03/18/2015 06:11 pm ET Updated Dec 06, 2017

Will the Market Forces Replace Sanctions in Pressuring Russia?


Co-authored by William Witenberg a contemporary artist focused on abstract painting

The world is undergoing a wave of change. The world is seeing negative interest rates in European countries, the dollar is rising at a disturbingly fast rate, and most significantly, deflation the magnitude of which the world hasn't been seen in decades is here. Russia also has to worry about its economy free falling into a deflationary graveyard. The price of oil, the ability to export, and the declining ruble spell nothing but difficult times ahead for the Russian Economy.

The chart above created by Thompson Reuters, Amp Capital shows that approximately 35% of the world economies have less than zero inflation. Deflation means lower employment and wages, as corporations reduce work forces and reduce wages. One needs only look at Japan to see the impact of deflation. Real Estate in Japan is worth 1/3 of what it was 10 years ago. Certainly, the problems of deflationary debt ridden Greece threaten the very existence of the European Union. America has taken no steps to affect the deflation that is spreading throughout the world. In fact the likely raising of interest rates in the United States is only likely to cause dollar to rise and cause an increase in the world deflation.

Russia after America has been the country attracting the most immigrants in the world. It has been a simple reality that jobs and opportunity were more plentiful in Russia then in many of the former members of the Soviet Union. In particular Uzbekistan and Kyrgyzstan have been seen the largest number of its citizens move to Russia. If Russia is, as a result of deflation, no longer an attractive solution for immigrants, they will return home. Poland and Czechoslovakia are already deflationary economies. It is not clear what the impact on Russian foreign policy the deflationary economy (which is symbolized by the departure of immigrants working in necessary, but low paying jobs) will have. Certainly, the return of a large number of former immigrants cannot be good for unstable, poor countries Moldavia, Uzbekistan and Kyrgyzstan. Can we expect to see domestic turmoil there?

Certainly in Russia, deflation is only increasing as oil falls, foreign investors exit, sanctions stay in place and the ruble depreciates against the dollar. America expected that its sanctions would add to the economic pain in Russian and cause a change in Russian foreign policy. There clearly has been no thawing in cold war relations with Russia. American and European sanctions have not changed Putin's foreign policy in Ukraine or anywhere. One of the reasons is deflation. Deflation is a bigger problem for Russia then sanctions. Without the sanctions Russia would still be in deflation. American sanctions while a negative are not as negative as the forces of deflation.

Russia's foreign policy will not be influenced by sanctions as much as it will be by deflation. Because of this, sanctions are like throwing salt into a wound. America might consider ending sanctions to win some needed good will with Putin. The idea that sanction would force him to change his policy has not worked. Maybe assistance in decreasing deflation could be a more effective American policy in affecting Russian foreign policy.