Does the Ukraine Crisis Affect US Money Matters?

AMA4-1-14v2As Russian troops seized control half a world away in Ukraine, and international tensions began to rise, we’ve been uncomfortably reminded that in an interlinked global economy, what happens across the globe can also affect conditions in our own backyard. Because the US is massively indebted to foreign countries, money market watchers worry that the current crisis and others like it could compromise national security and send currency values plummeting.

These concerns center on the large numbers of US Treasury bonds held by Russia, as well as China, India and smaller nations, particularly in the Caribbean. If any of those bond holders suddenly began selling off their stock, it could cause interest rates to skyrocket and bring chaos to financial markets worldwide.

Recent events in the Russia-Ukraine standoff are fueling those worries as the diplomatic gloves came off and harsher threats of sanctions and other punitive measures against Russia began to surface. In a recent post to Bloomberg Review, Brandeis University Professor of Global Finance Catherine L. Mann notes that one of Russian President Vladimir Putin’s advisors recently warned the US that if it imposed sanctions, Russia would jettison its stock of US Treasury bonds. Right after that statement, the amount of bonds the Federal Reserve was holding on behalf of foreign banks dropped by more than &100 billion.

But those bonds haven’t been sold off, suggesting they may simply have been moved by jittery investors to more secure locations uninvolved in the confrontation. And although it turns out that Russia isn’t actually one of the major holders of US Treasury bonds, the situation highlights the vulnerability of US money markets in a tightly interconnected global economy.

That said, how secure are US financial interests in that economy? As we’ve said, Russia holds only a fraction of the world’s total bond holdings. And it comes as no surprise that the major holders of these assets are in Asian countries, led by China and Japan. Other significant holders include the United Kingdom and the Caribbean. And while the Asian markets tend to hold on to their investments, Caribbean holdings are far more volatile.

The flow of bonds held in those island markets historically mirror financial conditions and policy making in the US, reflecting events like the housing collapse of 2008-2009 and.more recently, the ups and downs of the Federal Reserve’s massive stimulus effort. While those bond holders remain largely out of the financial and political spotlight, they may hold more power to damage US financial interests and by extension global markets than higher profile players like Russia.

What’s a smart investor to do? Staying abreast of events in a volatile world means taking Jason Hartman’s advice to stay educated, keep control and question everything – because in an increasingly interconnected world, everything can be local. (Top image:Flickr/DaveProffer)


Mann, Catherine. “Why Russia Won’t Tank the US Treasury Market.” Bloomberg Review Economics. 30 Mar 2014.

Read more from The American Monetary Association:

AMA 79 — The Real Unemployment Rates with Chris Meyer

Who’s Really Paying for Bank Settlements?

The American Monetary Association Team



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