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Tuesday, December 16, 2014

​Sorry, Putin. Russia’s economy is doomed

A funny thing happened on the way to Vladimir Putin running strategic laps around the West. Russia's economy imploded.
The latest news is that Russia's central bank raised interest rates from 10.5 to 17 percent at an emergency 1 a.m. meeting in an attempt to stop the ruble, which is down 50 percent on the year against the dollar, from falling any further. It's a desperate move to save Russia's currency that comes at the cost of sacrificing Russia's economy. So even if it "works," things are about to get a lot worse.
It's a classic kind of emerging markets crisis. It's only a small simplification, you see, to say that Russia doesn't so much have an economy as it has an oil exporting business that subsidizes everything else. That's why the combination of more supply from the United States, and less demand from Europe, China, and Japan has hit them particularly hard. Cheaper oil means Russian companies have fewer dollars to turn into rubles, which is just another way of saying that there's less demand for rubles—so its price is falling. It hasn't helped, of course, that sanctions over Russia's incursion into Ukraine have already left Russia short on dollars.
h/t Doug D.

2 comments:

Anonymous said...

Yeah, that's what happens when you have a resource-based economy and the oil price drops. Shit, that's us!

Robert What? said...

We can laugh at Russia all we want, but it is also destroying the fledgling shale oil industry here in the US - which would suit Obama just fine.

The only people who should laughing are the Saudis. After all their competition have gone belly up they will raise oil to whatever they feel like.