Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Instapundit links to this article on Hugo Chavez’s financial woes exacerbated by rapidly falling oil prices. I think it important to remember that Russia remains just as dependent on oil revenues as Chavez’s regime and while Chavez’s is merely annoying, Russia has nukes.
The great oil bust of ’83 triggered the fall of the Soviet Union. We should keep an eye things over there.
A recent Wall Street Journal article titled “Borrowing Costs Increase Sharply for Russian Firms” lays out the economic toll that Russia will begin to feel from their invasion of Georgia. Per the article:
“the Georgian conflict has sparked prohibitively funding costs… conditions have deteriorated significantly for Russian borrowers, as reflected by sovereign and corporate-credit spreads, which have widened sharply, substantially increasing the cost of borrowing… but even then, an attractive premium may not be enough to entice investors to participate in deals… the majority of investors won’t want to participate right now. They will prefer to wait for signs of improvement, and right now there are no clear signs.”
For Russian companies seeking debt financing, this war comes at a bad time. The world debt markets are already being roiled by a lack of liquidity and losses, making even solid companies with low credit risk scramble for funding. Now add to this the fact that Russia seems to be actively repelling the West, this makes Russian instruments an even bigger risk.
While America has a legitimate concern in encouraging former Soviet states to develop into market democracies, there is no intrinsic economic or strategic American vital interest in Georgia per se and even less in South Ossetia. Georgia is our ally for only two reasons: Tblisi was enthusiastic to send troops to help in Iraq in return for military aid and it occupies a strategic location for oil and gas pipelines that will meet future European energy needs. In other words, Georgia’s role is of a primary strategic interest to the EU, not the United States. Which is why European and British companies have such a large shareholder stake in the BTC pipeline and why European FDI in Georgia exceeds ours. Yet it will be American troops in Georgia handing out bottled water and MREs, not the Bundeswehr or the French Foreign Legion. Something does not compute here.
Mark Safranski, a/k/a Zenpundit.
Mark has an excellent post on Pajamas Media entitled Let’s Not Rush into Cold War II, which the quote above comes from. RTWT.
See also a post on his site with additional comments and links.
And congratulations to Mark on the Pajamas Media gig. Nice.
The appropriate personification for Russia circa 2008 is not an oil-fueled Genghis Khan, threatening to surge once more across Eurasia … no, it is more like a drunk with a knife unable to admit they have terminal liver disease .. a vodka-fueled Genghis Khan’t if you will.
Surely a policy of political containment is really all that is needed while nature, rust and liver sclerosis on a Biblical scale do the rest.
If nothing else comes of it, the West's response to the rape of Georgia should end that delusion. Georgia did almost everything right. And for its actions Georgia was celebrated in the West with platitudes of enduring friendship and empty promises of alliances that were discarded the moment Russia invaded.
Georgia only made one mistake, and for that mistake it will pay an enormous price. As it steadily built alliances, it forgot to build an army. Israel has an army. It has just forgotten why its survival depends on our willingness to use it.
If we are unwilling to use our military to defeat our enemies, we will lose everything. This is the basic, enduring truth of international affairs that we have ignored at our peril. No matter what we do, it will always be the case. For this is the nature of world affairs, and the nature of man.