There’s No Way Vladimir Putin Could Freeze Europe, and No Way the U.S. Could Freeze Putin

There’s no accounting for the final destination of any good. This is a statement of the obvious that sadly remains elusive inside a commentariat that haughtily thinks everything is obvious.

The latest evidence of reason eluding the deep-in-thought concerns Vladimir Putin, president of Russia. His massing of 100,000 Russian troops at Ukraine’s border has the op-ed crowd spilling lots of ink about what to do, what could be done, and what Putin could potentially do in response to what could or theoretically should be done.

Supposedly one way for the free world to stop Putin from taking Ukraine would be for the U.S. and other economically prominent nations to cut off Russia “from the global banking system.” It all sounds so simple. Take away Russian access to hard currency only for Putin to slowly order Russian troops to retreat from the country’s long border with Ukraine.

Except that there’s no reasonable way for the U.S. or anyone else to cut Russia off from global finance. That’s the case because the U.S. dollar and other credible global currencies bring new meaning to fungible, as does finance itself.

Looking at all this in terms of a relatively sanction-free present, Russia doesn’t have access to the “global banking system” or “dollars” because the United States decrees it so as much as Russia has access to global finance and dollars simply because its economy is of sufficient strength such that sources of finance are actively seeking to liquefy economic activity taken place in Russia. Assuming the U.S. were able to freeze Russian access to U.S. sources of finance, or U.S. sources of “dollars,” it cannot be forgotten that over half of all the U.S. dollars circulating today do so outside the United States. Money goes where it’s treated well, and if it’s seen as safe inside Russia, it will circulate there without regard to the wishes of the American political and foreign policy classes.

To use but one example, it’s not unreasonable to speculate that President Biden could demand that J.P. Morgan, Goldman Sachs
GS
and Morgan Stanley
MS
cease doing business inside Russia. Government’s thumb relative to financial institutions is substantial. But such a demand from Biden would carry much less weight with the financial institutions that the aforementioned do business with.

All of the above ignores just how competitive the field of finance is. Market share is hard won. Please stop and think about the previous truth. Assuming the Morgans and Goldman cease financing economic activity in Russia, can any reader reasonably presume that all manner of other global sources of finance won’t line up to do in Russia what GS et al used to do? The question answers itself. In the “closed economy” that is the world economy, there’s no way to shut off financial flows. Those who forfeit business will be replaced, not to mention that those who freeze out certain customers can’t control what their counterparts do vis-à-vis those same customers.

The only real barrier to financial inflows of the monetary kind is a lack of production. Absent that, finance always and everywhere finds productive economic activity.

Which brings us back to Putin. One oft-bruited barrier to what insults “sanction” (cutting off access to banking services) is the large amount of natural-gas reserves inside Russia. The thinking of the political and foreign-policy elites seems to be that a potential response to banking sanctions levied on Putin’s Russia would be for Putin to respond by “cutting off gas supplies in midwinter to the European Union” since those countries get more than 40 percent of their gas from Russia.

The problems with the above supposition are many. For one, market share is yet again hard won. Since it is, it beggars belief that the Russians would so blithely give up such a valuable market. More importantly, it’s unlikely the Russians could give up access to such a valuable market. The reason they couldn’t is basic: they need the money.

To which some will say the Russians could simply stop selling to EU nations. Oh well, see above. Then just use your common sense. Assuming a highly unlikely scenario whereby Russian producers forfeit a lucrative piece of business only to sell the gas to “others,” there’s yet again no accounting for the final destination of anything. Just as the “United States” continued to import “Arab” and “OPEC” oil amid the 1973 embargo, so would EU nations continue to import Russian gas. Embargoes are symbolic.

Really, all economic sanctions meant to solve foreign policy problems are symbolic. They are given the basic truth that as producers all, we’re all ultimately trading and investing with everyone whether we want to or not. In other words, there’s no way to cut off banking access to Russia, and there’s similarly no way for Russia to cut off access to its natural gas.

What does it all mean for Ukraine? There’s no answer here since there’s no presumption of foreign policy expertise. What is answerable is that efforts by pundits, political, and foreign policy types to play economics in restraining Vladimir Putin’s ambitions will amount to much less than nothing.