Washington's $300 billion dilemma
What are the implications of stealing hundreds of billions of dollars from Russia?
After the onset of Russia’s invasion into Ukraine, western powers responded with haste to impose a plethora of sanctions against Moscow, hoping to use the dollar as an economic weapon to strike back against the Kremlin’s kinetic activities in Ukraine.
Two years ago on this very day, the Biden Administration’s Treasury Department moved to freeze hundreds of billions of dollars in Russian assets that are held in the United States. The number held by the U.S. and European powers is estimated today to amount to $300 billion.
By attacking the Russian Central Bank through the weaponization of the Dollar system, policymakers hoped that the Russian economy would crash as a result. Russia responded by imposing domestic currency controls to protect the Ruble, and sought outside trading partners (China, India, Iran, Saudis, etc) to cushion the blow of being banned from accessing an enormous chunk of wealth.
The West ultimately did not land the KO punch against the Russian economy. Over the course of two years, the Biden Administration has largely failed to form a broad enough international coalition to freeze Russia out of global markets. The sanctions have not done much at all to mitigate the Russian war effort, and on top of that, taxpayers have soured on the idea of continuing to allocate more cash to Ukraine.
So with the West becoming more frugal with their cash, the people in charge have been brainstorming other ways to facilitate the flow of cash into the monetary black hole that is the Slava Slush Fund.
Today, the Biden Administration and Congress have a $300 billion question on their hands:
What are they to do about Russia’s frozen stash?
The Biden Administration is getting more and more aggressive about the idea of simply seizing the money.
Yes, they want to simply take the cash and justify it as a punitive measure.
On the individual level, it would be akin to Bank of America seizing your checking account and justifying such an action because you’ve been charged with committing a crime.
“It is necessary and urgent for our coalition to find a way to unlock the value of these immobilized assets to support Ukraine’s continued resistance and long-term reconstruction,” Treasury Secretary Janey Yellen said Tuesday before G-20 ministers and central bankers.
Biden White House spokesman John Kirby added Tuesday that “Russia needs to be responsible for the damage” brought onto Ukraine by “exploring the option of using those frozen assets.”
However, to take the money from Russia, they’ll need to legalize the theft through Congress.
The Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act has made lots of waves in the media, and it has the support of many powerful legislators. The bill’s advocates say it will take the Russian money and use it for reconstructing Ukraine after the war.
The lack of specifics may lead some to wonder about the wisdom of giving our ruling class access to $300 billion, with no specific targeted goals for the money, other than to use it to “rebuild Ukraine” with the support of the World Bank. Who and what entities will actually be receiving the seized funds? That much remains a total, non transparent mystery.
From a historical standpoint, this measure would amount to an unprecedented heist, with no peer event having ever occurred on remotely the same scale. Yes, the U.S. and world governments have frozen assets in the process of sanctioning governments (see: Iran), but the act of transferring the custody of $300 billion would break deep into uncharted territory.
Despite how Americans and Europeans may feel about the moral implications of the Russian invasion, such a seizure could also backfire in spectacular fashion.
A seizure on this scale may send a signal to markets that the U.S. dollar is no longer the free floating currency that once transcended it into the most powerful money ever and the current global reserve currency. If the dollar can no longer be considered a floating currency, its determined value would depart further from the laws of supply and demand, and instead become a product of the whims of the global ruling class. This would not just expose the dollar to further hyperinflation risk, it would also allow for more authoritarian governments with draconian currency controls to capture the monetary space that the dollar once occupied.
Like I said a year or two ago, if the US government can steal yachts from Russian oligarchs, your bank account is easy.
I recall reading somewhere that Russia could respond by seizing equivalent assets of NATO countries in response (fixed assets, not paper).
BTW, someone might want to tap DC on the noggin (be prepared for a hollow sound) and point out that when you are hopelessly insolvent and growing more so at an accelerating rate, while already the world's largest debtor nation, you might want to think twice about destroying whatever credibility your increasingly trashy currency enjoys. History informs us that confidence in junky currency, especially fiat paper, tends to collapse suddenly and catastrophically (research any of financial history's many hyperinflations).