📺 Fortress Russia Crumbles | Kyla Scanlon

hey bankless nation welcome to another state of the nation episode today we are talking about the events happening in russia how that affects commodities there's some kind of contagion going on is there a crisis is a recession looming what does all this mean for crypto david uh who do we have on and what are we going to discuss today yeah about a month ago we had a kylis ganlon who has just been a prolific content producer about macro the stock market commodities geopolitics energy uh just a lot of just deep dives into very

nuanced very complicated very very integrated subjects and this was just two weeks before the russian invasion of ukraine and so much of what was discussed in that podcast with kyla ended up unfolding and so this conversation has progressed and now that we are almost two weeks on the other side of the russian invasion of ukraine there are so many more things to talk about how does russia's energy relationship with europe uh impact how sanctions are happening how does our global supply chain uh just

in time paradigm engage interact with with supply chains itself what is the fallout of just missing wheat and oil production out of the world uh the cat the number of consequences is large and so we're trying to figure out how much contagion is there is this a global contagion event is this going to be self-contained is this going to be a two-week adventure or a two-year adventure there's a lot of questions that i have that i think are really really important that we're all going to ask kyla here on the state of the nation

yeah i think the r word has been circulating like recession and there's so many downstream effects i also want to talk to her a little bit about the fed so what's the fed gonna do on the backdrop of this we had jim bianco on a few episodes ago just talking about fed uh raising rates are they still gonna do that what would be the implications or repercussions of that so so much to unpack and discuss this is going to be i think partial macro and partial uh world events and then partial like crypto right because yeah yeah we all want to understand how

this affects us in the market today i mean bear market david i don't know we're gonna talk about that i said the b word too the r word and the b word in the same podcast yeah invoking it before we uh get there guys wanna talk about a few announcements uh david you did a fantastic layers here with coin artist that just came out and uh we've got tyrone on the podcast uh coming out uh pretty soon as well we should also mention our friends at opolis david while i pull up the opolis website why don't you tell them what it is this is

specific to u.s workers i would say and within that subset of people in the u.s uh who are looking for healthcare if you're trying to be a self-sovereign individual self-sovereign worker you know this is the the new structure for dalles you're not going to have a corporate job you're going to work for maybe a dow maybe a handful of dolls you're going to be an independent worker but you need health insurance our friends at opolis have an offering for you that's that's teed up david why don't you tell them about it yeah if you obelisk is basically a dow that helps

other dows have employees have offer stable employment services towards the people that are contributing to this world of web 3 the world of dallas and so one of the biggest barriers as to why people are afraid to get into this industry is that like how do we do health care how do we have like basic stable payroll and benefits well opolis is a collective and it's a collective that offers employment services towards members of opolis so it's basically a an employment services dow it lets you get your health

care unless you get stable payroll and there's few other benefits as well and just really helping the world of web 3 endows exists in a stable way and so if you are interested in getting health care from a collective at opolis who will negotiate health care benefits on your behalf uh you can sign up for opelus you'll also get a thousand work and a thousand bank tokens if you join opolis by may 1st 2022 that is this year it's gonna come up fast because this industry moves fast yeah go book an appointment talk to these guys go figure it out it's uh

really cool to get paid in crypto as well they can pay you in all sorts of various tokens this is uh the new way payroll will work uh all right david let me ask the question i always start these episodes with which is what is the state of the nation today a combination of dealing with a hangover i would say uh crypto prices are from down from fourth out or ether prices down from 4800 down to 2500 and then we're also just watching commodity prices go up so coming to terms with like all the we just got to

pick up all the confetti off the ground is what's going on in the crypto markets but uh i was asked ryan at the beginning of this like all right there's like five stages of grief like where are we um i think we might be in the denial phase it's like what are the five stages of grief again the five stages of grief oh i just had this up uh it starts with denial uh then there's like bargaining then there's anger no then anger then bargaining then acceptance or something and so if we portray these projects onto like a bear market i think we're at the

stage one which is denial like no we're gonna spill the stage one that's very early okay no way well i don't know if there's a bear market yet david so maybe i'm either right or i'm in denial uh we'll see but definitely look um everything was going really well in crypto and now macro events have just hit us in the face so we're going to talk about that today particularly the events in russia and commodities prices guys we are going to do that in just a minute we're going to bring on kyla and talk about all of these things but before we do we want to thank the sponsors that made this episode possible

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your favorite apps are already live with many more coming over soon you can find these apps at portal.arbitrum.one and you can bridge your assets over to arbitram using bridge.arbitrom.io in order to experience defy and nfts the way it was always meant to be fast cheap and friction free kyla scanlon knows a lot of things about a lot of things she's an independent content creator with brilliant and entertaining ideas on macro markets monetary policy the stock market energy markets she writes on her own sub stack

she makes a ton of youtube videos a bit of absurdist humor on tick tock as well you might know her as the official bankless tick tock correspondent where she recaps the week in crypto in the most dense packet of information that you'll ever get previously about a month ago she came onto the bankless podcast for what ended up being a prelude episode to what much of what we are talking about today on the show kyla welcome back to bankless thanks starting on yeah twice okay uh so we're gonna start at the very beginning which is of course the russian

invasion of ukraine and i'm gonna ask a ridiculous question but kyla can you put us into the shoes of a madman putin i think has not gotten what he wanted to have gotten out of the war in his current state ten days into it he hasn't captured anything uh so what did hoot putin hope to have happen and what has actually kind of happened instead yeah i mean so i think that why he's doing this is largely uncertain like the exact reason is largely uncertain you know you could point to

nato you could point to him wanting to expand the quote-unquote russian empire uh i think that a lot of people thought he would just go for eastern ukraine and then you know be done with it but obviously that's not the goal at all it seems to be to take ukraine entirely um so i think for him he thought it'd be really easy like they took crimea back in 2014 just basically rolled in tanks and we're good to go and that definitely did not happen this time around the ukrainians have fought back really hard and really bravely and really valiantly and i think putin is a little bit frustrated with that because i think

essentially russia's losing right now and i don't think he expected that at all so i i can't speak to his inner mind or what he's thinking but i think that he is pretty shocked at how it's unfolded and that's always a little bit worrying because essentially when you back a cat like he's a cat into a corner they get a little bit antsy and so it's just like you know he's already threatened nukes they were shelling a nuclear plant or near a nuclear plant a few days ago so it you know yeah and what i'm trying to wrap my head

around is like what is the trajectory of this war because putin doesn't seem to be backing down but the ukrainians seem to be more united than ever and it really just seems like an immovable object uh unstoppable force meets an immutable removable object so like my my concern is that like this thing doesn't wrap up like in the next 10 days or the next 20 days and it actually takes months and months to unfold like who do you think caves first like ukraine or putin

yeah i mean i'm not sure but i like i don't know if russia will be able to finance the war for months and months um they're running out of money their economy is essentially being strangled right now so i don't see them being able to go forward for months and months they still have some military manpower but um i i don't know how long that could last for i think the big thing and that's what the economic sanctions are meant to do is make it so they can't finance the war at all ukraine is holding really strong um and it seems like they've made a little bit of progress in negotiations

like zelinski came out today and was saying that ukraine would no longer seek nato membership and that they could talk about the donbass region which is what putin wants you know he wants russian recognition of the or he wants ukrainian recognition of the dawn bass region being a part of russia essentially um so zionski has sort of opened up that negotiation door but with putin and how he's been negotiating essentially he's been he's saying like ukraine can't have any sovereignty and that it you know essentially becomes a non-country and that's just a non-negotiable for ukraine

like ukraine wants to remain a country and that is why they are fighting so hard so i think it's just going to depend on how nuanced the negotiations can get and how willing putin is actually to negotiate and to actually not just like try and flatline the entire country but actually take this to the dialogue and diplomacy table as the u.n has been calling it yeah and we have just no idea how open putin is to negotiations that's just like a complete black box

yeah i mean like i'm not sure what he's thinking in general like i like there's been a lot of think pieces or thought pieces analysis around what's the end goal here like okay let's say he takes ukraine like what's he gonna do next you're economically cut off from the rest of the world and some people say oh you could do this and that's the whole goal is like a pivot to asia russia plans to have a pivot to asia and so like that could be part of his plan he takes ukraine and then he pivots to asia but i think you're seeing a lot of hesitancy from china and engaging with russia and i think putin thought he had

a friend in china and it hasn't come across that way i think to the same level that he expected so to the point of like is he open to negotiation i think he almost has to be and i think hopefully a rational person would kind of start to realize that at this point in a war where it's like okay i'm actually not winning like i thought i would so maybe like let's have a chat but um i'm not sure what he is what he's thinking yeah kyla can we talk about the economic sanctions for a minute because that's been a massive story and obviously has some uh intersections with with crypto

right crypto being a a thing that you can't sanction uh but let's talk about the you know the financial world the the system that the world is is built upon and it's largely it's built upon like a a western-led um financial system and there are a few things that the west has uh sanctioned um and maybe we could talk about you know three of them the first is the removal from swift and i remember when we last talked you brought up this term called swifted and

that was new to me but russia just got swifted now it's no longer new to me like i understand how this can happen and then there's also sanctions against the central bank the freezing of of a russian central bank assets and then thirdly there are some direct sanctions on putin and the oligarch class like seizures of property that sort of thing so can we take these things one by one uh like first let's start with the swift sanctions what is that what what are those yeah so that's basically removing russia from the communication communication infrastructure between financial

institutions so russia can't really like talk to other financial institutions it's really hard to execute different types of payments they're still still able to right now i think um functionality wise use energy payments through the swift system so that was not swifted but basically that just makes it really hard for them to sort of get things done and to do different things within like the broader financial universe um and that is not great from like being a country that relies on outside funding and has outside

investments and has imports and exports and things like that so that's really the big issue with swift it's just like you know pushing somebody out of the financial system in general which is hard right do they have a backup system for swift at all yeah so they have something called spfs which is it's like you could call it a backup but it's like not really backup you know like it doesn't really work in the same way so they have that but being removed from swift just because of dollar dominance and because of west dominance and the financial

ecosystem is just difficult yeah and russia is like super tight in to the west uh not like how they used to be but it's still like everything is very very interconnected and if all of a sudden you know your thread gets cut it's a little bit difficult to function yeah let's talk about the sanctions then to the russian central bank and this one actually surprised me i wasn't surprised that russia got swifted but this one really surprised me a substantial amount of assets were frozen as i understand it can you walk us through that yeah so

this is like a super super super big deal um and not only from a rush uh you know central bank functionality perspective but also from all the rest of the world how many markets function it really places a lot of pressure on everything so essentially uh you know the central bank got sanctioned and so that froze out about half of their assets so they have about 630 billion dollars in assets about half of those are completely immobilized meaning russia can't use them um the central bank had to hike interest rates by 20 to try and support the ruble from you

know not completely bottoming out that's a big that's a big number that's a big huge number especially overnight right like um we're having trouble raising rates here in the us by like 25 basis points and to go 20 is just a huge deal and most of russia's reserves are held outside of the country and so that's kind of like this immobilization that i just pointed out and a lot of people pointed out right uh is that like okay so you can have all these reserves and russia has been building up they've been like doing everything right from uh sort of like building up their economy from

the 2014 crimea sanctions they've been building everything up but all of a sudden overnight they're half of their reserves are immobilized because they're overseas yeah yeah so uh this is the sanction that putin didn't expect putin was already trying to create what we are calling the the title of this episode fortress russia right like the unsanctionable russia but it sounds like he just didn't think about or just kind of forgot to consider the freezing of a central bank and can you also explain like

this has to have just so much fallout and direct impact upon like the average russian citizen too right and so these decisions that have been made have been taken with that into account saying well we know that this is going to harm individual russians but like we just have to get to putin somehow so a couple questions how much actual fallout to the average like russian citizen is there as a result of this and just like did putin just make an egregious error which was like forgetting about like having foreign assets in foreign banks while he invaded

a foreign country uh so to the answer of the first point like the russian people um it's it's so unfortunate what's happening um that's not even the right word to use because it's more than unfortunate they're essentially experiencing the consequences of this one man deciding that you know ukraine is mine now um and so like they are cut off from a lot of different things you have visa and mastercard pulling out you have a ton of companies pulling out of russia um and they're essentially locked out from the global financial system too um so

they're like losing jobs or you know inflation is is biting into them as well so i think in like medicine like getting medicine difficult so you know when a country extinction people get sanctioned too and i think the whole thing was that um the goal was to say okay like if we sanction russia's economy like putin's gonna say oh don't hurt my people i'll back down now but that made the inherent assumption that putin cared about his people and i don't know if he does maybe in his hearts of heart he he does care

about his people but i i don't think like that is the way to get to him and to the point about uh you know the the sanctions and did he overlook this i it's just like a big deal to sanction a central bank because of the contagion risk that i talked about a little bit earlier is like this is going to impact a lot of companies it's going and this is beyond the point like a war is the most important thing if not like companies making profit or whatever but uh it's it it'll have it has global consequences um and so i just don't think he would

i just don't think he thought anybody would do that have we ever seen this kind of like uh asset free freezer against a central bank of this scale i remember like so it seems to be that um entity like the us and western countries are using this more and more sort of this this financial choke point uh there's like less than 30 days ago the u.s um or maybe it was longer than that in the last three months anyways the us use this against um the

uh afghanistan government after you know the taliban sort of took over again there were a lot of afghan essential bank assets i think it was like five to ten billion dollars and the us just like shut it off just like took it that's ours now and um 5 billion of which like 50 or something were going to be allocated towards a um a 911 uh fund 911 victims fund and so that can happen to a very small

government like afghanistan but this is a whole another scale we're talking 60 630 billion dollars in assets a substantial amount of the the russian central bank's reserves have we seen anything like this before russia is a really big player in the global economy um so i'm not sure if we've seen anything in recent history quite like this like we've definitely seen sanctions before um but never to this scale uh and yeah never to sort of like have this impact like this is very

clearly trying to kneecap russia's economy um and i don't think that sanctions were implemented like as you know we had sanctions on iran et cetera but it was never really about like completely decimating them and you could argue that the goal seems to be to sort of like completely immobilize russia's economy yeah the last sanctioned piece is like the uh the seizure of putin and oligarch you know property and resources and so we've

seen some like yachts uh you've been on like a yacht watch haven't you like seen some of these things frozen tell us about this yeah oh yeah that was just a tic tac um yeah like uh so it's your extinctions on putin and the oligarchs which sounds like a band name like putins [Laughter] but i like that the whole goal with that is to sort of like make the oligarchs be like whoa putin what's going on dude like they're taking my yacht and to have them sort of fight back against putin but as long as putin's can continue to

finance their lifestyle which arguably he's been able to do still through with oil and gas payments they're not going to push back a whole lot against him um and then you have the strong men in russia who are like a whole nother like sort of like some like a class i guess that he's associated with um and they are very supportive of putin so i'm not sure if like just the oligarchs rebelling would be the solution but the whole goal of the sanctions is to make it really difficult for russia to finance the war and to have people get mad at putin um hopefully one of those succeeds i'm not

sure which one but from the oligarchs perspective yeah they're losing all their assets yeah and of all the sanctions this is the one that i think does the most harm for the least amount of collateral damage as in there is no contagion coming out of seizing oligarch yards yachts but there is pressure put on putin because if the oligarchs are unhappy uh putin i think has to take note at the very least uh and so there's some some silver lining in the sanctions there at least uh i i believe

putin going into this considered uh that he might have had an escape hatch an economic escape hatch with china uh can you kind of tell us that story and and what putin thought going into this war and how it's actually unfolded yeah so they like it's kind of been interesting to watch that because i've been like watching the situation since about november um and like china and russia like had a little friendship agreement announcement uh together where they were like we're gonna do you know international relations for everybody and support international diplomacy and

this was oh my god like maybe a month or so two months ago um but it was a joint statement they were like we're going to be best friends and um and i think putin kind of thought that that was going to be supportive during the war and you know china seemed to have asked putin to hold off on the invasion until after the olympics um so it seemed like you know they're still relatively friends but china has come out and spoken out against the war and has been like we really need to return to dialogue and diplomacy and i think part of the reason is that china

is watching the west and seeing how the west has really just been like moving fast and so i think that kind of scares china a little bit because you know they're eyeing taiwan and i think like they're sort of you know keeping everything in the back of their mind and i don't think that they want to experience sanctions they have a lot of dollar denominated liabilities a lot of dollar denominated assets um and now the dollar as we talked about a little bit earlier can be used as a weapon in terms of sanctions like that's super worrying to china and i don't think china wants to be on the other side of it and that's

not to say that china hasn't been like supportive to russia they still are like i think to a few days ago they or today maybe they announced that they're going to maybe look at buying stakes in gazprom which is the top a gas producer in russia so they're still kind of hanging around um in terms of russia but they're not like taking a side it seems yeah they're just kind of like we're gonna encourage dialogue encourage diplomacy so but it is the case that china has not joined the rest of you know the west in sanctioning russia they

just haven't condoned it i suppose it's just i feel like there's maybe some mixed messages coming from from china is that uh like interpretation i would say so yeah i think that's kind of generally how they operate um and i think for them like they're just kind of trying to watch everything and like you know see what what plays out um they're not it's like super militaristic militaristically strong so like they're gonna start spending a little bit more on defense spending that was announced recently as well um i think you know the pivot to asia they

seem to want to be a part of uh so they did announce this was back when they announced their friendship agreement that the russia would build another pipeline into china um so china is really worried right now about food security so i think they're just trying to like position themselves in to be in the best possible position for energy and food security at the moment you know all right so the net effect of all of this is that the the ruble has fallen on something like 40 percent uh and with all of the outros of exports out of russia more or less cut off except for

save a few uh there's no way for there's fewer ways fewer tools for russia to prop up the value of its currency which ultimately is is how putin funds finances war this is how countries finance this war that's through the value of their currency and the value of the rubles is down like 40 so kyla like how much resources does putin have left to make this war happen like what's he got left in the tank i mean it'll depend like there's talks of you know russia could they sell a lot

of gold but then now biden is talking about how do we make sure russia doesn't have access to their gold so i think like everything that they're going to try into how could biden do that where's russia's gold held well i'm not quite sure i don't know if it's like an exchange metric or something like that um i saw this just today and i didn't have a chance to like read exactly what's happening i want it like i want to learn more about that diving i i hope sensory i don't really care but like uh does putin have gold etfs or something he's holding on to and like in a vault

in london or i would expect russia to have sort of a fort knox version of actual physical gold somewhere yeah it could be physical gold and maybe they have contracts that are you know gold held in other countries um so that could be sort of the situation i don't know the composition i know they've been buying a lot of gold but i don't know unfortunately like the composition of their gold because like yeah to the point i was like oh like that that's just going to probably be something stable for them but turns out uh nothing is stable for them so if all you have is paper certainly yeah right

like all you have is like iou contracts like that's not it's not really gold so yeah yes so not like and not that much resources to continue financing this war oh man oh like like there was a something that i was talking about like they'll spend their entire gdp this i think this is correct they'll spend their entire gdp on the war in about two and a half months um so they're running out um and like was that pre-sanctioned gdp

yeah yeah and so like they're still getting about a one billion dollars a day in gas payment oil and gas payments so like they still got money coming in and now with oil and gas going up in price i think they're that'll be like north of 70 billion extra dollars um per year so like they're still with oil and gas coming in like they're still doing okay uh but now this isn't as big as europe sanctioning it but the u.s is like hey we're not buying your stuff anymore uh you the united kingdom is no longer going to buy oil they're still going to buy gas so i think that's going

to be the big thing is like that will be what economically um you know messes them up but i think with uh how long can they keep on going it's however many tanks they have left well is russia able to sell a barrel of oil at the full market price i thought they were being forced to have to sell it at a discount because like in the rest of the world is paying like 110 dollars a barrel but russia selling it for a lot less well this is actually super interesting right because like russian oil has essentially sanctioned itself um and so

like there's two points to this like one is how russia is treating it and then the second i saw the market is treating it so like nobody wants to really touch russian oil because like they're like oh my gosh what if i violate sanctions and it's a really big deal if you violate sanctions like you get in a bunch of trouble and so you see like um like nobody wants to buy russian oil um so to your point yeah um that's not super good and then also russia um this is for nordstrom too this isn't oil per se but like they're talking about not no longer sending gas to nordstrom 2 or nordstrom 1 um which is the gas the

pipeline between russia and germany so like russia could sanction everybody back but russia is essentially already like the the market is already essentially sanctioning russia and they're still like people are still buying oil from russia but yeah definitely not it's the same flow that they used to yeah so one of the reasons why this situation is so delicate is like we have sanctions going from the west to russia but then we have russian oil going and like germany is from what i've gathered is more or less completely dependent on russian oil uh and so like while we have

this sanction we still have a flow of value through out of russia to germany and i don't think germany has many options to keep its energy supply available to itself other than russia and so like it kind of has to and so this is this is part of the swift sanctions that actually there has been a hole in is that they have uh the sanctions have sanctioned russia except for energy payments because like we just can't break that thing because that would be way too bad yeah exactly um and germany has been