Russia's economy

Bloomberg News Blames Putin for Russia’s Economic Problems

Eric Zuess

Fort Russ,

18 December, 2014

On December 17th, Bloomberg News bannered “Putin’s Secret Gamble on Reserves Backfires Into Currency Crisis” and reported that, “As President Putin exulted at the Winter Olympics in Sochi 10 months ago, aides assured him Russia was rich enough to withstand the financial repercussions from a possible incursion into Ukraine, according to two officials involved in the talks. That conclusion now looks like a grave miscalculation. Russia has driven interest rates to punishing levels and spent at least $87 billion, or 17 percent, of its foreign-exchange reserves trying to prevent a collapse in the ruble from spiraling into a panic. So far, nothing has worked.”

The team of three Bloomberg news reporters write there that, “Putin now confronts the nation’s most serious economic crisis since 1998,” and that the reason is “Putin’s pride.” They say that, “When rising crude prices were firing the economy, Russia’s swelling reserves became a symbol of economic might and a point of pride for Putin.”

This pride by Putin, they assert, came to the fore when he discussed in February with his advisers the following question: “Could Russia afford the economic blowback from taking over Crimea?”

Bloomberg reports that Putin then “was told Russia had enough foreign currency reserves to annex Crimea and withstand any sanctions that might follow.” This, they say, was the “grave miscalculation” that “emboldened Putin to annex Crimea,” and that in “Russia has driven interest rates to punishing levels.”

Their news report does not say anything about the United States coup d’etat in Ukraine that was occurring at the same time as that, when Crimeans, who had voted overwhelmingly for the Ukrainian President whom the U.S. was now overthrowing, were publicly demonstrating against the overthrow, and were pleading for Crimea, which Nikita Krushchev had donated from Russia to Ukraine in 1954, to be taken back into the Russian fold by Russia and no longer associated with Ukraine. Also, nothing is said in this Bloomberg news report about two Gallup polls which were taken in Crimea, one in 2013 before the coup, and the other in 2014 after the coup, with Crimeans both times overwhelmingly self-identifying as being “Russians” and neither “Crimeans” nor “Ukrainians,” and in which they overwhelmingly approved of Russia, and disapproved of the United States. Also, nothing is said there about Russia’s Black Sea Fleet, which the U.S-installed coup-government wanted to kick out, but which had been based in Crimea ever since 1783, and which has always been crucial to Russia’s military defense and strategy. This Bloomberg news report deals strictly with Putin’s “pride” and his “miscalculation,” which caused him to decide for an “incursion into Ukraine” whose aim was “taking over Crimea.”

Other news headlines on December 17th from Bloomberg News included these:

“Putin's Economic System Frays Further”

“Stunned Russians Stock Up on Goods Awaiting Putin Fix for Ruble”

“Putin Paints a Beseiged Russia, Says U.S. Wants to ‘Rip Out Its Teeth and Claws’”

“Russia Seen Spending Further $70 Billion to Fight Ruble Rout”

“Russian Tourists Get Stuck Holding Rubles From Berlin to London”

“Obama’s Unambiguous Message to Putin About Cuba: We Win and You Lose.”

You’ll find the latest headlines from Bloomberg News  here.

Surprise! Which Currency Has Stronger Fundamentals – Dollar or Ruble?

The "wooden" Ruble is a fiat currency issued by a bank with a low basic capital ratio and too few real assets. Dollar is worse

Russia Insider,

17 December, 2014

This article originally appeared at Sovereign Man

Last night, the Russian central bank announced a shock decision to hike up its key interest rate from 10.5% to 17%, effective immediately. Incredible.

On Monday alone the ruble declined more than 9% against the dollar, and almost 50% in 2014. It looks like a massacre.

If you listen to conventional financial news, they’ll all tell you that you’d have to be insane to own anything in Russia right now—stocks, bonds, currency, etc.

They’ll tell you that the ruble is in freefall, and that the dollar is the place to be.

But if you have been a reader of this column for any length of time, you know that I am a very data-driven person.

So… just for kicks, I decided to dive into the numbers and make an objective comparison between the US dollar and the Russian ruble.

The results might surprise you.

First of all, I start off with the premise that ALL paper currencies are fundamentally flawed.

Our global monetary system is absurd—the idea of letting unelected central bankers conjure as much money as they want to out of thin air is simply insane.

But it is true that some fiat currencies have better fundamentals than others. And if you want to understand the health of a currency, it’s imperative to look at the ISSUER of that currency, i.e. the central bank.

As with any bank, one of the most important metrics in determining a central bank’s financial health is its level of solvency.

Specifically we look at the bank’s capital (i.e. net assets) as a percentage of its total balance sheet.

The US Federal Reserve only has a basic capital ratio of 1.26%. Talk about razor thin. (This is down from 4.5% just a few years ago)

That means if the value of the Fed’s assets declines by only 1.26%, the issuer of the world’s dominant reserve currency becomes insolvent.

Now, what happens to the liabilities of an insolvent entity? They decrease in value. Just like how Greek bonds (the liabilities of the Greek government) collapsed a few years ago.

What are the Fed’s liabilities? Open your wallet. Those green pieces of paper aren’t ‘dollars’. Just look. They have “Federal Reserve Note” (i.e. debt) printed on them.

So the Fed’s pitiful financial condition directly affects the value of the dollar over the long-term.

On the other hand, the Russian central bank’s ratio is 12.5%—literally almost TEN TIMES GREATER than the Fed.

Capital cushion is crucial because when the unsuspected happens, this is what can help keep you afloat.

Think about it: you might be able to keep going without savings, perhaps even accumulating debt, but only until something happens out of the blue.

Until your car breaks down, or you need to go to the hospital, for example. Then all of a sudden, your lack of capital can become a serious issue.

Another important metric is gold. As I mentioned, since all fiat currencies are fundamentally flawed, it’s important to see the amount of REAL ASSETS that a central bank holds in reserve.

To make an apples-to-apples comparison, we look at a central bank’s GOLD reserves as a percentage of the money supply, i.e. how much gold backs the money supply.

In Russia, it’s 6.2%. And rising. Last year it was 5.5%, and the central bank is continuing to heavily stockpile more.

How much gold backs the dollar?

Precisely zero point zero percent. Zilch. Nada.

The Fed doesn’t own gold. It loudly proclaims this on its own website:

“The Federal Reserve does not own gold.”

It holds ‘certificates’ which are redeemable for US dollars. But there’s not a single ounce of gold backing the US dollar.

So… with no gold and pitifully razor thin solvency levels, it really wouldn’t take much of a shock to topple the dollar.

By comparison, the ruble is much better capitalized and actually has something backing it.

Now, I’m not necessarily advocating to buy the ruble, but hard, publicly available numbers clearly demonstrate the discrepancy between “sentiment” and objective data.

And at a time when the ruble and the whole Russian economy have been beaten down so much that Apple alone is now worth more than the whole Russian stock market, Russian assets certainly make for an interesting speculation.

The bottom line, however, is—if you wouldn’t own the ruble, then what are you doing holding 100% of your assets in the dollar?

Free Fall of the Ruble – A brilliant ploy of Russian economic Wizards? Whose chess game?

by Peter Koenig 


Vineyard of the Saker,

18 December, 2014

The world is still hell-bent for hydrocarbon-based energy. Russia is the world’s largest producer of energy. Russia has recently announced that in the future she will no longer trade energy in US dollars, but in rubles and currencies of the trading partners. In fact, this rule will apply to all trading. Russia and China are detaching their economies from that of the West. To confirm this decision, in July 2014 Russia’s Gazprom concluded a 400 billion gas deal with China, and in November this year they signed an additional slightly smaller contract – all to be nominated in rubles and yuan.

The remaining BRICS – Brazil, India and South Africa – plus the members of the Shanghai Cooperation Organization (SCO) – China, Russia, Kazakhstan, Tajikistan, Kirgizstan, Uzbekistan and considered for membership since September 2014 are also India, Pakistan, Afghanistan, Iran and Mongolia, with Turkey also waiting in the wings – will also trade in their local currencies, detached from the dollar-based western casino scheme. A host of other nations increasingly weary of the decay of the western financial system which they are locked into are just waiting for a new monetary scheme to emerge. So far their governments may have been afraid of the emperor’s wrath – but gradually they are seeing the light. They are sensing the sham and weakness behind Obama’s boisterous noise. They don’t want to be sucked into the black hole, when the casino goes down the drain.

To punish Russia for Ukraine, Obama is about to sign into law major new sanctions against Russia, following Congress’s unanimous passing of a recent motion to this effect. – That is what the MSM would like you to believe. It is amazing that ten months after the Washington instigated Maidan slaughter and coup where a Washington selected Nazi Government was put in place, the MSM still lies high about the origins of this government and the massacres it is committing in the eastern Ukraine Donbass area.

Congress’s unanimity - what Congress and what unanimity? – Out of 425 lawmakers, only 3 were present for the votehttp://www.informationclearinghouse.info/article40489.htm. The others may have already taken off for their year-end recess, or simply were ‘ashamed’ or rather afraid to object to the bill. As a matter of fact, of the three who were present to vote, two at first objected. Only after a bit of arm-twisting and what not, they were willing to say yes. This is how the ‘unanimous’ vote came to be, as trumpeted by the MSM – unanimous by three votes! The public at large is duped again into believing what is not.

What new sanctions does this repeatedly propagated bill entail? – It addresses mostly Russian energy companies and defense industry with regard to sales to Syria, as well more anti-Russia propaganda and ‘democratization’ programs in Ukraine – and Russia; all countries with the objective for regime change.

How do these sanctions affect Russia, especially since all Russian energy sales are no longer dollar denominated? – Sheer propaganda. The naked emperor once more is calling an unsubstantiated bluff. To show his western stooges who is in power. It’s an ever weaker showoff.

Now – as a consequence of declining oil prices and of western ‘sanctions’ – of course, what else? - Russia’s economy is suffering and the ruble is in free fall. Since the beginning of the year it lost about 60%; last week alone 20%. As a result and after serious consideration, says MSM, the Russian Central Bank decided a few days ago to increase the interest of reference from 10.5% to 17% to make the ruble more attractive for foreign investors. It worked only for a few hours. Raising the interbank interest was Putin’s reply to Obama’s bluff – feeding at the same time western illusion about Russia’s decline.

The propaganda drums tell you Russia is helpless because the world has lost the last bit of confidence in President Putin – of course. Regime change is on the agenda. Mr. Putin must be blamed as the culprit, hoping to discredit him with his people. He is leading Russia into a deep recession; the worst since the collapse of the Soviet Union. The mainstream media show you interviews with average mainstreet Russians saying they have lost all their savings, their salaries and pensions are worth nothing anymore and they don’t know how to survive this coming calamity.

In reality, at least 80% of the Russian population stands solidly behind Vladimir Putin. He has brought them universal education, health care and fixed infrastructure that was decaying after the fall of the Soviet Union. President Putin is literally revered as a hero by the vast majority of Russians – including the country’s oligarchy.

In fact, nobody in the western economic system these days is dealing in rubles. In short-sighted connivance with Washington, the treasuries of the western vassals are releasing their ruble reserves – which Russia does not buy, thereby flooding the market. Russia not only has large dollar reserves, plus the ruble is backed by gold, a fact consistently omitted in the MSM. For now, Russia prefers to let the ruble plummet.

Under another ‘arrangement’ by bully Obama, Middle Eastern oil producing puppets like Saudi Arabia and the Gulf States are overproducing and flooding the market with petrol and gas, thereby driving the price down to the ostensible detriment of Russia and Venezuela, both countries where Washington vies for regime change. A double whammy thinks Washington, buying kudos with the stooges. The sheiks that control their energy output apparently have been promised enough goodies from Washington to bite the bullet and take their own losses.

Russia needs rubles. That’s her currency. That is the currency Russia needs for future trading – detached from the western monetary system.

When Russia deems that her currency has reached rock-bottom, she will buy back cheap rubles in the market with massive amounts of dollars. Russia may then flood the western market – with dollars, and by now we know what that does to a currency – and simultaneously buy back rubles from the West. A brilliant move to reestablish Russia’s currency in a new emerging monetary system – which Europe would be welcome to join, but willingly, no by Washington style arm-twisting.

Is this another precursor to war? A nuclear confrontation or Cold War II? – Precursor to a false flag attempting Moscow to fall into the trap? - Not necessarily. Russia is playing a clever chess game, diplomacy at its best. Instead of sabre rattling – Russia is coin rattling. It might lead to a western financial fiasco early in 2015 for the dollar and euro denominated economies. And the winner is…?
Peter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He writes regularly for Global Research, ICH, RT, the Voice of Russia, now Ria Novosti, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe.