IBJOpinion

Hicks: Choke Russian ambitions with a Fed strategy

Mike Hicks
March 8, 2014
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Mike Hicks

The Soviet, er ... Russian, invasion of Ukraine offers a nice reminder of JFK’s old dictum that domestic policy can defeat us, but foreign policy can get us killed. As we pay higher gasoline prices, we ought to think about the world as it is and our options.

The 70 years of Soviet control saw the sprinkling of ethnic Russians throughout the empire, including Ukraine, as a method of homogenizing the socialist republic, which is why many Ukrainian citizens are sympathetic to Russia.

This is a poisonous mixture that should remind us of the Balkans. Adding armed conflict to a place with even a tiny whiff of ethnic tension rarely turns out well.

We should prepare ourselves for low-level violence in a formerly peaceful part of Europe. Even if Russia backs down, it should be made to pay for this risk to peace and a still-fragile world economy. But how can it be made to pay?

The Russian military is weak. With a little preparation, it could be humiliated in a two-month air campaign and a few days of sharp fighting. The prospect of this is enough to lure me enthusiastically out of military retirement, but the Russians have nuclear weapons and are a long, long way away. So, any intervention will be economic, not military.

The Russian economy is only modestly susceptible to economic sanctions.

All sanctions rely on interrupting trade. Russia’s chief export is oil, and that is devilishly hard to control through economic means alone. Moreover, doing so would drive up prices everywhere.

We could perhaps impose some sort of information blockade of telecommunications content or services, but that seems counterproductive. Moreover, Russia is fighting a war against terrorists in lots of places, and we wish them well in this work.

In the end, our most potent weapon against Russia is our banking system. A systematic denial of foreign exchange by the Federal Reserve, followed by deposit controls by large banks, should be sufficient to seriously damage the Russian economy. If the Bank of England and European Central Bank go along, Russia will face a deep crisis.

We cannot know how bad the situation will become, or how much damage to the world’s economy the threat of another European war will do. However, the sharp rise in oil futures last week bodes ill.

At least we can credit midterm elections for focusing the American response, for there’s nothing like the prospect of $5 gas in the weeks before an election to spur action.•

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Hicks is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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  1. A Tilted Kilt at a water park themed hotel? Who planned that one? I guess the Dad's need something to do while the kids are on the water slides.

  2. Don't come down on the fair for offering drinks. This is a craft and certainly one that belongs in agriculture due to ingredients. And for those worrying about how much you can drink. I'm sure it's more to do with liability than anything else. They don't want people suing for being over served. If you want a buzz, do a little pre-drinking before you go.

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  4. I feel the conditions of the alcohol sales are a bit heavy handed, but you need to realize this is the first year in quite some time that beer & wine will be sold at the fair. They're starting off slowly to get a gauge on how it will perform this year - I would assume if everything goes fine that they relax some of the limits in the next year or couple of years. That said, I think requiring the consumption of alcohol to only occur in the beer tent is a bit much. That is going to be an awkward situation for those with minors - "Honey, I'm getting a beer... Ok, sure go ahead... Alright see you in just a min- half an hour."

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