Yesterday the Russian government announced that it could no longer afford to defend the Russian ruble on the currency markets, having squandered already a huge portion of its cash reserves doing so and simultaneously creating artificial demand on the Russian stock exchanges to prevent them from totally collapsing. On top of that, the price of oil on world markets dropped below $60 per barrel, a stunning cut in price from the $140 it had reached a few months ago. The result was entirely predictable: The Russian stock markets went into freefall.
The Russian stock markets had already plunged 75% from their high six months before, the same sort of drop that was achieved by U.S. markets over the course of several years during the Great Depression, America’s worst-ever economic disaster.
And now it has gone even lower, hardly surprising in light of the most recent apocalyptic bad news concerning the ruble, a harbinger of a massive new round of crippling inflation as the prices of foreign goods, which Russia must import in huge quantities since its feeble economy is not sufficiently productive, begin to rise dramatically.
Hovering at 825 at the beginning of the week, by midday on Wednesday the RTS dollar index, shown in the chart, had plunged to well below 650, a gut-wrenching loss of more than 20% in less than two days. It was then shut down at 1 pm Moscow time (the MICEX ruble index, apparently, wasn’t even allowed to open on Wednesday). Amazingly, this loss actually vastly understated the true state of the markets, which had been shut down for an extended period the day before as well and which are seriously skewed by the Kremlin’s own purchases. Discounting for these two factors, there is no telling how low the RTS index might be right now.
When America experienced these kind of failures, it replaced president Herbert Hoover with Franklin Roosevelt, from the rival political party — just as it has recently done again by replacing George Bush with Barrack Obama. And Russia? It doesn’t even have an opposition political party, because Vladimir Putin in his infinite wisdom has liqudated all of them. And even if one existed, it’s unlikely that Russia’s nation of lemmings would have the courage or good judgment to empower it. They seem to be chanting like zombies that Putin should go down with their ship, all hands and every passenger.
Meanwhile, the Kremlin’s response has been to insanely ratchet up tension in the cold war by threatening to install nuclear missiles in Kaliningrad. In yet another humiliation for Putin, his regime has already been forced to back away from its crazed bellicose rhetoric, and the nation’s economy continues to implode.