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What Sanctions ?

Summary:
Russia has just attacked Ukraine. US policymakers seem to agree that we should impose severe economic sanctions (but definitely have no US boots on Ukrainian ground). What can the US do without firing a shot ? I think the US can impose extreme costs on Russia (hurting Russians other than Putin who are not to blame and will be innocent victims — tough luck). In general sanctions have not achieved– well much except the defunct Iranian JCPOA. However, Russia has a lot to lose, because (in spite of a default) it’s debt and currency are taken seriously. The US Treasury can issue unlimited amounts of Ruble denominated bonds. This isn’t even counterfeiting — they would say “payable by the US Treasury”. I think this could make the ruble roughly

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Russia has just attacked Ukraine. US policymakers seem to agree that we should impose severe economic sanctions (but definitely have no US boots on Ukrainian ground). What can the US do without firing a shot ? I think the US can impose extreme costs on Russia (hurting Russians other than Putin who are not to blame and will be innocent victims — tough luck). In general sanctions have not achieved– well much except the defunct Iranian JCPOA. However, Russia has a lot to lose, because (in spite of a default) it’s debt and currency are taken seriously.

The US Treasury can issue unlimited amounts of Ruble denominated bonds. This isn’t even counterfeiting — they would say “payable by the US Treasury”. I think this could make the ruble roughly worthless. This doesn’t work both ways. Russia can issue dollar denominated bonds which will sell at a discount and not drive down the value of the dollar.

The key is that the US Treasury is extremely credit worthy (in spite of GOP insanity). I’m pretty sure t-bills denominated in Rubles would not sell at a discount. They wouldn’t be worth much as there is no way of knowing how much the US would issue later. However, I think this means that Russian Federation ruble deonominated bonds and banknotes would not be worth much either.

Russians follow the ruble/dollar exchange rate obsessively. I think that the USA can impose extreme costs on Russia at will (and at no cost to us).

Why not ?

Robert Waldmann
Robert J. Waldmann is a Professor of Economics at Univeristy of Rome “Tor Vergata” and received his PhD in Economics from Harvard University. Robert runs his personal blog and is an active contributor to Angrybear.

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