Not wholly sure this actually works

Joe Biden is poised to force Russia into its first international default for a century by making it impossible for the Kremlin to pay bond investors in dollars.

If it’s impossible for you to perform the contract then that’s not default, that’s force majeure.

Hmm, well, not so much a statement as a wild surmise on a surprisingly narrow knowledge base. But logically that would be how I see it. If the law has changed so you can’t do it then you’re not at fault for not doing it, are you?

13 thoughts on “Not wholly sure this actually works”

  1. The Meissen Bison

    It’s all a bit odd but that might be down to the reporting.

    The USSR kept USD transactions out of US control by the simple expedient of using its own bank in Paris, the Banque Commerciale pour l’Europe du Nord, cable address: Eurobank, which is what gave us the Eurodollar.

    So if Russia has sufficient foreign currency reserves there shouldn’t be a potential for the US Administration to interfere.

    But if Russia needs to buy the USD then there’s a different set of problems because of the limited access now that Russian banks have to their correspondent banks in the west and to the foreign exchange market more generally. They could conceivably ask China to cover their positions but if China prefers to remain aloof from the fray that’s not going to work.

    The thing which seems odd is Russia’s insistence that buyers of its gas etc. should pay in Roubles if it has an imminent requirement for dollars.

    In any event, Tim, I don’t think that force majeure would wash in this case since reasonable contingency planning (some kind of sinking fund running up to the maturity, say?) should have ensured that the maturities went smoothly.

  2. If it’s impossible for you to perform the contract then that’s not default, that’s force majeure.

    Surely it is more commonly “frustration”? It only becomes “Force Majeure” because of the means of contractual frustration is irresistible compulsion from a superior strength, in this case the rather nebulous international community of the righteous (or something).

    Really kind of stupid though for the Russians to have invaded Ukraine without securing their extra territorial USD reserves. Seizing those with the nebulous claim of using the funds to rebuild Ukraine after the war was an obvious Western ploy of the capitalist running dogs. Any fool could see that.

    For all his supposed super cleverness Vladimir Putin can be as thick as pig shit.

    Maybe it’s the cancer / Parkinson’s / Dementia / Aneurisms? Seems quite common in leaders of current, former and putative superpowers at the moment.

  3. Really kind of stupid though for the Russians to have invaded Ukraine without securing their extra territorial USD reserves

    Yarp. I get the feeling they were playing chicken before something changed their minds at the last minute tho. They probably thought, in the show of force phase, that they could get another negotiated settlement like the previous Minsk agreements. Maybe they realised it was too late to recover their money, or maybe they were naive enough to think the West would let them away with doing their own version of the Iraq, Afghanistan and Libyan wars.

    Idk about the wisdom of whoever’s giving Joe Biden his Alzheimer’s pills forcing Russia – which is still Europe’s main energy supplier, and to which there is no alternative in the short and medium term – to not pay its debts, at a time when the global economy is staggering. The collective West seems desperate to bring about its own economic suicide.

    Worst of all, the EU. The EU is absolutely fucked now, they may never recover from this war and its consequences, and the pain has only just begun. Their allies have maneuvered them into embracing their own deindustrialisation and dependency on the increasingly capricious whims of Uncle Sam. Yes, publicly they wanted Net Zero anyway, but Kraut masterminds had a genius plan to make the plebs pay for Greeniefartenzugen, while carefully shielding their industries.

    All gone now. Germany is finally getting its Morgenthau Plan, good and hard. China will take that lovely car manufacturing and chemicals business. But it’s not all bad news: Germany will get to keep the Muslims.

  4. Russia now demanding payment for oil/gas in Ruble not USD.

    Those Rubles must come from the Bank of Russia exchanged for other currencies. Many purchasers will have USD reserves to pay for oil/gas, so USD will end up at the Bank of Russia one way or another. So won’t Russia have enough USD?

    Or… Bond holders have an option, get nothing or get paid in Rubles which can be exchanged for gold at fixed rate and thus USD.

    And if Russia is forced to default on bonds, who will suffer?

    I’m still trying to figure out how causing rocketing energy and motor fuel prices, food shortages and increased prices, and increasing inflationary pressure in USA & NATO Countries is hurting Russia.

  5. Bloke in North Dorset

    I’m still trying to figure out how causing rocketing energy and motor fuel prices, food shortages and increased prices, and increasing inflationary pressure in USA & NATO Countries is hurting Russia.

    And if we go with Tim’s mantra of imports making us rich we really are cutting off our noses to spite our faces.

  6. I’m still trying to figure out how causing rocketing energy and motor fuel prices, food shortages and increased prices, and increasing inflationary pressure in USA & NATO Countries is hurting Russia.

    As our host often points out, trade is a two way street and while goods, qualities, quantities and value may vary, over time they balance. The cost of the Russian trade blockade is we can’t buy the oil and gas we’d like at a price we’d like (having to go elsewhere and pay higher prices for less convenience than the Russians were offering)

    On the other hand the Russians can’t use the money from the gas to buy the Western technical equipment that keeps their economy functioning (since their home grown tech is dog shit).

    In the long run I suspect the Russians could live in well heated immiseration than the EU for longer simply because they’ve done so since forever for 95% of their population (Commie leaders and Oligarchs aside).

    One bright spot though is that the problem is easily corrected. Get the Russians to give Putin the Nikita Khrushchev option (trial followed by a bullet or retirement to his Dacha), claim that as the price of peace and settle financial and territorial claims with Ukraine on a quid-pro-quo basis provided the West coughs for most of the reconstruction costs on the dubious basis it was Putin’s war, not Russia’s.

  7. In the long run I suspect the Russians could live in well heated immiseration than the EU for longer simply because they’ve done so since forever for 95% of their population

    Da, Russia is mostly pre-collapsed. It’s the imminent decline in British, European and American standards of living that are going to be most painful. Russians are used to being poor and unhappy.

    Central heating is about to become a luxury good again, unless lions.

    One bright spot though is that the problem is easily corrected. Get the Russians to give Putin the Nikita Khrushchev option (trial followed by a bullet or retirement to his Dacha), claim that as the price of peace and settle financial and territorial claims with Ukraine on a quid-pro-quo basis provided the West coughs for most of the reconstruction costs on the dubious basis it was Putin’s war, not Russia’s.

    I think we’re too far gone to successfully negotiate anything meaningful with Russia (or China). Nobody in their right mind would trust anything the West, and its ghoulish freakshow politicians, says now. It’s true that Russians are drunk slavs, but they’re not entirely stupid. They know what US/EU/NATO promises are worth.

  8. It depends whose doing the trusting. The Russians don’t trust us and never will, the nukes will remained armed and pointing.

    Ukraine however has no alternative, it’s either a case of trusting Western promises and being inevitably deceived (as they were with the 1994 Budapest Memorandum), but what choice do they have? Little-to-none.

    For all his success in the war, Zelensky has painted himself into a corner and Ukraine has to live with that choice going forward.

  9. For all his success in the war,

    That’s the problem, the war itself is a historic and nightmarish disaster for Ukraine. It could’ve been, and should’ve been, prevented. There were many opportunities to do so, including the last two negotiated settlements the Ukrainian government signed up to in bad faith. St. Enoch was right about statesmanship, and no amount of arslikhan Western PR for the Ukrainian president will change that.

    Zelensky isn’t to blame tho, he has no power and never did. He’s the Action Man version of Greta Fuckface. And though he can hide his cold gaze and you can shake his hand and feel flesh gripping yours and maybe you can even sense your lifestyles are probably comparable, he is simply not there.

  10. “I’m still trying to figure out how causing rocketing energy and motor fuel prices, food shortages and increased prices, and increasing inflationary pressure in USA & NATO Countries is hurting Russia.”

    Was it a month or more ago that I got shat on for writing much the same thing….

  11. @Diogenes – Probably. But that just goes to show that time and events make wise men or fools of us all.

    If Putin had secured a quick and easy victory then it might have walked away a winner, even if maligned as a tyrant, despot and war criminal by the West (all of which was true the day before this latest invasion as well).

    By failing, everybody is losing. Even the Ukrainians ousting all Russian forces would be a Pyrrhic victory. From where we stand right now it’s just about cutting losses on all sides.

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