2/25/2015
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Editorial: Squeeze Putin with economic sanctions
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February, 2015
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Editorial: Squeeze Putin With Economic Sanctions
• Wed, Mar 26, 2014
The conflict between the U.S. and Russia over Ukraine is escalating rapidly. But the warfare is mostly rhetorical
and financial. And the United States is winning. Earlier this month, after the U.S moved to impose sanctions on top Russian officials and bar Russia from the
Group of Eight club of world's largest economies, Russia's stock market plummeted by about 10 percent and the
value of its currency, the ruble, fell even more against the U.S. dollar. According to published reports, Russian President Vladimir Putin held a meeting last week of his country's top
economic oligarchs for five minutes and took no questions. That's the way tin pan dictators operate. They
dictate, rather than consider the quality of life for their own people. Externally, Putin has been quite the blusterer. Putin adviser Serge Glazyev said Russia would strike back at the
U.S. sanctions through financial means. "We hold a decent amount of Treasury bonds ­­ more than $200 billion ­
­ and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view
America as a reliable partner," Glazyev said. "We will encourage everybody to dump U.S. Treasury bonds, get
rid of dollars as an unreliable currency, and leave the U.S. market." Yeah right. Here's what really appears to have happened: Far from selling its dollars, Russia simply moved them
offshore. Russia's central bank, like every other, has a lot of dollars because people around the world pay for oil ­­ one of
Russia's main exports ­­ in the U.S. currency. Russia takes those dollars and buys safe U.S. government bonds. Those bonds in turn are held in custody
accounts at the New York Federal Reserve Bank in lower Manhattan. This week's highlights
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Every Wednesday afternoon, the Fed releases data showing the aggregate amount of Treasury securities that
sits in those account. And typically, they rise over time. But in the last couple of weeks, there's been a sharp, unexpected drop in the amount of U.S. government bonds
the Fed is holding for foreign accounts in New York. From $3.02 trillion, the total fell to $2.855 trillion on March
12. That's a decline of $104 billion in one week, or 3.5 percent, and a fall of $118 billion in two weeks. Now, the decline in custody holdings recently is roughly equal to Russia's holdings. And no other central bank
has announced a dramatic shift in its holdings of U.S. government debt.
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That leaves two possibilities. Either Russia sold the bonds, and converted the cash back into rubles, Euros or
another currency. Or, it simply moved the bonds away from the Fed account in New York to a different custodial
account ­­ in Russia, or in the Cayman Islands, or in some offshore banking center where it would be impossible
for the U.S. to freeze.
• Obituaries for Feb. 19
And the latter appears to be exactly what has happened since global currency prices suggest no significant sale
of U.S. Treasury's since the Russian invasion and annexation of Crimea. In other words, Russia's threat to
substantively respond to U.S. economic sanctions did not happen. Editorials
So, the next time any readers of this space want the United States to lash out militarily at Russia over its
despotic and undemocratic action toward Ukraine, consider this: sanctions are a much more effective and less
risky tool for our country to punish Russia than is military force. That is because the United States has far more
economic leverage on Russia than Russia has on us. The Obama administration has wisely set this country on a path of inflicting gradual economic pain on Russia,
its elites and general populace in order to deter Putin's neo­imperial ambitions.
In the short term, the sanctions will provoke all sorts of silly bluster from Russia, much like they did, initially, from
Iran. But, in time, sanctions will work. They did in Iran and they will with Russia. The key is to escalate sanctions
gradually and to not to let up until Putin gives up his territorial ambitions. — Desplaines Valley News
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2/25/2015
Did Russia Just Dump a Huge Amount of U.S. Government Bonds? - The Daily Beast
THE DAILY BEAST
POLITICS
ENTERTAINMENT
WORLD
U.S. NEWS
TECH + HEALTH
Alexsey Druginyn/AFP/Getty
DOLLARS TO RUBLES 03.20.14
Daniel
Gross
Did Russia Just Dump a Huge Amount
of U.S. Government Bonds?
The Fed’s latest data shows that its foreign account holdings dipped
$118 billion in two weeks and Russia’s central bank is the likely culprit.
The conflict between the U.S. and Russia over the Ukraine is escalating rapidly.
But the warfare is mostly rhetorical and financial.
Earlier this month, after the U.S moved to impose sanctions on top Russian
officials and bar Russia from the G-8, Russia’s stock market plummeted and
the value of its currency, the ruble, fell against the dollar. In response, Putin
adviser Serge Glazyev said Russia would strike back through financial means.
“We hold a decent amount of Treasury bonds—more than $200 billion—and if
the United States dares to freeze accounts of Russian businesses and citizens,
we can no longer view America as a reliable partner,” Glazyev said earlier this
month, per this Barron’s report. “We will encourage everybody to dump U.S.
Treasury bonds, get rid of dollars as an unreliable currency, and leave the U.S.
market.”
And new data released this week suggests there might be some action behind
this rhetoric.
Here’s what happened: Russia’s central bank, like every other, has a lot of
dollars. It’s not because we have a huge trade relationship, but rather because
people around the world pay for oil—one of Russia’s main exports—in the U.S.
currency. “They get paid for their oil in dollars,” said David Solin, a partner at
http://www.thedailybeast.com/articles/2014/03/20/did-russia-just-dump-a-huge-amount-of-u-s-government-bonds.html
1/21
2/25/2015
Did Russia Just Dump a Huge Amount of U.S. Government Bonds? - The Daily Beast
Foreign Exchange Analytics in Essex, Connecticut. Russia takes those dollars
and buys safe U.S. government bonds. Those bonds in turn are held in custody
accounts at the New York Federal Reserve Bank in lower Manhattan. The Fed
keeps the account secure and makes sure investors get their interest payments.
(Many foreign central banks also keep their gold in the basement of the New
York Fed.)
Every Wednesday afternoon, the Fed releases data showing the aggregate
amount of Treasury securities that sits in those account. And typically, they rise
over time. Because the U.S. runs deficits, it creates hundreds of billions of
government bonds every year. And foreign central banks are reliable buyers of
this debt. Over the course of the 2013, the sum rose from $2.885 trillion to
about $3.02 trillion, an increase of about $130 billion.
But in the last couple of weeks, there’s been a sharp, unexpected drop in the
amount of U.S. government bonds the Fed is holding for foreign accounts.
From $3.02 trillion in December, the total fell to $2.973 trillion on February
26, to $2.959 trillion on March 5, and $2.855 trillion on March 12. That’s a
decline of $104 billion in one week, or 3.5 percent, and a fall of $118 billion in
two weeks. According to the Wall Street Journal, total foreign Treasury
holdings at the Fed are at a 15-month low. (The releases can be seen here.)
That’s anomalous.
The New York Fed doesn’t divulge
No other
central bank
has
announced a
dramatic shift
in its holdings
of U.S.
government
debt.
information on individual accounts and
countries, and won’t comment. But the
Treasury Department’s Treasury
International Capital system tallies
foreign ownership of U.S. debt by
country. In January, Russia, according
to this data, had about $165 billion in
U.S. government bonds. Unfortunately,
TIC reports have a six-week time lag.
So we won’t get data on Russia’s March
holdings until two months from now.
Now, the decline in custody holdings
over the last couple of months is
roughly equal to Russia’s holdings as of
January. And no other central bank has
announced a dramatic shift in its
holdings of U.S. government debt.
That leaves two possibilities. Either Russia sold the bonds, and converted the
cash back into rubles, Euros, or another currency. Or, it simply moved the
bonds away from the Fed to a different custodial account—in Russia, or in the
Cayman Islands, or in some offshore banking center where it would be
impossible for the U.S. to freeze it.
http://www.thedailybeast.com/articles/2014/03/20/did-russia-just-dump-a-huge-amount-of-u-s-government-bonds.html
2/21
2/25/2015
Did Russia Just Dump a Huge Amount of U.S. Government Bonds? - The Daily Beast
UKRAINE
TAKE THAT
THE KREMLIN'S
STRANGE
COUNTERSTRIKE
TAKEN
I WAS SNATCHED
BY PRO­RUSSIAN
THUGS
LOADED WEAPON
PUTIN'S NUMBER
ONE GUNMAN
IN UKRAINE
Analysts say the latter seems more likely. “It all points to a transfer to custodial
holdings offshore, rather than a sale,” said Win Thin, global emerging markets
at Brown Brothers Harriman in New York. “If the Russians had dumped the
bonds, you would have seen more of a reaction in the bond market.” But over
the last couple of weeks, Treasury yields have remained very low.
We would have also expected for a huge sale to create a big ripple in the
currency markets. Selling a lot of dollar-denominated assets and converting
them into rubles or other currencies would have had the effect of strengthening
the ruble against the dollar, notes David Solin of Foreign Exchange Analytics.
Instead, the ruble has weakened significantly against the dollar in recent
weeks.
Whether Russia has sold its holdings or simply moved them out of reach of
U.S. officials, it highlights two key points.
First, Russia can’t inflict much damage on the U.S. financially with rhetoric, or
with unilateral action. Russia’s holdings are a small portion of the amount of
debt outstanding. China ($1.2 trillion) and Japan ($1.1 trillion) each have six
times as many Treasury holdings as Russia. Brazil, Taiwan, and Switzerland,
also have more than Russia. Russia accounts for only three percent of total
foreign holdings of U.S. debt.
Second, any move that actually hurts the dollar would wind up hurting Russia
sooner rather than later. Because there’s no way Putin can foreswear using the
greenback. Despite the war of words, Russia continues to harvest dollars
thanks to its continuing sales of oil. “It’s really hard for Russia to move away
from the dollar,” said Win Thin of Brown Brothers Harriman. “It’s just the way
their economy is.”
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http://www.thedailybeast.com/articles/2014/03/20/did-russia-just-dump-a-huge-amount-of-u-s-government-bonds.html
3/21