December 17, 2014

RUSSIA: Ruble Crisis Puts Putin’s Back Against the Wall.

It’s panic time in Moscow, as the deadly double whammy of collapsing oil prices and Western sanctions is knocking the Russian economy into recession. Nothing the government can do has been able to stem the accelerating selloff in Russian assets, and the meltdown has gone so far that average people increasingly understand that their economic futures are at risk. . . .

The Putin government has come to a fork in the road—and both of its choices look unpleasant. It can accept that the oil price collapse is forcing it to change paths in foreign policy and give up (at least for now) on its dreams of geopolitical revenge for the defeat in the Cold War—or it can double down on the fight against the West and the world system.

The first course is obviously the smartest from the standpoint of Russian national interest, but the second may make more sense in terms of the personal fortunes of one Vladimir Putin—and unless something changes in Russia, Putin is firmly in charge.

Putin has to be thinking in terms of using the crisis to enforce even tighter government control over Russia’s economy: cracking down on currency trading, increasing control over banks, possibly repudiating private as well as public debts to Western creditors. To make this work, he’d have to resort to claims that the West is in an all-out war to destroy Russia, and that national mobilization (under, of course, his inspired leadership) is the only way to save the country.

The long term prospects for such a course of doubling down on an aggressive foreign policy are not good.

Nope. Here’s a Russian joke I heard yesterday: You should have all your money in rubles — because no one will expect to find money in a sack of rubles.

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