Let's Get Ready to Rrrrubble!

Russian consumers flocked to stores to buy what they could before the value of their money dropped further. The ruble is crashing. The Associated Press says that “Russian authorities announced a series of measures to ease the pressure on the ruble, which slid 15 percent in the previous two days and raised fears of a bank run, many Russians were buying cars and home appliances — in some cases in record numbers — before prices for these imported goods shoot higher.”


Apple has stopped online sales. Ikea stores have been overrun with frenzied buyers. A run on banks could be just a few days away. The big time guys are panicked too. The Daily Mail says Russian oligarchs are converting away from the ruble like it was going out of style. “‘I’ve got £100m to spend, what can I get in Mayfair?’ … Russia’s oligarchs have started a new stampede for high-end London property to protect their wealth from country’s collapsing economy”

Walter Russell Mead, writing in the American Interest says that with Putin’s back  up against the wall he may be as dangerous as the proverbial wounded bear.

Will Putin surrender to the West or double down, Mead asks?  If he doubles down, Mead suggests two ways  Putin can run. First, he could pawn the country to Beijing.  China would bail him out — for a price.  Second, Putin could attempt to boost the price of oil by stirring up trouble in the Middle East.

For the Democratic party it’s like finding a pot of foreign policy gold in its backyard that they don’t know what to do with. The Washington Post reports that “New York Gov. Andrew Cuomo’s (D) administration said Wednesday that it will block gas development by hydraulic fracturing, bringing to an end a six-year study process and kicking off what could be years of lawsuits from developers who want to tap rich Marcellus shale deposits.”


Too late Andrew. America became the world’s biggest producer of oil in July, 2014, overtaking Saudi Arabia and Russia according to Bloomberg. “Oil extraction is soaring at shale formations in Texas and North Dakota as companies split rocks using high-pressure liquid, a process known as hydraulic fracturing, or fracking.” Not even the New York Democratic party can stop them now.

U.S. oil output will surge to 13.1 million barrels a day in 2019 and plateau thereafter, according to the IEA, a Paris-based adviser to 29 nations. The country will lose its top-producer ranking at the start of the 2030s, the agency said in its World Energy Outlook in November.

But by 2030 it will be too late.  America may have thorium power or fusion or Zero Point Energy by then if nobody blows up the world.  Innovation, not sanctions, smashed Russia.  “Is it all about oil?” asks Mother Jones. Oh let it please, please be about sanctions.

Not necessarily. An unbalanced pension system, inflation, and the harsh US and European sanctions have also damaged Russia’s economy in the past year. Sometimes, a less-valuable currency can help a country by making its products cheaper abroad, increasing exports. But Russia doesn’t have much domestic manufacturing, so it can’t take advantage of the ruble’s decline that way. “Russia doesn’t make anything,” President Barack Obama told The Economist in August.


Politico writes, “in public, Obama officials are humble about the role of sanctions imposed by the West since Putin’s annexation of Crimea in March. The crisis in Russia is “not due solely to sanctions,” State Department spokeswoman Jen Psaki said Tuesday. ‘It’s more complicated and involves oil prices and general economic mismanagement in Russia.’ Privately, however, Obama officials and allies take clear satisfaction from Putin’s plight and are more willing to claim credit.”

As governments go, the US Federal bureaucracy is probably not much smarter than the Kremlin’s.  The reason why America usually wins isn’t that it’s leaders outsmart their leaders, but because its ordinary Joes outpower the other guy’s ordinary Joes.  In the phrase “President of the United States”, the important part is “United States”.  The president can be almost anybody.

One pundit described Putin’s choices in this way: “he either continues down this path – bullying investors, hiking rates and double down with confiscation and capital controls; or he capitulates with the West – withdraws from Crimea and essentially restores the borders according to the map prior to the Ukraine crisis.” The collapse of Russia could have unexpected effects.

The first option would be painful for the Russian people first – but it’d trigger a massive collapse of other Emerging Markets as well. Investors are getting nervous already and pulling from these markets as it is. Russia will collapse, but so would other emerging markets. And with emerging markets crashing, the risk of a global financial crisis follows.

And Putin’s survival as Russia’s top leader would be at stake.


Some analysts are talking about a Russian contagion. If Putin goes down it will also send ripples through the global financial system. The Wall Street Journal lists “five major reasons why outside investors should care about a financial crisis in Russia”.

1. Anyone who holds Russian sovereign bonds is in for it. “If a few major hedge funds or, even a big bank, were to run into trouble, this mushrooming effect could become even more severe.”
2. Currencies of Russia’s trading partners are falling in “sympathy.”
3. Oil may collapse. Russia’s “oil producers will be under political pressure to maintain supply and keep revenue flowing, even if it is unprofitable to do so at these prices, while on the other, the blow to Russia’s economy from this financial meltdown will undermine its internal demand there, ensuring an even bigger excess supply for world markets.”
4. Incentive to military adventure to hold power.
5. Global warming, or rather the lack of it in the shape of a Cold Winter, which may induce Putin to use natural gas supplies to Europe as a bargaining chip.

The fall of the ruble is a reminder of how quickly a crisis can come to a system that doesn’t suspect it. The administration was probably just as surprised by the oil slump as Putin. Finally the dog has caught the car. What does it do now?

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