Russia’s Wealth: Weapon of Economic Destruction?

Ashby Monk

Bloomberg has an astounding article out today that, if true, suggests that Russia was plotting “economic disruptions” against the US in 2008. According to the article, which I have to admit is a bit confusing, former Treasury Secretary Henry Paulson discovered a plot by the Russian government to convince the Chinese to sell US agency debt en masse to force a major US government bailout. The plot was discovered by Paulson during his trip to the 2008 Olympics:

“Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies…The Russians made a ‘top-level approach’ to the Chinese ‘that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies’…”

The Chinese rejected the idea, and the Russians are, obviously, denying that any of this occurred. Still, Paulson’s report is pretty amazing. If true, it would appear that Russia was plotting economic warfare against the US during the summer of 2008; I don’t really know what else to call it. Their intention was to use their sovereign wealth to purposely weaken and damage the US economy. The fact that all this apparently occurred around the same time that Russia was engaged in a traditional war with Georgia, a US ally, lends some credibility to the idea.

This revelation–while unconfirmed–will not comfort those in the West that fear SWFs; it doesn’t help anybody if these funds are seen to be potential weapons of economic destruction…

5 Responses to “Russia’s Wealth: Weapon of Economic Destruction?”

  1. 1 Rene January 30, 2010 at 4:23 pm

    China did to the U.S. with exports (via “Chimerica”) what the U.S. did to Russia with the Cold War.

    China has already started trading in their U.S. dollars for assets around the world.

    They can’t play the game Russia wants to play until they divest themselves of enough U.S. dollars but they already have a game plan of their own.

  2. 2 Ashby Monk February 1, 2010 at 2:58 pm

    Thanks for the comment, Rene. There is something to your point; if you go back to the US deliberations over the PNTR with China, you’ll see (Republicans) taking an idealistic approach that assumed China would be responsible trading partner. I wonder what these policymakers would say today?

  3. 3 bummer March 25, 2010 at 5:01 pm

    excellent site

  1. 1 Official Russia | Russia’s Economic Warfare against the United States Trackback on February 3, 2010 at 6:01 am
  2. 2 China’s PLA Offers Interesting Advice On Reserve Management « Oxford SWF Project Trackback on February 10, 2010 at 5:45 pm

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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