Tuesday, December 16, 2014

Sorry, Putin. Russia’s economy is doomed

 Dear all,

Note to Russia’s dictator Vladimir Putin…your days are numbered and soon the Citizens of Russia will demand that you step down…one way or the other. 
A few months ago, you got a small taste of what to expect in the near future when tens of thousands of Russian Citizens flooded the streets of at least three major Russian cities demanding that you explain why their sons are coming home in body bags from the Ukraine and Crimea after you lied to them that Russian troops aren’t engaged in the conflict. 

Even the “Mothers of Russia”,  who do the best they can to count the number of dead to bring transparency and truth to the nation, when the Russian authorities try to hide the facts; sometimes threatening the families of the dead to stay quiet.
Meanwhile, more lethal aid is pouring into the Ukraine.  Tatars from around the region living in other countries are joining their fellow brothers in the Ukraine by the thousands, aided (trained and funded) by the Government of Turkey and other nations in the region; as Turkey promised several Tartar Tribes months ago after Putin militarily forced the annexation of the Crimea.

Very soon, as the economic conditions in Russia further degrade and long lines for bread and meat form once again and reminding the folks of their standard of living when suffering under the yolk of communism, the people will flood the streets yet again in angry protest. (Do you remember what the Russian mobs did to the statues of Stalin and Lenin? Or the Russian tanks firing on the Kremlin? Because of you and your insanity Vladimir, the Citizens of Russia will once again have to suffer the pain of internal revolution)
Then, as more young Russian soldiers come home dead, and the people can’t find or afford food……..then you will be forced from power and hopefully will be replaced by a leader who truly wants the Country of Russia to join the democratic countries of the west to fully enjoy their prosperity; no longer willing to silently appease the insanity of another Russian Tyrant.

So, It is time for you to go, Vladimir.  And how you go is up to you….you might want to remember how the late Romanian leader Nicolae Ceausecu and his wife were eventually removed from power.  FYI,  Mr. Putin,  you might be pleased to know that the Citizens of Romania are doing just fine these days.
Ronald L. Kirkish

By Matt O'Brien December 15 at 6:30 PM

 (Alexey Druzhinin/Ria Novosti/Kremin pool)

A funny thing happened on the way to Vladimir Putin running strategic laps around the West. Russia's economy imploded.

The latest news is that Russia's central bank raised interest rates from 10.5 to 17 percent at an emergency 1 a.m. meeting in an attempt to stop the ruble, which is down 50 percent on the year against the dollar, from falling any further. It's a desperate move to save Russia's currency that comes at the cost of sacrificing Russia's economy.

But even that wasn't enough. After a brief rally, the ruble resumed its cliff-diving ways on Tuesday, falling another 14 percent to a low of 80 rubles per dollar. It was 60 rubles per dollar just the day before. The problem is simple. Oil is still falling, and ordinary Russians don't want to hold their money in rubles even if they get paid 17 percent interest to do so. In other words, there's a well-justified panic. So now Russia is left with the double whammy of a collapsing currency and exorbitant interest rates. Checkmate. 

It's a classic kind of emerging markets crisis. It's only a small simplification, you see, to say that Russia doesn't so much have an economy as it has an oil exporting business that subsidizes everything else. That's why the combination of more supply from the United States, and less demand from Europe, China, and Japan has hit them particularly hard. Cheaper oil means Russian companies have fewer dollars to turn into rubles, which is just another way of saying that there's less demand for rubles—so its price is falling. It hasn't helped, of course, that sanctions over Russia's incursion into Ukraine have already left Russia short on dollars.

Add it all up, and the ruble has fallen something like 22 percent against the dollar the past month, with 11 percent of that coming on Monday alone. As you can see below, the Russian ruble has fallen even further than the Ukrainian hryvnia or Brent oil has this year. The only asset, and I use that word lightly, that's done worse than the ruble's 50 percent fall is Bitcoin, which is a fake currency that techno-utopians insist is the future we don't know we want.


Source: Bloomberg

And this is only going to get worse. Russia, you see, is stuck in an economic catch-22. Its economy needs lower interest rates to push up growth, but its companies need higher interest rates to push up the ruble and make all the dollars they borrowed not worth so much. So, to use a technical term, they're screwed no matter what they do. If they had kept interest rates low, then the ruble would have continued to disintegrate, inflation would have spiked, and big corporations would have defaulted—but at least growth wouldn't have fallen quite so much.

Instead, Russia has opted for the financial shock-and-awe of raising rates from 10.5 to 17 percent in one fell swoop. Rates that high will send Russia's moribund economy into a deep recession—its central bank already estimates its economy will contract 4.5 to 4.7 percent if oil stays at $60-a-barrel—but they haven't been enough to stop the ruble's free fall. Russia might have to resort to capital controls to prop up the value of the ruble now, and might even have to ask the IMF for a bailout, too.

Putin's Russia, like the USSR before it, is only as strong as the price of oil. In the 1970s, we made the mistake of thinking that the USSR's invasion of Afghanistan meant we were losing the Cold War, when the reality was that they had stumbled into their own Vietnam and could only afford to feed their people as long as oil stayed sky-high. The USSR's economic mirage, though, became apparent to everybody—none less than their own people, who had to scrounge in empty supermarkets—after oil prices bottomed out in the 1980s. That history is repeating itself now, just without the Marxism-Leninism. Putin could afford to invade Georgia and Ukraine when oil prices were comfortably in the triple digits, but not when they're half that. Russia can't afford anything then.

Putin might be playing chess while we play checkers, but only if we lend him the money for the set.

As the ruble plunges to new historic lows, ordinary Russians seem unfazed by the free falling currency saying everything will be good in the end. (Reuters)