The Russian Economy is Booming!

While the kinetic war has been playing out, the U.S. is also conducting a financial war against Russia in the form of economic sanctions. This war is going even worse than the kinetic war, as reported by Reuters.

The Russian economy is booming! Let’s look at the data.

Russian bank profits for 2024 are projected to exceed the record profits in 2023. The Russian economy currently has an unemployment rate of 2.8% while the U.S. unemployment rate is 3.9%. Russia is also growing at full capacity and has spot labor shortages. Her economy grew at an annualized rate of 5.5% in 2023 and 7.0% this year so far (according to the latest data) while the U.S. economy is growing at about 2.4%, according to the Atlanta Federal Reserve Bank GDPNow estimate.

The ruble is steady at about 92:1 (compare this to Biden’s claims from 2022 that “the ruble will be rubble”). Russia’s debt-to-GDP level is 17.2%, compared to the U.S. level of 131.0%. By every measure, Russia’s economy is outperforming the U.S. and is doing so on a more sustainable level from a debt perspective. This is all while the U.S. economy is stalling out and European economies (and Japan) are in recession. U.S. financial sanctions against Russia have been a complete failure.

As if all this were not bad enough, the dumbest idea is to steal $300 billion of U.S. Treasury securities owned by Russia and use the money to pay for the Ukraine war. The Treasury securities were legally purchased by Russia using dollars earned through the sale of oil prior to the war. They were frozen in early 2022. That means the securities are still legally owned by Russia, but they cannot be sold or pledged, and Russia cannot receive the interest or cash at maturity.

Now the U.S. is going a step further and trying to seize these assets. This is outright theft and a violation of the Sovereign Immunities Act, but the U.S. is going ahead.

There are a number of hare-brained variations on this, including seizing the interest only (about $6 billion), seizing the assets in the U.S. only (about $20 billion; the rest are located in Europe), and borrowing $60 billion with the loan secured by the notes so that when Ukraine defaults (a near certainty), the lenders can seize the notes.

Of course, if the Russian assets are stolen, Russia will retaliate by seizing over $300 billion of mostly European assets located in Russia including energy, mining and telecommunications projects. Russia won’t be hurt financially, but international direct foreign investment will.

There seems to be no realization that this theft will destroy the creditworthiness of the United States. Countries with large Treasury holdings such as China, Taiwan, Japan, South Korea, Brazil, and Saudi Arabia will start moving their reserves to physical gold, which cannot be seized (one reason gold prices have been surging lately).

The bottom line is that the war is going badly for the U.S. militarily, financially and politically. Investors should prepare for a financial meltdown as this plays out. Physical gold and cash are the best go-to assets in an environment like this.

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