russo/Ukrainian War won't end until God punishes Russia and all former Ukrainian territory is restored to Ukraine.   That's pretty bold talk for a guy that doesn't have ten cents in his pocket that's his, and Joe Biden says America will support Ukraine "as long as it takes".  

More blather from a former actor who has no trouble spending billions of America dollars, and demanding more to attain his goals, and another stupid piece of blather from what has to be the dumbest man to ever sit in the White House.   Carter, both the Bush's, and Obama can fight over who belongs in second place. 

Let's stop being stupid.  This Russo/Ukrainian War is going to have be settled via negotiations or eventually Ukraine will most likely lose, because the rest of the world will tire of the cost and consequences of supporting Ukraine.  But can Russia afford to continue this insanity for a few more years?

I'll tell you what, we'll come back to that.

While all that may take years, if a conservative gets into office in 2024, this "as long as it takes" support may end on January 20th 2025, which I think Putin is hoping for. 

But I also think a new administration just can't walk away, and Putin needs to know it, and all parties need to make sure there's one absolute crystal clear truth.  This must end!   And it must end through a settlement where everyone will have to win and everyone will have to lose.  While there's talk China will offer a plan, I think that's like asking the Pharisees and the Sadducees if they thought Christ was a heretic.  So, it seems to me no one has a plan to put forth, so, I guess it's up to me.  Imagine that.

In my opinion, I think this is the only settlement, or one very similar, that can work, and it must start with a cease fire.

• Eastern Ukraine was overall pro-Russian from the beginning, so they will agree some part of Eastern Ukraine, already conquered, will officially become part of Russia.  The borders can be negotiated. 
• Russian will officially agree to respect those borders and the borders of all their independent neighbors, even those not members of NATO.  (I don't give much hope Russia will honor any agreement where there's no consequences for bad behavior.)
• All sanctions will be removed! 
• Ukraine, and Moldova will become part of NATO if they wish, and NATO will "officially" agree to not move any further East.  (Belarus has been playing footsie with Russia over this, so let them live with it.)
• Russia will recompense Ukraine one trillion dollars to rebuild the cites and infrastructure they’ve destroyed, which has been estimated to cost between 300 and 400 billion dollars.
  
• 400 billion going directly to the Ukraine government.
• 600 billion going to dedicated Retirement and Health Care funds.
• Russia will offer Western Europe natural gas at a reduced negotiated guaranteed rate, for five years.  All energy sales to Europe will have a negotiated deductible percentage going to Ukraine as the source for the trillion dollar settlement.  That amount will be deducted by the purchasers and will be delivered, per-ratio, to the Ukraine government and the Health and Retirement funds. That deduction will end with the settlement of the trillion dollars, but that settlement must be fulfilled within ten years.
  
• Russia will give Kaliningrad back to Poland, and Poland will allot a payment agreed upon with Russia, through mandatory binding arbitration if necessary, and that money will go to Ukraine as part of the trillion dollar settlement divided according to the agreement. 

There are those who might think this is too easy on Russia, and those who will think this is too harsh, but the fact is Russia will be able to walk away without being totally humiliated, completely bankrupted, and the cost for reparations would not come directly out of their coffers.  In 2022 the E.U. paid Russia 16 billion dollars for energy (over six trillion rubles) and that was with sanctions.  That number will grow rapidly after sanctions are lifted. 

A dollar is worth a little over 75 rubles. A trillion U.S. dollars would translate as 76,015,000,000,000 rubles.  That’s 76 trillion rubles!  Russia doesn’t have that kind of money, and please keep this in mind.  Russia is not a natural capital generating nation, and neither are Iran and China, big Russian allies, who are benefiting from all this at Russia's expense.  

We'll come back to that also.

Personally, I don't care what happens to Russia, as Russia has been a vile, murderous insane nation for over a hundred years, slaughtering tens of millions of innocent people and funding violence all over the world.  The entire history of Russia for the last hundred years has been a history so vile as to make any sane person sick to their stomach.   But demanding perfection is always a mistake.  

The best we can hope for is the most acceptable imperfection, so the cost of reparations must be negotiable, otherwise it could trigger a bigger problem as did the reparations inflicted on Germany by the Versailles treaty at the end of WWI.   But that number still must big enough to stop a lot of Russia's militarization and trouble making around the world.  And Russia would agree to that why? 

We'll come back to that.  

There will be those who think Ukraine should have more, but the fact is, Ukrainian corruption brought this into being.  They brought this on themselves by lining their pockets instead of arming the nation.  That along with the stupid energy policies of European nations, the E.U., and Biden's insane energy policies, all predicated on the falsehood of catastrophic climate change, formerly global warming.  But since the CO2 emissions have been going up and the world's temperate hasn't, it's now climate change.   That sent the price of energy skyrocketed,  and that funded Putin's invasion.

Personally, I don't care what happens to Ukraine or for that matter Europe, we don't need them, they need us, yet they've been arrogant and stupid, looking down their noses at America forever.  In spite of the fact they're not all speaking German because of America, and now they're suffering the consequences for their "green" insanity, and Germany is the lead actor in that insanity. 

For over 100 years America has spilled untold gallons of American blood and wasted untold billions of American dollars to save Europe, and we need to stop it.  We're giving security and money to people who don't even like us, and would happily turn on us.   As Senator Kennedy asks:

Why are we giving money to countries that hate America? They should be able to hate us for free.

Up to this point there are only two major winners.  Some minor winners, and some lesser winners.   They major winners are China, and to a smaller degree, India.  Those at an even lesser degree are the former Soviet Republics bordering Russia and China, and Iran.  Out of all of them, only India is a legitimate capital generator, because they've abandoned central planning to a large degree.  Now they're building their own air craft carriers and have decided to create their own military industrial complex manufacturing their military equipment in country.  Russia has been their primary supplier for many years, mostly to be able to defend against China. but that's going to change, and soon, and they won't need Russia except for energy supplies, which they can acquire from the Middle East. 

China is getting a huge discount on the energy they're buying from Russia, and Iran is selling arms to Russia, and both are finding ways around American sanctions in the process.  China is now saying they're going to sell military equipment to Russia. I have as little confidence in their equipment as I do Russian equipment, and they're still worried about more American sanctions.  I think trade with communist China was a door that should have never been opened in the first place, and a door that needs to be closed, permanently, since trade with America has been funding their militarization, and international trouble making.

The former Soviet Republics are now far less dependent on Russia economically, much less intimidated militarily, and are creating their own economic trade deals less concerned whether or not Russia likes it.  Much of it with China.  

Now, that brings us back to all that stuff I said we'd come back to, and all of its about economics.  Russian economics.  Russia needs out.

One of the benefits Russia had was they had little debt, that's changing as they're going to be operating at a deficit, and the regional budgets are suffering.  Industry is suffering due to sanctions, local shops and businesses are closing or operating at less than former capacity, as Putin shifts the burden of all this to Russian society. 

Spending on the military and on security services will grow from 24 percent of budget spending projected for 2022 to almost 33 percent in 2023 (9.5 trillion rubles). Spending on the economy will decrease compared to that in 2022, and the small increase in social spending will be eaten up by inflation.

The cost of Putin's imperial ambitions are expanding way beyond anything they expected, or can afford.  He's tapping their National Welfare Fund, which had been growing, and among other things pays retirement benefits, but if this continues:

The main way to finance the budget deficit is now domestic borrowing. After all, if the MinFin continues to use the liquid part of the NWF (7.6 trillion rubles) to finance the deficit, that source is likely to be exhausted in three to four years. 

Russia's annual budget is between 300 and 400 billion dollars, and Putin spent a quarter of that on this war. He doesn't have the demographics or industry to fight this war so he's recruiting from other nations like Syria and Iran, and this puts all these "allies" in a position to demand funds from Putin he can't afford.  This war is costing Russia ten billion dollars a month, and that bill is getting harder to pay, and it's going to go up.

Putin does have foreign exchange reserves of "nearly $549 billion. About half of that total has been frozen by foreign countries friendly to Ukraine", but Russia may use the rest to "continue fueling its military offensive".   Again,  this war is costing Russia ten billion dollars a month, they're facing dropping revenue, deficit spending, welfare and retirement needs, demographic losses as peoples are fleeing Russia in droves, and Putin has to see the disastrous long term consequences of all that.   

Here's the bottom line.  Putin needs out, Ukraine must abandon any hope of continuing this war, and the rest of us want them to go away quietly into the night, and more and more prominent political figures in America are now as opposed to all this as I was from the beginning.   This whole mess isn't our fault, and it isn't our responsibility.   It is a great distraction though.

In the end, no matter what happens, Russia will now be a second rate thug that will be taken advantage of by China, India, and just about everyone else.  And I think its a very good possibility Putin will be found dead somewhere having "committed suicide".  Historically, failure isn't appreciated, approved of, or tolerated in the Russian hierarchy, especially failure from an ex-KGB thug who thinks he's a Czar.