The Structural Disconnection Of Russia From The Civilized World

We are now in the third week of the Russo – Ukrainian War and the west has retaliated against the invading Russians with economic sanctions that are slowly, but surely, disconnecting the nation of Russia from the rest of the civilized world.

Russian tank fire hitting threatening apartment building in Mariupol. Who shoots at apartment buildings? War criminals.

Countries that make war on apartment buildings, kill babies, kill children, kill women and old folks are not civilized. This is medieval, Dark Ages siege behavior and we are cowards for tolerating it.

How has that been working, Big Red Car?

It is slightly early, but the first indications are that Russia will be severely damaged economically. Sanctions will not curb on-the-ground violence, but they will impact how Russia and Putin makes  decisions.

Let’s play ball, but first some background:

 1. Russia is a woefully small country economically with a Gross Domestic Product of $1.483T v Italy’s GDP of $1.889T.

Italy is 27% bigger than Russia.

 2. To put that into perspective, the United States has a current dollars GDP of $20.953T.

 3. Russian population = 144MM.

Ukraine population = 44MM.

Italy population – 60MM.

United States population = 330MM.

European Union population = 447MM.

NATO countries population = 947MM.

Actions speak louder than words, Big Red Car?

Actions to disconnect the uncivilized Russian nation from the civilized world via the most extreme regimen of sanctions in history, effectively returning Russia to an economic wasteland:

 1. The US/EU/NATO has disconnected Russia from the SWIFT system which is how global banks talk to each other. This essentially stops the flow of money including access to Putin’s foreign currency stash.

In addition to SWIFT, the US has specifically cut off the Russian Central Bank from access to the US.

 2. The World Federation of Exchanges suspended the Moscow Exchange from membership which means Russia is no longer in the public company or equities business.

This action has been widely ignored, but it is a huuuuuuge development as it effectively kills access to public markets.

3. The United States, the European Union, the United Kingdom, Switzerland, Japan, and Canada have sanctioned a number of individuals individually meaning their foreign held assets are frozen, and they cannot travel to these countries.

 4. Collectively, the US and its allies has grounded Aeroflot, the Russian intercontinental air carrier, from operating within the airspace above the sanctioning countries as well as access to the air traffic control system. This pertains to the railroads in most of Eastern Europe.

 5. Inside the overall sanctions regime is a wholesale ban on western countries doing business with Russian companies that is wide, deep, and powerful. This one action essentially stops trade with Russia in the technology arena — such as aviation, energy, maritime, weapons — and at a very high level. This has been inadequately reported.

Here is a good Financial Times article that gives you a mind boggling level of detail: Financial Times Sanctions Article.

OK, OK, OK, Big Red Car, what is the impact?

Ahhh, dear reader, here is the impact. It is substantial.

 1. The Russian currency, the Ruble, is virtually worthless having dropped by about 80% since against the USD since the beginning of the invasion.

If you are buying imported goods, then the prices you pay in Rubles just went up by that same amount. The below chart shows how many Rubles are required to buy a single USD. A Ruble is worth less than a penny US.

Taken to the extreme and coupled with explosive inflation, the problem will become — “How does Putin pay his army and how do those soldiers pay their bills with a worthless, inflated currency?”

 2. Russia is cut off from the public markets which means that Russian stocks and other securities, like bonds, are dead. Nobody really knows how dead yet because the Moscow Stock Exchange closed rather than to allow the free market to tell it how much it sucks.

London based Russian securities trading shows Russian equities down by as much as 98%. That is a blood bath.

Russia will default on its sovereign debt, will not be able to borrow publicly, and Russian corporations will face the same fate. This is a huge impediment to Russian business.

Any bond fund out there owning Russian bonds has had to dump them as they are no longer considered “investment grade.”

It will be a long, long, long time before Russia and Russian companies are allowed back, if ever, into the international debt markets.

 3. Foreign currency is king, but Putin has put fierce restrictions on who can get any. The Russian government has to have foreign currency to operate as their own currency is virtually worthless.

 4. The individual Russian is facing the loss of Visa, Mastercard, AmEx, ApplePay, GooglePay, PayPal, collectively wherein 72% of all Russian consumer transactions are conducted.

There has been a run on the banks in which Russians want to withdraw Rubles and convert them into foreign currency to preserve value — nope, not going to happen.

 5. The Russian Central Bank has raised interest rates to 20% from 9.5%, already high. This will suck the value out of Russian companies who require borrowed working capital.

 6. Inflation was already high in Russia and now it will explode. The Ruble crashes and now inflation makes it worth even less. This is a cruel blow.

 5. Russia is effectively isolated — no air travel because they cannot fly over or land in any western countries. They can go to Turkey and Dubai and China. No French Riveria, no London, no New York. Oh, no EU trains also.

 6. The US and several allies have banned all imports of Russian energy. Energy is both the bright spot for Russia and its Achilles Heel.

 7. There is a massive wave of rejection from US and western companies.

The list is too long to give, but it is big, deep, and pervasive from Exxon to McDonalds to Goldman Sachs to Hitachi.

Symbolically, this is a stunning rejection, but it is also takes a lot of very good jobs with it and is another hole in the dyke of foreign currency.

Devalued worthless currency, cut off from debt markets, stock market close and then a huge sell off, soaring interest rates, inflation, no Visa/Mastercard/Amex/GooglePay/ApplePay/PayPal, no travel, western companies pulling out — it’s going to be hard to lie in Russia. I hope it is crushing.

Will the sanctions work, Big Red Car?

Of course they will work. Look at them. They effectively cut off this little uncivilized country from the civilized world. No Bolshoi visit to Paris. No sports teams. Bravo!

What sanctions will not do is to impact the shelling of Kyiv today and tonight. Sanctions are not deployed on the battlefield.

What will also happen is that smug, evil prick, Vlad Putin, will see that Russia is a tiny country that nobody likes and would not be a pimple on the world’s ass without its massive nuclear arsenal. There is going to be a lot of humble pie served in Mos-cow.

In the meantime, the Ukrainians are getting ready to see Kyiv shelled to the ground as the world looks on in impotence because we are cowards.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.

God bless Ukraine. Kill Russians, you magnificent patriots. Kill Russian tanks. The whole world is with you.

Z is for Zelenskyy