The Russian government is readying a new issuance of foreign bonds and has invited non-Russian banks to participate in the bond auction. US banks would like to participate in the auction but have been warned by the State Department that this would violate the spirit, if not the letter, of US sanctions against Russia. Even though it wouldn’t be illegal for the banks to bid in the auction, the State Department is warning of “reputational risk” to those banks that do decide to participate. There must be stronger language that the State Department is using privately, in which they’re undoubtedly trying to make the banks an offer they can’t refuse.
This incident is one more example that demonstrates the contempt with which the US government holds private companies. Private companies are literally being conscripted to serve the state. Last week we found out about the FBI trying to force Apple to hack into phones it produces in order to allow the FBI access whenever it wants. Now we have the State Department trying to bully American banks into not doing business in Russia. In fact, the very concept of sanctions relies on private companies acting as arms of the state. No company would willingly turn down lucrative business opportunities in Russia. It is only through government threats that companies cooperate with sanctions. There is a name for an economic system in which ownership is nominally private but ultimate control is exercised by the government: fascism.
Read the Wikipedia description of fascist economics and weep for how accurately it describes the United States:
Fascist economics supported a state-controlled economy that accepted a mix of private and public ownership over the means of production. Economic planning was applied to both the public and private sector, and the prosperity of private enterprise depended on its acceptance of synchronizing itself with the economic goals of the state. Fascist economic ideology supported the profit motive, but emphasized that industries must uphold the national interest as superior to private profit.Of course this episode also demonstrates the stupidity of sanctions. If the ultimate goal of sanctions is to punish the Russian government, you would think that the sanctions legislation would directly forbid American banks from dealing with the Russian government. On the contrary, dealing with the Russian government is allowed (although heavily discouraged), but doing business with Russian companies is forbidden. Yet again the policies of sanctions harm innocent civilians rather than governments. The Russian people are harmed by being denied the ability to purchase from American companies, while the American people are harmed by being denied the ability to purchase from Russian companies.
It’s a recipe for ensuring Russian anger at the United States and another step towards a war which American policymakers seem to be pushing the country (and Europe) with gleeful anticipation. Even without all-out war, these sanctions will result in chilled relations between the United States and Russia for years to come, not that the movers and shakers at the State Department care. They’ll be long gone, cashing in at their cushy lobbying or think tank positions, maybe even lobbying against the sanctions they’re pushing now, as long as they’re being paid well enough. The rest of us will be left to suffer the consequences.
Reprinted with permission from the Carl Menger Center.