Russia is spiraling toward a $150B default nightmare | Hacker News Reader

Russia is spiraling toward a $150B default nightmare

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Nightmare for whom? The creditors?

Good question!

But I'm not sure bankers want it to work like that - see financial crisis, Greece, "too big to fail".

> a potential default that could cost investors billions and shut the country out of most funding markets.

Nightmare for two groups:

1) current creditors

2) Russia, because of the difficulty in finding future creditors with reasonable terms after a default

The collapse of the Russian economy will be felt by all the world's economy. We just don't know how hard it will be yet. Hopefully the world's bankers will be able to figure out how to soften the blow. But the Russians will really feel it. The economy will fall into a deep recession with all the social turmoil that goes with it. People tend to gravitate towards leaders that tell them that they will save them. Those usually turn out to be some kind of hard liner that leans toward dictatorship. In 1998 there was an Russian economic crisis which brought Putin to power. This time a similar leader will come to power if Putin does not survive the chaos.

The irony is that if it collapses the western countries will need to help Russia recover. Otherwise the country will fall into an authoritarian regime which will be a huge problem that will need to be dealt with in the future.

The collapse of the economy is a big deal both financially and politically for everybody.

Banks: try to shutdown Russian economy

Also banks: "Why can't we get our money back out of Russia?"

Sometimes I can't tell if all of this is just a dumb joke.

This is a really big misunderstanding of the situation.

Governments sanctioned Russia.

The banks that withdrew voluntarily were fully aware of the financial consequences.

Don't you just love it when people enjoy shooting themselves in the foot?

Think it's smart to block 300 billion of Russian cash reserves? Welcome to your own (possibly fatal) cash-flow problems when a mere half of that cash can't come your way.

Who is “your” in this scenario?

Western banks and creditors. People can't complain about not being paid if they won't allow their debtors to pay. That leads to cash-flow problems for all concerned.

There used to be an old business saying which is still relevant: "Never let your Ego get in the way of your cash-flow."

Governments imposed the sanctions, not the banks.

And no bank that withdrew from Russia voluntarily is complaining to my knowledge.

It sounds like you’re accusing someone of being hypocritical, but I don’t know who specifically.

Do you have any quotes of any western banks / creditors acting hypocritically?

Governments imposed the sanctions, not the banks.

If the Government isn't listening to banks when we're talking about hundreds of billions of dollars in sanctions, there's something completely broken in a top-heavy FIRE economy. And especially when we're choosing to use economic instead of military warfare.

Bloomberg reports:

Signs of looming financial damage are becoming apparent at many of the world's biggest money managers, including BlackRock Inc. and Pacific Investment Management Co. But it’s not likely to be limited to these giant funds. Because much of Russia’s debt was rated investment grade just weeks ago, the securities were pervasive across global fixed-income portfolios and benchmarks, meaning the impact could ripple across pension funds, endowments and foundations. “This will be a monumental default,” said Jonathan Prin, a portfolio manager at Greylock Capital Associates. “In dollar terms, it will be the most impactful emerging-market default since Argentina’s. In terms of broader market impact, it’s probably the most broadly felt emerging-market default since Russia itself in 1998"...

https://www.livewiremarkets.com/wires/risk-of-huge-us-150-bi...

Sorry, I still don’t understand what you’re getting at.

I think the government was fully aware of the tradeoffs of the sanctions and potential Russian default.

We're probably talking past each other. I don't think the Government was fully aware of the consequence of their actions.

The point of the Government's sanctions is to cause problems and distress for Russia economy. But sanctions are a two-edged sword and end up with you causing problems and distress for your own economy too.

Many US investment companies expect regular interest payments from Russia. Actually, most them are dependent on those payments of interest to maintain their cash flows. If their cash flows get affected, they are at risk of collapsing themselves. Some of those investment companies are supposedly "too big to fail" and will require being bailed out by the taxpayer if they are near collapse. That causes fear, uncertainty and doubt in the financial circles, and that is definitely not wanted in an industry that requires plenty of investor confidence.

Now, if the Government blocks the use of Russia's cash reserves such that payments can not be made to and from those accounts, Russia is prevented also from paying those interest payments to the US investment companies that are relying on those interest payments to maintain their own cash flows.

I can't believe that the Government would have put sanctions on Russia's cash reserves without previously talking to those financial companies whose livelihood depends on free access to international transfers.

If the Government did talk to the banks/investment companies and went ahead with the sanctions anyway, they are guilty of putting their own economy at risk. That's sheer stupidity: You can't prevent Russia from paying interest by blocking their cash reserves and then complain that your economy is at risk.

If the Government did not talk to the banks/investment companies (those are the same thing really after the repeal of the Glass-Steagall Act), they are again guilty of putting their own economy at greatly risk. Something is incredibly broken if the Government just barges ahead and makes stupid decisions without looking at the financial disasters that follow for the financial industry in the US's top-heavy FIRE economy as a direct consequence of their economic warfare on Russia.

I would not be at all surprised if the blocking of Russia's cash reserves leads directly to end of the USD as the World's Reserve Currency, and quite soon.

Hopefully, I was a bit clearer for you this time. At the cost of being rather long-winded about it. :)

> I don't think the Government was fully aware of the consequence of their actions.

I remember the news pre-sanctions about the US & Europe deliberating. They were also discussing the burden each country would have to bear, so I got the impression they were fully aware of the double edge sword and communicated that to the public. I also don’t hear anyone complaining note that was large enough to be consulted by the government.

> If the Government did talk to the banks/investment companies and went ahead with the sanctions anyway, they are guilty of putting their own economy at risk.

Sure, but the risk to US, European & allied economies is a drop in the bucket compared to the impact on Russia. I think that was the trade off they calculated was worth it. I don’t think anyone was under any illusions that these sanctions would be without repercussions.

> I would not be at all surprised if the blocking of Russia's cash reserves leads directly to end of the USD as the World's Reserve Currency, and quite soon.

Possibly. But I think I heard that the US + EU + UK countries account for ~33% of the global economy. If you count other US allies like Mexico, Canada, Japan, Korea, Australia, Turkey, etc. then the number goes higher, I think to near 50%. It’s a huge economic bloc that has proven it’s ability to act in unison.

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