As we reported Tuesday, the Russian stock market has collapsed. On Wednesday, at 12:10 Moscow time, the Kremlin made it official. With the RTS index less than 60 points from crashing through the mind-bending 1,000 point psychological barrier, the Kremlin simply stopped all trading and it did not resume (you can see the graph above begin to flatline at that point). So much for Russia’s “free” market! Russia’s financials sector led the way to the bottom, “closing” down over 7.5% after a few hours of trading, and telecoms were close behind. The overall market was down 6.39% when the final curtain fell. Already panicked, the marked imploded on fears of widespread banking collapse as the ripple effects of the American market drop were fully felt and realized. The RTS is down a shocking 57% from its May record high, and its losses are fast approaching one trillion dollars. Do you dare imagine what would have happened to Russia if the price of oil didn’t happen to be near $100 per barrel, but was instead around $40? Would Russia as we know it any longer exist?
Even as this horrific carnage was occurring, the Kremlin was insanely announcing massive increases in defense spending, a further provocation of the United States and a further reason for world markets to worry and drag down Russia’s market even further, as if it didn’t it even read yesterday’s papers. Its frenzied attempt to pump raw cash into the markets was exposed as a total failure, just the same as its crazed Georgia adventure.
The only question now is whether this apocalypse is suffient to convince the craven people of Russia that they need regime change. Vladimir Putin as stealth president for life has not worked out too well, and nobody should be suprised. Putin has never met a payroll, never studied economics, and has no idea how to govern except by imposing brute thuggish force. The idea of this cretin rushing about the Kremlin shrieking bloody threats, just as Stalin would have done, as the market founders would be comical if it were not so very sad. To hear Putin, and his equally unqualified sycophant Dima Medvedev, pontificating about Russia’s strong economic fundamentals may be one of the great tragicomic moments in all of human history. If things continue as they are, Russia itself will surely go the way of the RTSI, the way indeed of the USSR.
Will you speak now, people of Russia? Or will your wretched history repeat itself once again?
We hate to say we told you so, but we did, in fact, tell you — not once but many times — that this was coming. And now we tell you that you ain’t seen nuthin’ yet, if you allow the status quo to persist.
Do svidanya Russian losers! Now your banks are starting to go bankrupt! Ha-ha! What are you going to do, nationalize them like the Soviet Union? Russia is through. Bankrupt banks for bankrupt nation. Only loser countries have their banks go bankrupt and their currency drop!
Comrade Putin probably tought his resurgent Evil Empire will stay immune from the global turmoil.
This is certainly feeling like 1997 all over again in Russia. Another default cannot be too far off.
The problem Russia faces is that when it gives billions to the bigger banks, they hoard it rather than lending it to smaller banks. Nobody is willing to lend whatever cash they may have. This will force businesses and banks to default on their loans.
The problem is that the central bank does not want to allow banks to go bankrupt, and a lot of Russian banks should go bankrupt (notably those who lent hundreds of billions to consumers). However, giving billions to Sberbank and VTB is not really helping as they are not lending out the money they get from the government and the smaller banks are still facing a credit crunch. What is Russian going to do? Start bailing out the thousand or so small banks that are on the verge on bankruptcy one by one?
It will get worse. In November, GAZPROM and the other large corporations will have to pay back billions in borrowed money. They won’t be able to pay, and the Russian government will have no choice but to step in.
My prediction: Russia does its best to keep the economy afloat spending all that is has managed to save up when oil was over $100 a barrel. Once this money has been spent and Russia can’t defend the ruble any longer, you will see Default: The Sequel.
a stock market implosion in russia doesn’t really effect russians, not like in the u.s.—-average russians don’t invest or have 401ks. its a tiny little market anyway. but as the global economy shrinks oil prices will drop further and further.
LA RUSSOPHOBE RESPONDS: Can’t agree with you there, John. Though Russians may not participate in the stock market, they work for companies and individuals that do. Those companies are now faced with the massive loss of confidence which will chill future investment and restrict their growth. The ruble’s value is falling, making imports more expensive, and Russia already has double-digit inflation. When the U.S. market crashed, it didn’t cause a Depression because of the lost share value, but because firms failed and unemployment skyrocketed.
I recommend that you read this in the Globe and Mail: http://www.theglobeandmail.com/servlet/story/RTGAM.20080917.wrbanksrussia17/BNStory/SpecialEvents2.
Here is an exerpt:
“The steep decline has hit Russia’s wealthiest people particularly hard, because the oligarchs were using stocks as collateral for other risky investments. Now they face margin calls, which is putting further pressure on the market.
Russia’s rapid transformation from a darling of emerging market investors to near-pariah status has market watchers recalling the debacle of a decade ago, when the Russian financial collapse triggered a global financial storm. That isn’t likely today, because the Russian treasury is still loaded with oil revenues.
Most major Russian companies, on the other hand, rely heavily on foreign debt to finance their operations and expansion. And they are finding a cold shoulder in the international bond market.
For its part, the government will have to pay significantly higher rates to roll over expiring sovereign bonds in the next year, analysts say.
The energy producers that have been the drivers of the Russian economy and the principal source of the country’s growing coffers need more money than ever to develop new sources of supply. “But they’re entering an environment where they’re going to get less and they’re going to have to pay more for it,” Mr. Zeihan said.”
The Russian stock market crash is the proverbial canary in the mine shaft. It is an indicator of the problems facing Russian business. They are faced with a massive cash crunch and they are finding it extremely difficult to do business.
If Russian companies don’t get loans, they will find it harder to pay off their debtors and invest in production (which is falling across the board). If they can’t do business, they go bankrupt. If companies go bankrupt, then people working at those companies will suffer.
One does not need a PhD in economics to know that businesses going bankrupt hurts average Russians.
A tip-off, unfortunately in Russian: Boris Nemtsov talks about the current crisis and argues that it will hit rather hard regular citizens as well:
LA RUSSOPHOBE RESPONDS: Thanks! Maybe you could track down the actual interview on Новый регион and give us the link? In that case we might translate it.
Guys – I wanted to bring this video of Russians forcing badly beaten Georgian soldiers to dance on the Georgian flag to your attention. Truly revealing of the Russian soul.
I don’t see this as the end of the Putin regime. He will use this crisis to his advantage. I don’t see the Russians as rising up and taking over. Putin has squashed all opposition. Who would lead the mob? How long would that person last on the streets? Putin has a history of turning Lemons in to lemonade. I mean lemonade for himself. He will blame the West. He will say that Russian business was tied to closely to American finance etc. He will bring back images of the Soviet Union and socialist ideas. He will say that essentially Lenin was right. We can no longer afford to have this “Wild West Capitalism”. We need State sponsored capitalism. He will take over more industries and increase his grip on power. If he does make such a move, it will only worsen the situation for the average Russian. That is why you don’t elect a KGB spy. I’ve said that for eight years already. No one seemed to care until recently. Now it is too late.
Dear LR, you might want to show people this newly released video about the horrors which Russians committed in Chechnya (i know people heard enough about them, but this is pretty horrendous, and mainly told by victims)
p.s Part 2
Nemtsov’s interview that Kavkaz is quoting is here: http://www.nr2.ru/moskow/196675.html
LA RUSSOPHOBE RESPONDS: Thanks! We will translate.
It is now official, Russia will start throwing billions into the stock markets. This will certainly lead to a short-live rally as investors rush to leave the market helped by the Russian state. This, will likely lead to a crash as those who don’t succeed in selling while the Russian government tap is open will push the market downwards. It will be a blip on the downwards slide of the market, a blip that will cost the Russian state billions that could have been invested in schools and hospitals, and a blip that will leave the economy that much more firmly in the hands of the state.
Hey Luis, before you watch those “newly” released videos, why don’t you watch this
That is what happens when the state takes control of the economy. I wish I could sigh and say I feel for you, but the same thing is happening here.
A new generation has come of age, and they are not concerned with suffering. They do not know what suffering is. I am not a religious man, but even I can see that the world has strayed from the noble path.
Socialism is the easy way, anyone who has been faced with a challenge knows. The easy way is never the right way.