How will the U.S. population react when economic reality finally comes to its door?
In the 2005 film, Cinderella Man, James J. Braddock’s fight with contender Art Lasky reaches a turning point when Lasky hits Braddock with his best punch. Braddock’s mouthpiece flies out and he is staggered, but he doesn’t go down. He recovers, smiles at Lasky, and goes on to win the fight.
A romanticized portrayal to be sure, taken to an even more ridiculous extreme in the climactic bout between Rocky Balboa and Clubber Lang in Rocky III, but it does beg a very relevant question for the U.S. and NATO today:
What if you hit your opponent with your best shot and he doesn’t go down?
U.S.-led NATO effectively did that when it locked Russia out of the SWIFT system, seized Russia’s FOREX assets, and demanded the rest of the world cease all economic relations with Russia. Washington believed this would cripple Russia permanently, possibly leading to a coup in Russia and Putin’s ouster.
It didn’t. That’s not to say it did no damage. The ruble initially plunged in value, causing the Russian central bank to raise interest rates to 20%, effectively freezing the prospects for any investment in growth for the besieged economy. But Russia is still there, as is Putin. The war in Ukraine continues, and Putin has responded.
“A number of countries have taken illegitimate decisions on the so-called freezing of Russian assets. This collective West has actually drawn a line under the reliability of its currencies, we have already spoken about this, it crossed out the trust in these currencies. I have decided to implement a set of measures to switch over payments, as soon as possible, let’s start with our natural gas, to switch over payments for our natural gas supplied to the so-called unfriendly countries into Russian rubles.”
That punch landed, and now it’s Washington’s turn to try to smile in its opponent’s face. The reliable U.S. media ran several stories citing U.S. economists trying to minimize the effectiveness of Russia’s response. Only in this case, life will more likely imitate reality than the arts. When a boxer smiles in a real prize fight, it almost always means he has been hurt.
That’s what prompted Biden to hurry to Brussels for an emergency meeting following Putin’s announcement. Strategies expected to be discussed include redirecting non-Russian supplies of natural gas towards Europe in hopes to lessen its dependency on Russian exports. Currently, Russia supplies about 45% of Europe’s natural gas imports.
Apart from the fact this will still make life more costly for Europeans – if it were not more expensive to purchase natural gas this way, Europe would have already been doing so – it is only one commodity. Russia and Ukraine also supply about 30 percent of the world supply of wheat. Russia is a major source of steel, palladium, and neon gas needed to make computer chips. It supplies 35 percent of the world’s uranium.
Together with Belarus, Russia supplies 40 percent of the world’s potash and large percentages of ammonia and monoammonium phosphate exports. Fertilizer prices had already risen 17 percent in 2021 and are expected to rise an additional 12 percent in 2022.
As it did for decades militarily before invading Ukraine, Russia has so far shown restraint in its economic response to NATO’s sanctions. It has by no means thrown its haymaker, such as simply cutting off Europe’s natural gas completely rather than merely demanding payment in rubles. Neither has it cut off exports of uranium to the United States, although it is publicly considering it.
Of course, these economic “nuclear options” would hurt Russia as much or more as it would the U.S. and Europe. But Russia is a relatively poor country that has been living within its means. It has low debt and a population accustomed to a lower standard of living than those in NATO countries. The U.S. and NATO are quite the opposite.
While the U.S. is still a highly productive country, it has been living well beyond its means, largely made possible by the U.S. dollar’s reserve currency status, which is now in jeopardy as Russia, China, and India – whose populations alone represent 37 percent of the world’s population – take steps to get off the dollar completely. Much of the “Global South” may choose to join them.
This economic world war will harm every country in the world. Mass starvation in poor countries is a real possibility. So is economic collapse in Europe.
President Biden has admitted it will have “a cost” to Americans as well. But his portrayal and average Americans’ understanding of that cost is grossly underestimated.
Russia, China, and India are all formerly socialist countries that have experienced exponential growth since pivoting to market economies. The living standards of most of their people have grown significantly but are still low compared to those of Americans or Europeans. Their older generations remember the grinding poverty they experienced under socialism.
In The Matrix Reloaded, Neo tells the architect he doesn’t believe the machines will destroy all of humanity, because their existence relies upon human energy supplies. The architect replies, “There are levels of survival we are prepared to accept.”
Russia, China, India, and much of the world may be similarly prepared. Is the United States?
By Tom Mullens
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About Tom Mullen
Tom Mullen is the author of It’s the Fed, Stupid and Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty, and the Pursuit of Happiness?
