EDITORIAL: Financial Apocalypse for Putin’s Russia

The U.S. dollar, soaring mightily against the Russian ruble

The U.S. dollar, soaring mightily against the Russian ruble

EDITORIAL

Financial Apocalypse for Putin’s Russia

Two weeks ago, Russia’s top central banker, Sergei Ignatiyev, boldly declared that after the dramatic devaluation authorized by the Kremlin the U.S. dollar would not rise above 36 rubles in value for the foreseeable future.

On Monday, the dollar crashed through the 36-ruble barrier to close at 36.41.  One Russian ruble is now worth 2.75 American cents.   Six months ago, it was worth 4.15 cents. It has lost one-third of its value since Russia invaded Georgia in a naked act of imperial aggression.

Fistful of Euros, which had predicted the breach, says the ruble is falling “uncontrollably” and points out that the ruble was down a breathtaking 20% in January 2009, its worst month since the currency implosion that rocked Russia to its foundations in 1998.  And it’s no abstract financial issue, but one that affects real people very direclty.  FOE states:  “The average monthly wage fell an annual 4.6 percent in December to 17,112 rubles ($517.85), the first contraction since October 1999 when they fell 2.2 percent. Real disposable income fell 11.6 percent, the biggest contraction since August 1999, according to Rostat.”

It’s not hard to understand why nobody wants the ruble:  The price of the only thing worthwhile that you can buy with them, crude oil, has fallen by two-thirds in less than a year, and Russia is producing less and less of it all the time (60,000 barrels less in January, for instance).  Lower prices combined with lower production means a massive shortfall in revenue for the Russian government, which means instability, which means even less reason to bank the ruble.

Even without the falling ruble, Russia’s impoverished population, working for an average wage of $4/hour, already faced double-digit consumer price inflation.  Russia’s feeble economy is unable to produce a wide range of basic consumer products, and therefore must import them — and the falling ruble means a whole new level of inflation piled on top of the existing one.

What is even worse is that because Russia doesn’t produce much, it can’t reap the usual benefit countries get from a falling national currency, namely rising exports. The price of Russian goods has become dramatically cheaper for foreigners to buy, so Russia should be able to export more, creating new jobs and bolstering the economy.  But Russia hasn’t developed this capacity under Vladimir Putin, instead it has rested on the laurels of oil which nobody now wants, hence the falling prices.  Putin has put his nation between a rock and a very hard place, brought it to the brink of destruction as the other items we report today on his leadership make clear.

On Wednesday, the Fitch credit rating agency lowered Russia’s national debt to one notch above junk, the first downgrade in a decade.  “The country made a mistake trying to defend the ruble when it was indefensible,” said New York University professor Nouriel Roubini.  JP Morgan opined that the central bank “may be running out” of cash to bolster the ruble, with the amount of reserves available to support the currency expected to decline from $59.4 billion at the end of January to less than zero at the end of the year.

At long last, Vladimir Putin stands exposed.  At long last, the people of Russia can see him for what he is, a totally unqualified secret police thug who has run the nation’s economy aground while he feverishly attempts to revive the cold war.

The only question now is:  What will the people of Russia do about it?  Will they do nothing, and allow Russia to go the way of the USSR? Or will they rise up, before the final crackdown comes again?  If not, then they will richly deserve the brutal suffering that will come their way as history repeats itself in neo-Soviet Russia.

6 responses to “EDITORIAL: Financial Apocalypse for Putin’s Russia

  1. Why would anyone want to buy anything made in Russia. Hell, even Russians vote with their (meager) wallets and buy foreign imports.
    Made in Russia = Low quality junk.

  2. Andrew,
    actually Russia is producing goods that it’s exporting to other former soviet countries.
    Like Procter&Gamble is producing a lot of stuff there.
    Its cheaper for those countries to get it from Russia.
    The problem is that Russia’s insane exterior politics cut lots of that ways off. Like Russia stopping most of the exports to Georgia.
    Or scaring foreign Investors with the recent comments from Putin at the World Economics Forum in Davos.

    Thanks, ‘La Russophobe’
    Another insightful and well thought article as always!

  3. Sandro, I have seen the stuff that is produced in Russia. It is usually only purchased (in former soviet republics I have visited) by those who cannot afford western produced goods, or even Indian when it comes to medicines.
    The simple fact is that when it comes to hi-tech items in paticular, such as cars, TV’s & other such items, Military equipment etc, Russian production standards and workmanship ae very very poor.

  4. 1) In previous posts, I believe LR has noted the cost to Russia of invading S. Ossetia in order to “protect” 75,000 people and bring Georgia to its knees.

    I think it worked out to somewhere in the neighborhood of $1,000,000.

    2) It is openly admitted in Russian media by Putin and others that Gazprom lost over $2 billion when Kremlin/Gazprom cut off the gas to Ukraine and Europe in order to “bring Ukraine to its knees” and “show Western Europe who’s boss.”

    3) Putin has promised a $2 billion loan – not a gift, a loan – to Kyrgyz in order to induce Kyrgyz to close a US military base which is used for operations in Afghanistan. The US pays rent to Kyrgyz, which it would not have to pay back if the base remains. I’m not sure about Kyrgyz’ ability to repay a loan.

    The $2 billion loan offer is being made by Russia while there is a financial collapse in Russia.

    so –

    1) price of invading Georgia – $2 billion

    2) price of cutting of gas to Ukraine and Europe – over $2 billion

    3) price of inducing Kyrgyz to close a US military base – $2 billion

    Pootkin cutting off his nose to spite his and Russia’s face and bringing Russia to ruin – priceless.

  5. The people of Russia will do absolutely nothing about it, as always. Soon, the ruble will be worth so little, it’ll take a bag of it, to buy a bag of Vietnamese rise. They have learned nothing from the days of the cold war, and continue to make the same mistakes. Instead of investing oil money into the economy; rebuilding industry, so on…, they kept it as stabilization funds, which can only prolong the agony during a financial crisis.

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