Two weeks ago, investors began worrying that the Chinese government would raise interest rates in order to keep the reins on inflation as the Chinese money supply outstrips production. If it happened, it would be a sign that China’s recovery from the global financial crisis was faltering, since increasing rates would reduce the amount of capital available for investment and growth. That would mean reduced Chinese demand for many foreign imports, chief among them crude oil.
Immediately, the price of crude began to fall, between January 19th and January 29th shedding over 6% of its value.
Russian stocks immediately fell as well, dropping well over 5% of their value during the same span. The Goldman brokerage house issued a warning to investors to abandon their Russian positions in order to avoid being caught in a wicked backlash.
Russia was revealed, once again, to be a helpless slave of the crude oil markets even though it is ranked as the 55th least globalized of 60 major world economies because of the relentless isolationist policies of Vladimir Putin. That is a true testament to the pathetic weakness of the economy Putin has built.
Despite the fact that he constantly harangues the world about Russian independence, what Vladimir Putin’s policies have actually done is to enslave the country. When the global economic crisis struck, Russia’s economy was instantly devastated, and suffered far more in fact that most other nations. It’s stock market was almost literally wiped out, its currency imploded, and its savings were eviscerated.
All after ten long years of rule by Vladimir Putin, years during which Russia did exactly nothing to diversify its economy. To have done so would have diverted all those precious funds that Putin needed to reignite the cold war and wipe out domestic civil society.
When the price of oil was high, Russia strutted and preened at the Davos international economic forum as if it owned the world. This year, nobody cares about Russia, except those who are interested in hearing about how Russians steal the assets of foreign investors and murder their Russian allies.
The global economic crisis laid Russia bare. The world now sees what Russia really is: A pot of oil with a fat, lazy, clueless KGB spy sitting on top. It’s not a pretty picture.