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How Vladimir Putin Could Cost You Money

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Perhaps you never gave Crimea much thought until Russian President Vladimir Putin came along. Now, though, this conflict can hit home the way global tensions so often do: It could cost you money.

There is nothing wrong with a little enlightened self-interest guiding foreign policy views, especially when the rights and wrongs of a situation are as muddled as they are in this case. It is easy to condemn Putin's heavy-handed actions, but here are some important facts to keep in mind:

  1. The Crimean region was historically part of Russia's territory.
  2. There is a heavier concentration of ethnic Russians in Crimea than in the rest of the Ukraine.
  3. Though there is reason to doubt how representative the voting was, Ukraine's current government deposed what was in theory a democratically elected leader.
  4. Russia has a legitimate national security interest in the form of its naval base in Sevastopol.

None of this excuses Putin's actions, but it does help explain them. This background is worth considering before the U.S. has a knee-jerk reaction that only raises the stakes. Plus, there is one more thing to consider: If the U.S. is to have a role in this dispute, it might be best for the nation's economy for that role to be to broker a solution rather than to escalate tensions by taking sides.

Global wild cards

This is not the only geopolitical situation that could boil over at any minute. China, having simmered for decades over its territorial disputes with Japan and Taiwan, could take a cue from the Russians and try to force the action. Plus, of course, conflict in the Middle East is a constant, and always seems to find a new front on which to break out.

Here are four reasons global disputes matter to American household economics:

  1. Conflict suppresses growth. With its high debt levels and aging population, America needs global trade to goose its economic growth rates. However, when nations are looking over their shoulders to see where the next invasion or civil war is going to break out, innovation, investment and trade become lower priorities and global growth suffers.
  2. The Middle East is a constant inflation threat. Americans have learned by now that when trouble breaks out in the Middle East, it often translates to higher prices at the gasoline pump. This is a particular danger right now, because the economy, stock market and housing market have developed a heavy dependency on low interest rates. If inflation breaks out, nothing the Federal Reserve can do will keep interest rates as low as they are now.
  3. Protectionism equals higher prices. Blaming outsiders for a country's internal economic woes is popular around the globe, and America is no different. The problem is, not only does putting up trade barriers suppress growth (see point No. 1), it also raises consumer prices.
  4. Retaliation can hurt investment. U.S. and Russian officials have threatened economic retaliation against each other -- something that will probably just hurt both sides. Russia needs outside investment because it is a developing economy; the U.S. needs it because it is a debtor nation. Neither country will benefit by isolating itself.

Come election time, they say that Americans traditionally vote pocketbook issues over foreign policy. In today's global economy, though, it is getting harder to distinguish the two.