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5 unintended consequences of US sanctions

When it comes to sanctions, the law of unintended consequences works in Russia’s supreme short and long term favour.

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The latest round of US sanctions against Russia, Iran and North Korea are supposed to be a militant punitive measure designed to hurt three very different economies, though economies that in various ways have all learned to become increasingly self-sufficient over the years. Far from turning the economies of the aforementioned countries into 1990s Iraq, something very different is happening.

The real consequences of the sanctions are largely unintended from an official American point of view, even though in reality, the sanctions were all about Congress trying to limit the authority and slam the credibility of Donald Trump. This helps explain why few people in America have considered the following, although some voices outside of the Washington elite have voiced important concerns.

1. CONFIRMED: Russia and Iran strike $2.5 billion trade deal 

48 hours before Donald Trump’s self-described reluctant hand signed the sanctions, Iran and Russia struck a $2.5 billion deal wherein Russia will provide train carriages for Iranian rail networks.

As Forbes reports,

“Russia and Iran signed a $2.5 billion deal on Monday to start up a much-needed rail wagon production operation. The agreement was forged between the Industrial Development and Renovation Organization of Iran (IDRO) and Transmashholding, who is Russia’s largest rail equipment supplier. The two sides will set up a new joint venture, which will be 80% owned — although completely funded — by the Russian partner.

Iran is currently in the midsts of what could be called an infrastructure building bonanza. Emerging from decades of sanctions which left much of the country’s transportation infrastructure descending into proverbial ruins, Iran has embarked upon a near complete rebuild of its highway and rail networks. The country is expected to add on 15,000 kilometers of new rail lines in the next five years alone — a rapid expansion which is going to require 8,000-10,000 new wagons each year.

Reinvigorating the transport sector is a key part of Iran’s vision to leverage its geographic position to become a vibrant hub of trans-Eurasian trade, which plugs nicely into China’s Belt and Road Initiative and Russia’s continued economic activity in the post-Soviet neighborhood. Iran is also a core partner, along with Russia and India, in the emerging North-South Transport Corridor, which seeks to create a multimodal trade route that would cut the lead time between cities on the west coast of India and St. Petersburg in half, and has also worked out its territorial squabbles with Russia over the Caspian Sea”.

Thus, Russia and Iran have not only developed even closer economic ties, but are doing so in the medium and long term service of China’s One Belt–One Road initiative which both Moscow and Tehran have embraced.

2. The Death of Liberalism in Russia 

Ever since the end of the horrific 1990s in Russia which coincided with the year 2000 election of Vladimir Putin as President, liberalism (both social, economic and geo-political) has rapidly fallen out of favour.

Where the west still largely sees liberalism as a creed, Russia tends to see it as a failed experiment. That being said, even in recent years, moderate liberals in Russia have asserted that Russia’s relations with the west including and especially the United States, are somehow paramount to relations with Asian countries, fellow Eurasian states and the ‘global south’ of Latin America, Africa and, South Asia and South East Asia.

This sanctions prove once and for all that such a view is folly masquerading as strategy. Forgetting the fact that as a geographically, historically and temperamentally Eurasian state, Russia’s economy and pragmatic style of geo-politics is far more oriental than post-modern occidental, even if one desired to put the US on a paramount level vis-a-vis the rest of the Eurasian world, this has now been exposed as impossible.

If the most outwardly and by many accounts sincerely Russia friendly US leaders in decades, Donald Trump cannot even get a Congress controlled by his own party to refrain from passing punitive measures against Russia, then there truly is no hope for fully-fledged good and functional bilateral relations between Moscow and Washington at this time, this is especially true where America’s increasingly protectionist economy is concerned.

No matter what concessions Russian liberals would make to the US, nothing would be enough given the current political climate in the west. Many Russians have realised that surrendering one’s traditional interests and one’s dignity in the hope of good relations with the US is not only self-defeating but is furthermore, objective folly.

Even former President and current Russian Prime Minister Dmitry Medvedev, often thought of as a closet-liberal has come out with a strongly worded statement to this effect.

The Prime Minister wrote the following in a Facebook post in Russian and English. The English section is re-produced below:

“The US President’s signing of the package of new sanctions against Russia will have a few consequences. First, it ends hopes for improving our relations with the new US administration. Second, it is a declaration of a full-fledged economic war on Russia. Third, the Trump administration has shown its total weakness by handing over executive power to Congress in the most humiliating way. This changes the power balance in US political circles.

What does it mean for them? The US establishment fully outwitted Trump; the President is not happy about the new sanctions, yet he could not but sign the bill. The issue of new sanctions came about, primarily, as another way to knock Trump down a peg. New steps are to come, and they will ultimately aim to remove him from power. A non-systemic player has to be removed. Meanwhile, the interests of the US business community are all but ignored, with politics chosen over a pragmatic approach. Anti-Russian hysteria has become a key part of both US foreign policy (which has occurred many times) and domestic policy (which is a novelty).

The sanctions regime has been codified and will remain in effect for decades unless a miracle happens. This legislation is going to be harsher than the Jackson-Vanik amendment as it is overarching and cannot be lifted by a special presidential order without Congress’ approval. Thus, relations between Russia and the United States are going to be extremely tense regardless of Congress’ makeup and regardless of who is president. Lengthy arguments in international bodies and courts are ahead, as well as rising international tensions and refusal to settle major international issues.

What does it mean for us? We will steadily continue our work on developing the economy and social sector, take efforts to substitute imports, and solve major national tasks, relying mostly on ourselves. We have learned to do so in the past few years, in conditions of almost closed financial markets as well as foreign investors’ and creditors’ fear of investing in Russia upon penalty of sanctions against third parties and countries. To some extent, this has even been to our advantage, although sanctions are meaningless overall. We will cope”.

If even Medvedev is using such language, the message to Russians is clear: Look everywhere, but don’t look to America, not anytime soon, certainly.

3. North Korea and Russia 

Russia and her ally China are deeply angered with America’s aggressive posturing towards Pyongyang. China and Russia have issued a joint statement condemning American militarism over the Korean peninsula while also stating their sincere desire to see Pyongyang refrain from moves which have been viewed by Seoul and Washington as provocative. After all, Russia and China both border North Korea and neither want to see a war, let alone a nuclear war on their doorstep.

Crucially though, both Moscow and Beijing have condemned any further attempts to sanctions North Korea’s economy. Russia in particular ought to go in the opposite direction and try and work with Pyongyang to open up the North Korean economy to Russia. A prosperous North Korea which engages positively with a neighbour that has had historically good relations with Pyongyang, would be a healthy way to de-escalate conflict and gently persuade North Korea to focus on bilateral prosperity rather than the instruments of war.  If Russia and North Korea could reach such an agreement, China would almost certainly approve as Russia and China have developed a level of trust that currently does not exist between China and North Korea.

Such a suggestion was recently made by Russian opposition leader Vladimir Zhirinovsky, a man while in the opposition, has often predicted a great deal of geo-political events, most famously when he anticipated the current Ukraine crisis in the late 1990s.

The sanctions which are manifest of the impossibility of meaningful cooperation with Washington could hasten Russia’s desire to solve the largely US inspired crisis in Korea more rapidly than many anticipate at this time.

4. A boost for One Belt–One Road 

Russia has expressed a commitment to actively participate in China’s global trade, commerce and infrastructure trade initiative from the moment it was announced in late 2013. While the sanctions do not change this, it reinforces the central importance of One Belt–One Road to tapping Russia’s potential in the 21st century for what will certainly be to the economic benefit of all Russians.

While some have challenged One Belt–One Road on the basis of being overly ambitious, America which opposes the plan has increasingly nothing to offer as an alternative. Even if the US did have a counter-proposal for One Belt–One Road, it is clear now that such a proposal would never be offered to Russia with respect or seriousness.

Russia therefore now realises that the road which is open to Moscow is China’s plan and not a would-be western plan. One Belt–One Road is more suited to the Russian economy than any hypothetical western counter-proposals would have been in any case.

5. The Seduction of Europe 

If the US forces its EU partner into a trade war, Russia will be able to exploit this schism by seducing European markets with offers which from the perspective of Dollars and Cents, Europe would be hard pressed to refuse.

Already, Europe is panicking over the idea that countries like Germany might have to purchase expensive American Liquefied Natural Gas which then has to be painstakingly shipped to Europe rather than the cheap and comparatively local alternative of Russian pipeline gas.

Russia could therefore tempt Europe with the carrot of cheap energy and goods while combining it with the stick of demanding Europe drop its own sanctions against Russia, most of which date back to 2014. Russia already has sympathetic ears in southern Europe on this matter and Germany may well be moving in this direction due to America’s blatant disregard for northern European concerns.

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santiago
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santiago

You must mean the Talmud and Mishnah.

The Torah is what they don’t believe in anymore.

santiago
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santiago

I hear you and Vtran. Just one thing though. US citizens are heavily armed, specially compared to other regimes and countries, and it is supposedly so in order to fight against a Tyrannical government. SO……. the american people are lately at fault and should pay up accordingly so, if they were to content because of a Starbucks coffee and preferred that coffee rather than the lives it cost, then by all means they should not enjoy anything that brings them contentment, that would be completely just and deserving. When a politicians son is buying 2K sneakers because his corrupt daddy… Read more »

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FBI recommended Michael Flynn not have lawyer present during interview, did not warn of false statement consequences

Flynn is scheduled to be sentenced on Dec. 18.

Washington Examiner

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Via The Washington Examiner…


Former FBI Deputy Director Andrew McCabe, who arranged the bureau’s interview with then-national security adviser Michael Flynn at the White House on Jan. 24, 2017 — the interview that ultimately led to Flynn’s guilty plea on one count of making false statements — suggested Flynn not have a lawyer present at the session, according to newly-filed court documents. In addition, FBI officials, along with the two agents who interviewed Flynn, decided specifically not to warn him that there would be penalties for making false statements because the agents wanted to ensure that Flynn was “relaxed” during the session.

The new information, drawn from McCabe’s account of events plus the FBI agents’ writeup of the interview — the so-called 302 report — is contained in a sentencing memo filed Tuesday by Flynn’s defense team.

Citing McCabe’s account, the sentencing memo says that shortly after noon on Jan. 24 — the fourth day of the new Trump administration — McCabe called Flynn on a secure phone in Flynn’s West Wing office. The two men discussed business briefly and then McCabe said that he “felt that we needed to have two of our agents sit down” with Flynn to discuss Flynn’s talks with Russian officials during the presidential transition.

McCabe, by his own account, urged Flynn to talk to the agents alone, without a lawyer present. “I explained that I thought the quickest way to get this done was to have a conversation between [Flynn] and the agents only,” McCabe wrote. “I further stated that if LTG Flynn wished to include anyone else in the meeting, like the White House counsel for instance, that I would need to involve the Department of Justice. [Flynn] stated that this would not be necessary and agreed to meet with the agents without any additional participants.”

Within two hours, the agents were in Flynn’s office. According to the 302 report quoted in the Flynn sentencing document, the agents said Flynn was “relaxed and jocular” and offered the agents “a little tour” of his part of the White House.

“The agents did not provide Gen. Flynn with a warning of the penalties for making a false statement under 18 U.S.C. 1001 before, during, or after the interview,” the Flynn memo says. According to the 302, before the interview, McCabe and other FBI officials “decided the agents would not warn Flynn that it was a crime to lie during an FBI interview because they wanted Flynn to be relaxed, and they were concerned that giving the warnings might adversely affect the rapport.”

The agents had, of course, seen transcripts of Flynn’s wiretapped conversations with Russian then-ambassador Sergey Kislyak. “Before the interview, FBI officials had also decided that if ‘Flynn said he did not remember something they knew he said, they would use the exact words Flynn used … to try to refresh his recollection. If Flynn still would not confirm what he said … they would not confront him or talk him through it,'” the Flynn memo says, citing the FBI 302.

“One of the agents reported that Gen. Flynn was ‘unguarded’ during the interview and ‘clearly saw the FBI agents as allies,'” the Flynn memo says, again citing the 302.

Later in the memo, Flynn’s lawyers argue that the FBI treated Flynn differently from two other Trump-Russia figures who have pleaded guilty to and been sentenced for making false statements. One of them, Alexander Van der Zwaan, “was represented by counsel during the interview; he was interviewed at a time when there was a publicly disclosed, full-bore investigation regarding Russian interference in the 2016 election; and he was given a warning that it is a federal crime to lie during the interview,” according to the memo. The other, George Papadopoulos, “was specifically notified of the seriousness of the investigation…was warned that lying to investigators was a ‘federal offense’…had time to reflect on his answers…and met with the FBI the following month for a further set of interviews, accompanied by his counsel, and did not correct his false statements.”

The message of the sentencing memo is clear: Flynn, his lawyers suggest, was surprised, rushed, not warned of the context or seriousness of the questioning, and discouraged from having a lawyer present.

That is all the sentencing document contains about the interview itself. In a footnote, Flynn’s lawyers noted that the government did not object to the quotations from the FBI 302 report.

In one striking detail, footnotes in the Flynn memo say the 302 report cited was dated Aug. 22, 2017 — nearly seven months after the Flynn interview. It is not clear why the report would be written so long after the interview itself.

The brief excerpts from the 302 used in the Flynn defense memo will likely spur more requests from Congress to see the original FBI documents. Both House and Senate investigating committees have demanded that the Justice Department allow them to see the Flynn 302, but have so far been refused.

In the memo, Flynn’s lawyers say that he made a “serious error in judgment” in the interview. Citing Flynn’s distinguished 30-plus year record of service in the U.S. Army, they ask the judge to go along with special counsel Robert Mueller’s recommendation that Flynn be spared any time in prison.

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Macron offers crumbs to protestors in bid to save his globalist agenda (Video)

The Duran Quick Take: Episode 36.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris take a quick look at French President Macron’s pathetic display of leadership as he offers protestors little in the way of concessions while at the same time promising to crack down hard on any and all citizens who resort to violence.

Meanwhile France’s economy is set for a deep recession as French output and production grinds to a halt.

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Via Zerohedge


As if Brussels didn’t have its hands full already with Italy and the UK, the European Union will soon be forced to rationalize why one of its favorite core members is allowed to pursue populist measures to blow out its budget deficit to ease domestic unrest while another is threatened with fines potentially amounting to billions of euros.

When blaming Russia failed to quell the widespread anger elicited by his policies, French President Emmanuel Macron tried to appease the increasingly violent “yellow vests” protesters who have sacked his capital city by offering massive tax cuts that could blow the French budget out beyond the 3% budget threshold outlined in the bloc’s fiscal rules.

Given the concessions recently offered by Italy’s populists, Macron’s couldn’t have picked a worse time to challenge the bloc’s fiscal conventions. As Bloomberg pointed out, these rules will almost certainly set the Continent’s second largest economy on a collision course with Brussels. To be clear, Macron’s offered cuts come with a price tag of about €11 billion according to Les Echos, and will leave the country with a budget gap of 3.5% of GDP in 2019, with one government official said the deficit may be higher than 3.6%.

By comparison, Italy’s initial projections put its deficit target at 2.4%, a number which Europe has repeatedly refused to consider.

Macron’s promises of fiscal stimulus – which come on top of his government’s decision to delay the planned gas-tax hikes that helped inspire the protests – were part of a broader ‘mea culpa’ offered by Macron in a speech Monday night, where he also planned to hike France’s minimum wage.

Of course, when Brussels inevitably objects, perhaps Macron could just show them this video of French police tossing a wheelchair-bound protester to the ground.

Already, the Italians are complaining.  Speaking on Tuesday, Italian cabinet undersecretary Giancarlo Giorgetti said Italy hasn’t breached the EU deficit limit. “I repeat that from the Italian government there is a reasonable approach, if there is one also from the EU a solution will be found.”

“France has several times breached the 3% deficit. Italy hasn’t done it. They are different situations. There are many indicators to assess.”

Still, as one Guardian columnist pointed out in an op-ed published Tuesday morning, the fact that the gilets jaunes (yellow vest) organizers managed to pressure Macron to cave and grant concessions after just 4 weeks of protests will only embolden them to push for even more radical demands: The collapse of the government of the supremely unpopular Macron.

Then again, with Brussels now facing certain accusations of hypocrisy, the fact that Macron was pressured into the exact same populist measures for which Italy has been slammed, the French fiasco raises the odds that Rome can pass any deficit measure it wants with the EU now forced to quietly look away even as it jawbones all the way from the bank (i.e., the German taxpayers).

“Macron’s spending will encourage Salvini and Di Maio,” said Giovanni Orsina, head of the School of Government at Rome’s Luiss-Guido Carli University. “Macron was supposed to be the spearhead of pro-European forces, if he himself is forced to challenge EU rules, Salvini and Di Maio will jump on that to push their contention that those rules are wrong.”

While we look forward to how Brussels will square this circle, markets are less excited.

Exhausted from lurching from one extreme to another following conflicting headlines, traders are already asking if “France is the new Italy.” The reason: the French OAT curve has bear steepened this morning with 10Y yields rising as much as ~6bp, with the Bund/OAT spread reaching the widest since May 2017 and the French presidential election. Though well below the peaks of last year, further widening would push the gap into levels reserved for heightened political risk.

As Bloomberg macro analyst Michael Read notes this morning, it’s hard to see a specific near-term trigger blowing out the Bund/OAT spread but the trend looks likely to slowly drift higher.

While Macron has to fight on both domestic and European fronts, he’ll need to keep peace at home to stay on top. Remember that we saw the 10Y spread widen to ~80bps around the May ’17 elections as concerns of a move toward the political fringe played out in the markets, and the French President’s popularity ratings already look far from rosy.

And just like that France may have solved the Italian crisis.

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Watch: Democrat Chuck Schumer shows his East Coast elitism on live TV

Amazing moment in which the President exhibits “transparency in government” and shows the world who the Democrat leaders really are.

Seraphim Hanisch

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One of the reasons Donald Trump was elected to the Presidency was because of his pugnacious, “in your face” character he presented – and promised TO present – against Democrat policy decisions and “stupid government” in general.

One of the reasons President Donald Trump is reviled is because of his pugnacious, “in your face” character he presented – and promised TO present – in the American political scene.

In other words, there are two reactions to the same characteristic. On Tuesday, the President did something that probably cheered and delighted a great many Americans who witnessed this.

The Democrats have been unanimous in taking any chance to roast the President, or to call for his impeachment, or to incite violence against him. But Tuesday was President Trump’s turn. He invited the two Democrat leaders, presumptive incoming House Speaker Nancy Pelosi, and Senate Minority Leader Chuck Schumer, and then, he turned the cameras on:

As Tucker Carlson notes, the body language from Schumer was fury. The old (something)-eating grin covered up humiliation, embarrassment and probably no small amount of fear, as this whole incident was filmed and broadcast openly and transparently to the American public. Nancy Pelosi was similarly agitated, and she expressed it later after this humiliation on camera, saying, “It’s like a manhood thing for him… As if manhood could ever be associated with him.”

She didn’t stop there. According to a report from the New York Daily News, the Queen Bee took the rhetoric a step below even her sense of dignity:

Pelosi stressed she made clear to Trump there isn’t enough support in Congress for a wall and speculated the President is refusing to back down because he’s scared to run away with his tail between his legs.

“I was trying to be the mom. I can’t explain it to you. It was so wild,” Pelosi said of the Oval Office meet, which was also attended by Vice President Pence and Senate Minority Leader Chuck Schumer (D-N.Y.). “It goes to show you: you get into a tinkle contest with a skunk, you get tinkle all over you.”

This represented the first salvo in a major spin-job for the ultra-liberal San Francisco Democrat. The rhetoric spun by Mrs. Pelosi and Chuck Schumer was desperate as they tried to deflect their humiliation and place it back on the President:

With reporters still present, Trump boasted during the Oval meeting he would be “proud” to shutdown the government if Congress doesn’t earmark cash for his wall before a Dec. 21 spending deadline.

Pelosi told Democrats that Trump’s boisterousness will be beneficial for them.

“The fact is we did get him to say, to fully own that the shutdown was his,” Pelosi said. “That was an accomplishment.”

The press tried to characterize this as a “Trump Tantrum”, saying things like this lede:

While “discussing” a budgetary agreement for the government, President Donald Trump crossed his arms and declared: “we will shut down the government if there is no wall.”

While the Democrats and the mainstream media in the US are sure to largely buy these interpretations of the event, the fact that this matter was televised live shows that the matter was entirely different, and this will be discomfiting to all but those Democrats and Trump-dislikers that will not look at reality.

There appears to be a twofold accomplishment for the President in this confrontation:

  1. The President revealed to his support base the real nature of the conversation with the Democrat leadership, because anyone watching this broadcast (and later, video clip) saw it unedited with their own eyes. They witnessed the pettiness of both Democrats and they witnessed a President completely comfortable and confident about the situation.
  2. President Trump probably made many of his supporters cheer with the commitment to shut down the government if he doesn’t get his border wall funding. This cheering is for both the strength shown about getting the wall finished and the promise to shut the government down, and further, Mr. Trump’s assertion that he would be “proud” to shut the government down, taking complete ownership willingly, reflects a sentiment that many of his supporters share.

The usual pattern is for the media, Democrats and even some Republicans to create a “scare” narrative about government shutdowns, about how doing this is a sure-fire path to chaos and suffering for the United States.

But the educated understanding of how shutdowns work reveals something completely different. Vital services never close. However, National Parks can close partly or completely, and some non-essential government agencies are shuttered. While this is an inconvenience for the employees furloughed during the shutdown, they eventually are re-compensated for the time lost, and are likely to receive help during the shutdown period if they need it. The impact on the nation is minimal, aside from the fact that the government stops spending money at the same frenetic pace as usual.

President Trump’s expression of willingness to do this action and his singling out of the Dem leadership gives the Democrats a real problem. Now the entire country sees their nature. As President Trump is a populist, this visceral display of Democrat opposition and pettiness will make at least some impact on the population, even that group of people who are not Trump fans.

The media reaction and that of the Democrats here show, amazingly, that after three years-plus of Donald Trump being a thorn in their side, they still do not understand how he works, and they also cannot match it against their expected “norms” of establishment behavior.

This may be a brilliant masterstroke, and it also may be followed up by more. The President relishes head-to-head conflict. The reactions of these congress members showed who they really are.

Let the games begin.

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