- Last week, Citadel CEO Ken Griffin said US sanctions on Russia would hurt the United States “in a deep way”.
- The United States already faces soaring inflation, and sanctions could exacerbate the pain of rising prices.
- Three experts shared what might happen to American taxpayers next.
As the United States imposed a series of economic sanctions on Russia in response to the invasion of ukraineseveral high profile commentators have warned that Americans will also be the victims of the pain caused by unprecedented financial measures.
Last week, Citadel CEO Ken Griffin said US sanctions on Russia would hurt the United States “in a deep way”. Sanctions weaponize the dollar, he said, and it will be American taxpayers who will ultimately pay the price. Renowned economist Mohamed El-Erian also warned that the economic consequences of the Russian-Ukrainian war would spill over to other countries.
Sanctions could put even more pressure on already weakened supply chains, adding to price pressures.
“The United States chooses to shorten supply chains to reduce its dependence on unreliable or hostile trading partners,” said Eric Leve, chief investment officer of a wealth management firm, baillardInsider said.
Given Russia’s role as a major wheat exporter, Leve predicts the lack of supply will be seen on grocery store shelves as a spike in global commodity prices. Russia is also a key supplier of palladium and nickel, and supply chain disruptions in auto and steel manufacturing will ripple through consumer products and lead to longer waits for electric vehicles.
Aleksandar Tomic, an economist, professor and associate dean at Boston College, says that while price spikes can be dramatic, they may not last long because the US economy is well positioned to withstand them, unlike some European countries.
“Probably within a year the United States will be able to stabilize their supply and production,” Tomic told Insider. “Domestic production could pick up, but it will be temporary, especially if the West isn’t really serious about sanctions and ready to look the other way and continue to trade with Russia.”
The bigger issue, Tomic said, is whether the war drags on and destroys Ukraine’s productive capacity. Then the question is how quickly the US and Europe can create a whole new segment of the supply chain.
“We will see very high prices over the next year, with spikes in energy prices, food prices – everything at the consumer level. I wouldn’t be surprised if inflation hits double digits,” did he declare.
The markets, too, have seen an intensification
since the start of the war in Ukraine.
Jorge Pesok, chief compliance officer at blockchain and software company Tacenexpects the impact of the pandemic and ongoing interest rate hikes to contribute to more market fluctuations, which Americans will face in addition to rising costs at the gas pump and in stores.
He also noted that the strength of the dollar could decline, echoing Ken Griffin’s point last week that the dollar’s weaponization undermines its status as a reserve currency.
“The United States has shown the power it holds by controlling the reserve currency, which is a fact that is unlikely to be lost on countries around the world,” Pesok told Insider. “Ongoing geopolitical tensions may well push central banks to diversify away from the dollar.”
He also highlighted the prominent role that cryptocurrencies have played in the humanitarian crisis in Ukraine and suggested that if the dollar loses value, a new monetary world order could be on the horizon.
While the United States will most likely face economic consequences, an unlikely act of aggression by Russia could create catastrophe. Professor Tomic does not expect a conflict on the ground between the two countries, but he thinks the most viable scenario would be a cyber attack on something like the New York Stock Exchange or electronic trading systems.
“If Russia feels threatened enough, then the question is what kind of cyber warfare will happen,” Tomic said. “The more we isolate them [with sanctions]the less they have to lose…I imagine if they fight back, it will be in the cybersphere.”