Debt.
Everyone understands it pretty well when it comes to their personal finances. You borrow money, you have to pay it back. If you can’t, your creditor hounds you until you either come up with the cash or restructure your repayment schedule. Or, worst case, you eventually file for bankruptcy, thereby defaulting on your debt. Simple.
Yet people, especially in the West, seem blithely unaware that the same basic principles apply to countries, as well. Most of us tend to think that nations can’t or won’t default on their debt. Well … maybe Greece will. But surely not a big country.
Why we believe this is partly due to an ignorance of history, which features literally countless defaults, among nations great and small. Even the US has done it. More than once. It happened right at the beginning, in 1779, when the fledgling US nation defaulted on its first currency, the Continental (which led to widespread use of an early American pejorative phrase: ‘not worth a Continental.’) And a very recent example was when Nixon severed the tie between gold and the dollar in 1971; that was a default on the precious metal debt the country owed to France and others.
It’s also partly due to the current financial behavior of the American government, which acts as if the cure for a debt problem is more debt (do not try this at home, by the way). As Congress raises the federal debt ceiling, and the Federal Reserve creates ever more currency units out of thin air, it creates the illusion of stability. All it’s really doing, though, is just kicking the can down the road. The US has placed itself firmly on this path. But that doesn’t ensure that the rest of the world’s nations can or will follow the same one.
Particularly Russia.
In 2014, I published The Colder War, which became a New York TimesBestseller. Vladimir Putin, Russia, oil and energy were all dissected in my book, which today is every bit as timely as it was when I wrote it in 2013. Because of the decade I spent researching the book, I have a very unique Westerner’s perspective on Russia.
Here’s one of the things I learned: Russia is completely unafraid of a default on its debt.
This post was published at David Stockmans Contra Corner on October 26, 2015.
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