Defaults for Dummies

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The West forced Russia into its first foreign debt default since 1918. Armstrong Economics believes there is no point to this [except to start World War III?).

It will hurt the world economy and it’s a manufactured default.

Coin in denomination of 1 Russian ruble on a pile of other coins in front of symbolic out-of-focus fragments of the Moscow Kremlin

Armstrong Economics calls it the Sovereign Debt Default mode beginning with Russia, spreading to Europe, and ending with the United States.

Politicians cheer the impending doom, forcing Russia into a position where they can’t borrow money. This is the most shortsighted of moves, Armstrong suggests.

Russians no longer have to service debt and that means Western institutions will no longer get the better rates for their pension funds. Western rates are very high, Armstrong continues.

At the same time, the Federal Reserve is pushing rates higher. It creates inflation and devalues the dollar. The US could default.

We’ll see.

China is beginning to divest from the West. PetroChina may sell its stakes in natural gas projects in Australia and oil sands in Canada, Reuters reported on Tuesday, citing its sources. The Chinese company reportedly wants to cut its losses and divert funds to sites in the Middle East, Africa, and central Asia.

RUSSIA CALLS IT A FORCE MAJEURE

Russia has until Sunday to avoid default. The 30-day deadline is up.

Russia calls any default artificial because it has the money to pay its debts but says sanctions have frozen its foreign currency reserves held abroad.

That’s true. They are defaulting on Western-imposed sanctions.

Last week, Russian Finance Minister Anton Siluanov branded the nation’s looming default a “farce.”

Moscow claims it is unable to pay its debt, and in May it tried to pay some of its dollar debts in Rubles, despite bonds not accepting Russia’s domestic currency.

The sanctions have effectively cut Russia out of the global financial system, meaning it has been unable to service its debts. The West weaponized the financial system.

Russia’s central bank will continue cutting rates to limit the depth of economic contraction this year as inflation will be lower than previously thought, a Reuters poll suggested on Thursday, according to US News.

Russia calls it a “force majeure” which refers to a clause common in many contracts that frees parties from liability if forces beyond their control prevent them from fulfilling their obligations. The obligations remain in place and must be fulfilled when it becomes possible to do so.

UNIVERSITY OF VIRGINIA LAW PROFESSOR AGREES

Mitu Gulati, a law professor at the University of Virginia who studies sovereign debt issues, told VOA that Russia’s situation is unique and that the claim that its default is merely “technical” has some basis in contract law.

“I cannot recall any prior event where we have had a default on a sovereign debt that has been forced in this way,” Gulati said.

He said that Russia can rely on what is known in the law as the “doctrine of impossibility and impracticability.”

“The law is that, if the reason I’m not able to perform on my contract is that some external force has prevented me from performing — for example, a legal restriction, like a sanctions regime — then I’m not in default, so long as I pay when the external force is removed,” he said.

“Russia’s reputation is in the mud because they have engaged in this horrible action vis-a-vis a neighbor by invading them,” Gulati said. “But if we’re just talking about the U.S. causing some additional penalty for Russia … I think all that this strategy is going to do is (ensure) that U.S. creditors don’t get paid.”


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GuvGeek
GuvGeek
5 months ago

Russia has very little debt. It’s Gross Debt is under 20% of GDP and their GDP is expanding due to the strength of the Ruble and Europe’s dependence on Russian Oil. Russia could easily pay it’s debt, but it’s foreign assets are frozen which will result in losses at Western Banks. Say, “Thank You Joe Biden!” for strengthening the Russian Economy while weakening ours. If Traitor Joe does succeed in crashing the Dollar then Russia will repay their debt with Rubles at literally pennies on the Dollar. Last week the Ruble was at a 6 year high of only 50 to the Dollar.

Scott D
Scott D
5 months ago

How to create a lose lose situation. By The DNC