EDITORIAL: Financial Apocalypse for Putin’s Russia

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.

EDITORIAL: Russia with 30/30 Vision

EDITORIAL

Seeing Russia with 30/30 Vision

Imagine that Larry King had interviewed Vladimir Putin on New Year’s Eve one year ago and suggested to him that one year hence the value of the Russian ruble measured in dollars and the price of a barrel of Russian crude oil would be reflected by the same number, and that number would be “30.”

Can you imagine the sort of haughty, condescending smirk that would have been reflected on Putin’s countenance at the foolish American’s idiotic ravings?

The ruble crashes through the 30:$1 barrier

Yet as we go to press, both the ruble and the price of Russian oil are closing fast on that very number — and some would say they won’t stop there for long as they plunge even further into the gloom.  As we reported earlier this week, the ruble experienced its largest one-day drop in value in recent memory to start the week last Monday, and in the currency markets was less than one ruble from the 30-ruble psychological barrier on Tuesday morning, while Russia’s Urals Blend crude oil was selling for just over $32 per barrel.  The ruble is already trading on the streets of Moscow at more than 30 to the dollar.

Responding to this catastrophic collapse, Russian “Prime Minister” Putin recently advised journalists as follows:

Special Extra: Rubles and Reserves and Ruin, Oh My!

Market Watch reports that last week Russia’s foreign currency reserves fell to less than $440 billion, down nearly $20 billion for the week.  In just the past four months Russia’s reserves have fallen nearly $150 billion, about one-quarter of their total and an average of almost $40 billion per month. At that rate, Russia’s reserves will be totally exhausted before 2009 is over.

EDITORIAL: The Ruble as Rubble

EDITORIAL

The Ruble as Rubble

The US dollar, soaring against the ruble

On Monday the MICEX ruble-denominated Russian stock index took another massive hit, losing over 7% of its value and crashing through the 600-point psychological barrier. The Russian ruble continued its slide against the dollar, having lost nearly 2% of its value against the U.S. currency last week, more than 2% against the euro, the biggest one-week drop in more than three years, as the government squandered over $3.5 billion in FOREX money to keep it from entering freefall — but, quite possibly, you ain’t seen nuthin’ yet. Because of continuing downward pressure on oil prices that is expected next year, Russian investment bank Troika Dialogue predicts that the ruble will have to fall at least an additional 30% as Russia’s current account and FOREX surpluses otherwise risk total obliteration.  Other analysts predicted a horrifying 50% drop in value.  Remember, even with a stable ruble Russia already has double-digit consumer price inflation. Both stock exchanges, the MICEX and the RTS, are flirting with another horrifying freefall period as the price of Russia’s “Urals blend” crude oil traded below $50/barrel for four days running.  The Kremlin needed $70 just to break even next year!

EDITORIAL: The Russian Ruble, Collapsing

EDITORIAL

The Russian Ruble, Collapsing

Ruble as Rubble, the Dollar Ascending

As shown in the chart at left, during the month of October so far the Russian ruble has lost 8% of its value against the U.S. dollar, which has risen steadily as the Russian stock market has fallen.  Since Russia invaded Georgia in August, the ruble has plunged 12%.  That means foreign goods have experienced 12% price inflation in that short time. Soon, you’ll need 30 Russian rubles to buy one U.S. dollar on the street in Moscow.  All the gains made by the ruble during the Putin years are being wiped out, at breathtaking speed.

The consequences for Russia are dire. Obligations that were established in dollars are now far more expensive for ruble-earning borrowers to service, with an avalanche of defaults predicted.  On Tuesday, the average price of ruble-denominated corporate debt dropped to an all-time low of 86 percent of face value yesterday, from more than 100 percent in June.