Ukraine and Financial Contagion

  • Vermont ski resort boycotts wrong vodka (Seriously?)
  • The story behind “freedom fries”
  • Jim Rickards: The collapse of the Russian ruble
  • Fed’s all-clear to start raising rates
  • “The Quad” squad?
  • Readers respond to our “tinfoil or on target” inquiry.



We regret to inform the bar management at Vermont’s Magic Mountain ski resort that they poured perfectly good not-Russian vodka down the drain for the sake of virtue signaling.

“We went through all of this back in 2013,” Reason writer Scott Shackford reminds us, “when Russia’s parliament passed an anti-gay law and LGBT activists responded with a boycott of what they thought was Russian vodka. There was a logo and everything. The primary target was Stolichnaya vodka, one of the more popular brands.

“Yet the Stoli that gets imported to the United States is not Russian at all. It’s made in Latvia, and the company that manufactures it is based in Luxembourg. Stoli, furthermore, had developed strong ties to the LGBT community and even financially backed community projects. The law was awful, but this attempt to punish Russia for passing it did not actually hurt Russia at all.”

But facts don’t matter at the moment, do they? Don’t you know there’s a war going on?

Truly, we’re at a level of hysteria exceeding that of “freedom fries” — as my wife reminded me this week.

During the run-up to the U.S. invasion of Iraq in early 2003, the French government refused to get on board with Dubya Bush’s war plans. In a fit of petulance, Rep. Walter Jones (R-North Carolina) saw to it that the Capitol Hill cafeteria renamed “french fries” as “freedom fries.”

Maybe you remember that story. What you might not know is this: Jones came to deeply regret his support for the war. Later in 2003 he began to send moving letters to the families of service members who’d been killed — “penance,” he said, for believing the deep state’s BS. The letters numbered 11,000 by 2017.

Jones died in office three years ago, a victim of ALS at age 76.

The collapse of the Russian ruble “can presage major instability in the international monetary system,” warns our Jim Rickards.

Maybe you’ve seen Jim say words to that effect already in The 5 this week. Well, they bear repeating because corporate media are either oblivious to the threat — or outright refusing to acknowledge them.

“Suddenly,” says Jim, “dollar-denominated obligations of Russian entities that rely on ruble earnings may go into default because the ruble revenues are insufficient to pay the debts and because no amount of rubles can be converted to dollars due to exchange controls.

“Those losses will end up on the books of the lenders in Europe and the U.S., which may cause further financial distress.

“The SWIFT prohibitions on Russian banks are also not a free lunch in terms of putting pressure on Russia,” Jim reminds us.

“Every buyer has a seller, and every sender has a receiver. If Russian banks cannot transact on SWIFT, that means Western banks that are counterparties will see non-performance on a large number of contracts and open trades.

“As Western banks scramble to cover those open positions, there will be dumping of collateral and other assets that may disrupt financial markets.

“Unlike a stock market crash, this kind of interbank distress does not happen all at once. It can take days or weeks to play out. Still, those ripple effects or spillovers are coming.

“We’re probably in the opening stages of a major global liquidity crisis,” Jim concludes. “What happens in Russia doesn’t stay in Russia.”

It’s not just the financial fallout from Ukraine that the Establishment media are underplaying. Jim also says extreme risks are coming in view as the Federal Reserve prepares to embark on a new cycle of raising interest rates — starting just 12 days from now.

More about that next week…

In the meantime, the latest job numbers are giving the Fed the all-clear to start raising rates.

The wonks at the Bureau of Labor Statistics conjured 678,000 new jobs for February — way more than expected, even with the waning of the Omigod variant.

On the big chart from Calculated Risk — depicting the job losses and recoveries from every post-WWII recession — the red line continues its arduous climb back. Still, the U.S. economy has 2.1 million fewer jobs now than it did at this time two years ago…

More concerning is that there was no wage growth last month. The year-over-year increase in hourly average earnings is 5.1% — rather lower than the official inflation rate of 7.5%.

The official unemployment rate fell to 3.8% — on par with early 2019 levels. But the real-world unemployment rate from Shadow Government Statistics ticked up to 24.6% — which reflects a spike in the number of part-timers who want full-time work but can’t get the hours.

A sunny headline job figure notwithstanding… a global stock sell-off overnight has made its way westward to the United States.

Asian and European markets reacted poorly to the Russian takeover of a Ukrainian nuclear power plant — more about that later — and at last check this morning, all the major U.S. indexes are down 1.5–2%. The S&P 500 has slipped below 4,300.

Precious metals are perking up — gold adding $22 to $1,958 and silver up 33 cents to $25.47. Crypto, however, is selling off — Bitcoin back below $41,000 and Ethereum below $2,700.

We’d be remiss if we didn’t mention copper is up to $4.83 a pound as the week winds down — well beyond its 2011 record.

Crude, you ask? Up nearly 5% to another 11-year high at $112.63. And supply might well be tighter than the mainstream believes.

Figures from Energy Intelligence show Russian oil exports plunging by at least one-third this week, thanks to financial and shipping sanctions.

Theoretically, energy is exempt from U.S. and European Union sanctions. But in reality — sorry if we repeat ourselves here — banks and other firms don’t want to take on anything Russian-related, lest they unintentionally offend their regulatory masters. There’s even a term for this phenomenon that’s gaining currency right now — “self-sanctioning.”

Thus, Russian crude trades at a $23 a barrel discount to Brent — the global benchmark — which reflects pitiful demand despite a global supply squeeze.

Is the White House about to begin waging economic warfare against India?

“The Biden administration is weighing whether to impose sanctions against India over its stockpile of and reliance on Russian military equipment,” reports The Hill, “as part of the wide-ranging consequences the West is seeking to impose on Moscow over its invasion of Ukraine.”

Washington has made a big deal in recent months about “the Quad” — a quasi-military alliance designed as a “counterweight” to China, comprising the United States, India, Japan and Australia.

But at the same time, India has loaded up on S-400 air defense missiles and other Russian gear — which, ironically, it says it needs to counter China.

This American global hegemony stuff is complicated, isn’t it?

No final decisions, but if Team Biden goes ahead with sanctions, D.C. will be engaged in economic warfare against governments representing nearly 40% of the globe’s population. What could possibly go wrong?

For the record: Global food prices now exceed the 2011 levels that touched off the “Arab Spring” revolts.

The United Nations Food and Agriculture Organization is out with its monthly Food Price Index. At 140.7, the number sits at a record high. And if you adjust for inflation, the only time the number’s been worse is in the months after the “oil shock” of 1973…

The big drivers in the last month were vegetable oils and dairy. Grains actually held steady, but that won’t be the case with next month’s report, because…

Wheat prices touched all-time highs this morning in Chicago and Kansas City — $13.40 a bushel.

Worse, wheat has traded “limit up” for four straight days; that is, the exchanges put a 75-cent-per-bushel cap on the daily increase. What might the price be if it were allowed to trade freely?

As we mentioned last Saturday, Russia and Ukraine account for nearly 30% of global wheat exports.

American supply won’t begin to make up the difference, especially now — the Department of Agriculture reports 73% of U.S. winter wheat production comes from areas currently experiencing drought.

To the mailbag, and two replies to our “tinfoil or on target” inquiry yesterday: Is the Western power elite seizing on the Ukraine war to apply shock therapy and force us peasants off oil and natural gas?

“I did have similar thoughts,” our first reader writes, “especially after Biden issued his latest ban on drilling in the Gulf of Mexico even with what is happening in Europe.

“I am an Alaskan, and as such, I recently received a constituent email from our congressman, Don Young. He touted his sponsorship of a bill to confiscate the yachts of those rich Russians; that’ll show Putin!

“I wrote back asking him to consider getting his comrades to go for more oil drilling. I have yet to hear from him.”

Writes another: “I can see a persuasive argument being made for an attack on fossil fuel by the global elite in an effort to control more of the global population. Here at home, I can see Nancy Pelosi thinking that just might work.”

The 5: Is Rep. Young aware that Putin preemptively reshored his yacht from Germany to Russia a few days before the invasion?

Meanwhile, the Russian takeover of the Ukrainian nuke plant is doing nothing for the cause of nuclear power — which the West needs desperately if there’s any hope for a smooth transition away from fossil fuels for electricity.

Granted, commercial reactors don’t blow up like nuclear weapons, but still, “I can’t even begin to tell you how idiotic, ignorant, stupid, vulgar, unwise, wrongheaded, witless, irresponsible, lamebrained and knuckleheaded this move was,” writes one Herschel Smith — a nuclear engineer of 43 years experience.

“Even if the reactor was shut down upon the assault by Russian forces,” Smith writes at his Captain’s Journal blog, “there is still core cooling to consider, as well as thousands of metric tonnes of spent fuel in the pools. A SRO (senior reactor operator) and RO, along with equipment operators, must be on shift 24 hours per day…

“You can sign me up for being highly pissed at Putin and his military apparatchiks. While the responsible ones among us are trying to convince people of the rightful need for nuclear, they have to go and muddle this up, even if it’s only because of wrongheaded thinking by people who don’t understand the physics of nuclear energy and are frightened because of that.

“Even if the plant is under control right now, the psychology of this is damaging.”

Back to reader feedback: “The main point that all the warmongers and virtue signalers are missing is that what happens to Ukraine makes no difference to the people in Portland, Oregon; Portland, Maine; or Appleton, Wisconsin, in between.

“It is not in the U.S. national interest to expend lives or treasure in Ukraine. Biden has said U.S. and NATO forces will not engage Russian forces (although the chances of missteps here are greater than anyone acknowledges), so why are we sending additional weapons and foreign aid to Ukraine when the outcome is known?

“Putin has decided that enough is enough with NATO expansion and a U.S. coup overthrowing the legitimately elected president of Ukraine in 2014. While the MSM are portraying heroic national resistance, there is no doubt that Russia will prevail. The answer is the diplomatic solution advocated by David Stockman: partition of Ukraine.”

The 5: We don’t presume to know who will prevail, but we know this much: Barack Obama acknowledged to The New Yorker in 2016 that Ukraine is a vital interest for Russia but not for the United States.

“The fact is that Ukraine, which is a non-NATO country, is going to be vulnerable to military domination by Russia no matter what we do.” [Emphasis ours.]

“Not sure which way the comparison should go,” writes our final correspondent, “but:

“Russia is being debanked as if it were merely a group of peaceful Canadian truckers desiring to meet with their prime minister.

“Peaceful Canadian truckers have been debanked as if they were as violently evil as Vladimir Putin invading Ukraine.

“In both cases, I’d say that CCP-infected Western government is the actual culprit, with the intent of causing global chaos and de-dollarization.

“I also wonder at the intense response to Russia’s invasion… after all, aren’t there always a dozen or so hot wars somewhere in the world? But those don’t matter because reasons?

“Keep it up — both your writing and posting readers’ responses!!”

The 5:


Right now, Ukraine is probably the worse humanitarian catastrophe based on the number of refugees… but Yemen is far worse on the basis of raw starvation after eight years.

If you’re an American, your tax dollars pay for it — spare parts, maintenance and logistical support for Saudi Arabia’s collective punishment of Yemenis, starting under Obama and continuing under Trump and Biden.

Just in case anyone still believes Washington’s always on the side of the angels…

Try to have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. For further background on how we got here with Russia and Ukraine, here’s some more recommended viewing on the heels of the John Mearsheimer lecture and the Oliver Stone documentary…

Our acquaintance Scott Horton, tireless podcaster and director of the Libertarian Institute, delivered a stemwinder of a speech to the Libertarian Party of Utah last Saturday. You can find both the video and a transcript at this link.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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