How does it feel to be scolded by a Russia leader?

Quotable

“America is like a healthy body and its resistance is threefold: its patriotism, its morality and its spiritual life. If we can undermine these three areas, America will collapse from within.”
                                          Josef Stalin

Commentary & Analysis
How does it feel to be scolded by a Russia leader?

Maybe it’s my nationalistic tendencies, my likely narrow understanding of world history, or my bias towards free-market capitalism, but I am turned off by Russia.

Of course, the social and humanitarian legacies of Lenin and Stalin might play a role in my perspective.

And why not add Putin to the list?

It has been noted he “is credited with bringing political stability and re-establishing the rule of law.” Just make eye contact with the guy and you’ll understand why.

But it seems there are mixed feelings on Putin; he is rougher around the edges than most modern politicians yet during his time as President the Russian economy made notable progress. And now, as Prime Minister, he is directing his strong-arm rule towards the US …

Putin recently referred to Ben Bernanke as a hooligan. And he has also compared the US to a parasite because of America’s “dependency” on the global economy and monopoly of the US dollar. It seems Mr. Putin is not fond of the quantitative easing and similar tactics the US has employed to catalyze an economic recovery.

Here are his direct quotes:

“They are living beyond their means and shifting a part of the weight of their problems to the world economy,”

“They are living like parasites off the global economy and their monopoly of the dollar.”

Putin also uttered a few other words perhaps showing his personal concern – that Russia and other major economies are at risk of a systemic slowdown should the US economy crater. Now, I don’t know if this is pure rhetoric and political posturing driven by a potential Presidential election (re-election) bid for Putin; or if this is pure, unadulterated angst with US policies; or if this is simply a myopic, egotistical view of the global economic system.

But, with all that said, hopefully the US perks up and takes notice.

Mr. Putin is right about Americans – the public sector most definitely included – living beyond their means. And he is right that Ben Bernanke’s decisions as Fed Chairmen have amounted to implicit “unruly, destructive … and bullying behavior.” The US has created a massive culture of consumerism and debt – the culture must undergo a change.

But Mr. Putin seems to forget what this culture has done for the rest of the world. The US, to America’s detriment (I would argue), has committed itself to assuring a prosperous, growth-happy global economy. Russia, just like China and others, was happy playing along when times were good. But now that things are looking sketchy, at best, it’s time to start piling the blame on the wretched evil-doers in the US of A.

And in joining the Putin bandwagon, China piped in with new comments on the subject matter (amounting to the usual “concern” from China). Also in the news is China’s ratings agency giving the US a downgrade … basically taking the same position as Putin without the same eye-catching similes. But this is nothing new from China and pales in comparison to Putin calling out the US debt addiction.

I imagine Joe Biden is comparing Putin to Tea Partiers who want to hold big government’s feet to the fire on future spending. The hope, I guess, is to imply the nasty and controversial Putin regime reflects the same views fiscally conservative Americans hold. And that, ladies and gentlemen, is part of the reason the US has a problem. But this goes even deeper …

The US is wrapping itself up in the global economy and at the same time spreading (or at least keeping) its military presence wide; the two fronts combine to create an omnipresent US dictating and molding global policy. It is creating unintended consequences; it is creating more hostility than it is honest cooperation. And as it concerns Russia, you can’t help but consider potential scenarios where crude oil becomes a major concern.

Russia, being the largest producer of crude oil, has some leverage. But with that leverage comes vulnerability. They can choose to send, or not to send, their crude oil wherever they want. As is the case with Iran, the US was not fond of the crude oil buying arrangement between Iran and India … and thus the US pressured India to exit stage left.
But Iran is not Russia; Iran is not the largest producer of crude oil. If Russia starts making deals the US doesn’t like, well … then what?
Putin has suggested the need for a new world reserve currency. It is not unlikely that Russia starts demanding payment for its crude oil in something other than US dollars. Is this a bad thing? Not necessarily … but it would suggest increasing distaste for not just the US dollar but the US in general.
At this point, the Russian economy is still somewhat reliant on crude oil revenues; and they don’t exactly have a viable reserve currency alternative. They are still exposed here. And a global economic slide back into recession would hamper the price of oil and very much counter Russia’s geopolitical leverage. This, however, doesn’t change the fact that the US is overextended and unappreciated in many ways. Not to sound too much like Putin’s leech comment, but it is time for the US to stop sucking.
It is time for the US to get its house in order. Because who really wants to be scolded by Russia?
The current environment lends itself to a US dollar rally based on the flight to safety argument. But if the US dollar wants to shake its parasitic imminent-collapse stigma, something needs to be done in the US. How the dollar behaves over the long-run depends on how the current stretch of global economic weakness plays out. If conditions deteriorate further and the shifting sands force a global rebalancing, then the US may end up in a better position to revitalize its economy. This would also mean US counterparts would find themselves in a better position to move forward as well, even if it means a near-term shock to their growth models.
But if little changes, if the world sputters along at below trend growth propped up by governments and central banks, then it is likely the US dollar comes under increased pressure until a collapse of the system is actually imminent.