Ask yourself this: why did the stock markets rally today after Obama announced sanctions against Russians? I'll get back to that, but first some background. I've often said that Putin plays chess while Obama fumbles with checkers. I picture our president, chin resting on fist, brows squeezed in childlike concentration, as he carefully chooses between jumping Putin's piece to end the game or getting another of his pieces "kinged."
Of course, Obama goes for the kingship.
But my chess-checkers analogy misses a key ingredient: empathy. America's political class doesn't understand a key Russian strategic trait.
Money, Money, Money
Money rules the West. Central bankers dominate every decision in the United States. The single goal of Fed policy is to push up stocks. It doesn't care about profits, employment, interest, or inflation. It cares about the S&P 500.
Fed policy makers, and their enablers in Washington, also take an classical economics view of people. They missed out on the science of behavioral economics. They believe everyone, everywhere decides solely on the basis of economic self-interest.
Sure, Yellen-Bernanke has played The Ultimatum Game. It found the game amusing, like a parlor trick. Yellen-Bernanke sees no connection between the game and real-life, though. It believes people always choose economic gain for themselves. The Yellen-Bernanke believes Putin and the Russians will always choose the option that gives Russia an economic gain.
Yellen-Bernanke is wrong.
Russians Think Longer Than Money
According to STATFOR founder George Friedman, Russians think in 20-year cycles, just like generational historians William Strauss and Neil Howe. But I've observed a key difference between Americans and Russians. This observation leads me to believe that US sanctions won't bother Putin.
Something struck me about the batch of Russian software engineers my company imported in the late 1990s. Unlike American engineers, the Russian engineers had deep interest in the humanities and art.
For example, I know several software engineers who graduated from Washington University. They took not a single class in English, History, or any other non-engineering subject. They were, like Yellen-Bernanke, pure numbers people. Engineering, to the Americans, seemed like a religion.
The Russians, on the other hand, seemed to treat engineering like a trade to support their real loves. One Russian engineer I knew was a published poet in Russia. Another had recorded an album of original music. A younger Russian coder was an accomplished painter. The Russians' parties were full of vodka and music. And the tobacco smoke was filled with air.
Not all US engineers are blind to the humanities, of course. Many engineers I know buck the trend. But put 100 US engineers in a room with 100 Russian engineers, and the Russians will dominate the humanities and arts. At least, that's been my experience.
I admit my example represents a small sample size. Still, I came away from that experience with a strong sense of difference between Russian and American engineers. Russian engineers empathize with human beings in a way American engineers tend to avoid. Let's call it an empathy gap.
This empathy gap showed itself in software design. The Americans favored efficient algorithms and complex UIs that would give expert users maximum control. The Russians favored usability and user experience that gave the user maximum pleasure and convenience. More importantly, this empathy gap leads Russians to observe people for who they are, and it leads Americans to see people as mirror images of themselves.
As Russia embarks on a mission to re-establish its Warsaw Pact buffer and to extend its sphere of influence, American strategists expect that Putin will think like an American bankster. I expect Putin will think like a Russian.
So What Will Russia Do?
First, let's look at history. What's Russia's famous war strategy to repel invasions? Come on, you know the phrase.
Russia sustains unimaginable damage when foreigners invade. Think of Muhammad Ali's Rope-a-Dope. Russia hunkers down and lets its enemy punch itself out.
Russia will employ that strategy again, only this time the invasion and counter might not be military. Russia could adopt a scorched economy strategy.
Last week, a record $104 billion of foreign-owned US Treasuries was moved out of Fed custodianship. Some people jumped to the conclusion that Russia was dumping US Treasuries. But Russia did not sell the debt. She simply took it under her control.
The Econs explained that Russia wouldn't dump Treasuries because doing so would hurt Russia more than it hurts the West. Those Econs were thinking like an American, not like a Russian. Russians will sustain damage in the short run for a win in the long run. And their long run is 20 years, while the American long run is the next fiscal quarter. The next election, at most.
While the Fed could easily buy up $100 billion in dumped treasuries, the Fed would have trouble absorbing $100 billion from Russia and, say, $500 billion from China. And if Russians think in 20-year cycles, Chinese think in 200-year cycles.
So I expect Russia will use its growing coziness with China to dangle the threat of dumping Treasuries over the West's head. And it will scare the US Chamber of Commerce and the Banksters enough to limit Obama's potential moves.
After Crimea and Ukraine
While the US and allies apply incremental sanctions against Russia, Russian tanks continue to roll. The Putin Doctrine says that whenever Russian-speaking peoples ask for help, Russia has the right to intervene. In other words, Putin has granted himself the right to take any land inhabited by ethnic Russians. Maybe even people who've reached Level 3 in Rosetta Stone's Russian courses, who knows?
We all know Putin couldn't care less about ethnic Russians. Putin cares about re-establishing Russia's Cold War buffer zones in Europe, the Caucasses, and Asia. Pockets of ethnic Russians in those areas give Putin cover for invasion.
STRATFOR's George Friedman on Ukraine:
A second, more worrying effect of the competition between the West and Russia over Ukraine extends beyond Ukrainian borders. As competition over the fate of Ukraine has escalated, it has also intensified Western-Russian competition elsewhere in the region.
Georgia and Moldova, two former Soviet countries that have sought stronger ties with the West, have accelerated their attempts to further integrate with the European Union -- and in Georgia's case, with NATO. On the other hand, countries such as Belarus and Armenia have sought to strengthen their economic and security ties with Russia. Countries already strongly integrated with the West like the Baltics are glad to see Western powers stand up to Russia, but meanwhile they know that they could be the next in line in the struggle between Russia and the West. Russia could hit them economically, and Moscow could also offer what it calls protection to their sizable Russian minorities as it did in Crimea. Russia already has hinted at this in discussions to extend Russian citizenship to ethnic Russians and Russian speakers throughout the former Soviet Union.
As I wrote on Saturday, Putin believes he needs to bring Poland and Baltic States back into the Russian fold.
The question then becomes, will the West's plodding, careful, incremental sanctions stop Putin? Or will Putin press his advantage to stay ahead of sanctions?
The Problem With a Weak President
Like it or not, the US is the only western nation with the power to frighten Russia. That power means little when wielded by a president who lacks both the political and the intellectual capital to compete with Putin.
Barack Obama may have been an ace student in his Affirmative Action class at Harvard. He doesn't do so well in the real world, though. He failed miserably in two of three debates against Mitt Romney, only to be rescued by "moderator" Candy Crowley. Obama was outwitted by the Syrian dictator and by Iran's regime. He looks weak and confused by the aftermath of the Arab Spring, which he personally helped engineer.
At home, Obama has little support from Democrats in Congress facing re-election. His signature legislation, Obamacare, is unpopular even with the its initial champions, young voters. In fact, the President himself is becoming increasingly unpopular among Millennials, especially the younger ones who were still watching Hannah Montana when their older siblings powered Obama's election in 2008.
It's Putin's Game
So Putin's adversary is a weakened, unpopular, lame duck President who plays geopolitics like a chicken playing checkers, as Tyler Durden put it. Obama talks tough and carries a little stick--a stick to which China, Russia, Japan, and the Millennials hold the mortgage.
Back to the question of why markets rallied on Obama's sanctions. The banksters realized Obama's sanctions are too weak to hurt their schemes. Obama won't let Russian military expansionism interfere with their Fed-induced bull market.
Returning one last time to the question "What will Putin do?" I can only assume the answer: if you were Putin, and you knew Obama was hostage to the banksters who want only for the S&P to rise, what would you do?