Russia Has Already Blown Up the Global Economy Once. Will It Do It Again?

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Just in case you’re thinking that Russia’s economic problems are little more than a fitting karmic payback for Vladimir Putin, you might want to think twice. When the global economy is fragile, sometimes even small events can send the whole system into cardiac arrest, and that affects everyone, not just Putin and his cronies. So in case you’ve forgotten, here’s a brief refresher on the events of August 1998:

  1. Russia devalues its currency and defaults on its sovereign debt.
  2. Markets that are already jittery thanks to the East Asian financial crisis go into full-blown frenzy mode.
  3. Money pours out of low-quality emerging market investments and into high-quality US, Japanese, and European bonds.
  4. As a result, yield spreads between low-quality and high-quality bonds widen sharply.
  5. Long Term Capital Management, which had made large bets on spreads narrowing as the East Asian crisis receded, is blindsided, suffering huge losses.
  6. As LTCM gets close to insolvency, Bear Stearns stops clearing their trades. Death is imminent.
  7. Because LTCM is so highly leveraged, its debts exceed $100 billion and its collapse thus threatens every bank on Wall Street. Amid growing panic over a systemic meltdown, the Fed finally steps in and arranges a bailout package. Crisis over—for now.

This is not going to happen again. The world is not the same now as it was in 1998. It’s just meant as an example of how an otherwise limited financial crisis can have a global impact. The fact that it begins with a Russian currency crisis is merely a felicitous coincidence.

But also a bit of an unnerving coincidence. More than likely, Russia’s problems will be contained to Russia. But they might not be, so we should all be careful what we wish for.

TIME IS RUNNING OUT!

We have an ambitious $350,000 online fundraising goal this month and it's truly crunch time: About 15 percent of our yearly online giving usually comes in during the final week of the year, and in "No Cute Headlines or Manipulative BS," we explain why we simply can't afford to come up short right now.

The bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. And advertising or profit-driven ownership groups will never make time-intensive, in-depth reporting viable.

That's why donations big and small make up 74 percent of our budget this year. There is no backup to keep us going, no alternate revenue source, no secret benefactor. If readers don’t donate, we won’t be here. It's that simple.

And if you can help us out with a donation right now, all online gifts will be matched thanks to an incredibly generous matching gift pledge.

payment methods

TIME IS RUNNING OUT!

We have an ambitious $350,000 online fundraising goal this month and it's truly crunch time: About 15 percent of our yearly online giving usually comes in during the final week of the year, and in "No Cute Headlines or Manipulative BS," we explain why we simply can't afford to come up short right now.

The bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. And advertising or profit-driven ownership groups will never make time-intensive, in-depth reporting viable.

That's why donations big and small make up 74 percent of our budget this year. There is no backup to keep us going, no alternate revenue source, no secret benefactor. If readers don’t donate, we won’t be here. It's that simple.

And if you can help us out with a donation right now, all online gifts will be matched thanks to an incredibly generous matching gift pledge.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate