Tuesday, 17 February 2009

The wounded Bear; Russia's economic crisis

Russia has been having an economic meltdown to make Gordon Brown jealous. The foreign cash reserves, built up and crowed about, have been depleted by over 30% in just a few months.

The economy, based on extraction (i.e. selling mother nature), is in freefall. The budget, set to expand for military use, has been severely undermined. It is set for oil to be $95 a barrel and not $35. Some big changes will need to be made and Putin is pushing his President forward to take the flak. Even the Oily-garchs are out with their beggin' bowls in Moscow.

Last summer, Russia invaded Georgia, the height of hubris it has proved. Not only did the world shun Russia for its act, but the resource boom failed at the same time. The Rouble has collapsed and continues to do so, the economy may go from 10% growth to 0% or even recession.

There is a dangerous side to this though, as demonstrated by Georgia. Russia is prone to acting out nationalist fantasies; a re-run of Galtieri? The wounded Bear is also very unpredictable. It may make for an interesting challenge to the new US foreign policy. Ukraine beware.


Letters From A Tory said...

If Ukraine even mentions the word 'NATO', Russia could get seriously messy. It sounds like the discontent from Russian citizens is growing so they need a good PR coup.

Anonymous said...

so they need a good PR coup.

And a greater common enemy?

The Ruble, or is it Rouble, needs to either join, or link, or whatever, to either the Yuan, or Euro, to become an international currency.

Displacement, or partial displacement of the $ as the de facto global reserve currency, is then possible.

I am convinced from many articles and Davos speeches, that this is the game plan of both the Russians, and the Chinese, long term, together (slim chance) or separately. Both countries are frantically seeking to enhance their gold reserves, and the rumoured IMF future sale of 403 tonnes of gold could be the gift that China would jump at, to increase her reserves, using dollars (liquidated T bills) for the purchase.

Being a member of a basket would solve many problems.

I would also consider that being so near to achieving the (partial) displacing of the global $ would divert the consideration of military options to a back seat.

Economic warfare is less bloody on all parties, and avoids polarisation of other Nations, and the resultant spread.

When goods don't flow across borders, armies will.
Frederic Bastiat 1801-1850.

Anonymous said...

The BIS (Bank for International Settlement) publicly altered the manner by which they determine the total nominal value of derivatives outstanding. This has actually backfired badly now that it is assumed every entity is lying. The BIS was all that was left for somewhat legitimate economic/financial statistics.

The amount of outstanding OTC derivative nominal value dropped 80% from the BIS figure of one quadrillion one thousand and one hundred forty four trillion dollars as the BIS moved to the computer modeling of value to maturity.

Total forex disruption last night.
Someone (South East Asia?)wanted dollars really badly.
Dollar index very strong today!
So is Gold!

banned said...

Russia will continue in its' age old attempts to reach the Mediterranean, that means Bye-Bye Ukrain.

Alex said...

Global crisis as Russians see it
The corridors in office buildings have either pluses or minuses. Let’s not speak about minuses but about pluses. Everybody knows each other; you can hear helloes, greetings, goodmornings.

But the last few months silence dominates here.

Crowds of clients just disappeared, nobody enters and asks:”Sorry, where can I find?..” , there are no more strangers smoking in common rest rooms, girls from nearby offices don’t rush in asking to change money for a change. The director of real estate office drooped off, you can’t hear scissors and hairdryers from a hairdressing salon, and women from the office you never could spell its name frequently hang “Closed for today” card. People drink a lot in the offices and it’s impossible to breathe in smoking areas. Visits of Santa and parties had been cancelled this year.

Anonymous said...

Not that it matters a great deal, but the price of oil which Russia needs to break even is approx $70. Venezuella and Iran need about $90-95 and Iraq $110 according to some sources. Either way they are all in BIG trouble now...

Wolfie said...

Oil will be back and the bear will get up again with little more than a sore head. Its western Europe that has a problem on its hands.

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