Putinomics in Free Fall

MICEX

As shown in the chart above, ever since the Russian military incursion into Ukraine began the Russian economy has been in a state of free fall.

At present, the MICEX stock index is down 15% from its February high, having shed roughly $100 billion in value.  The chart shows how the free fall radically halted and reversed on March 3, and there’s only one possible explanation for that event:  The Kremlin entered the stock market and began furious buying Russian shares in order to artificially increase demand and stabilize prices. But the Kremlin can’t afford to do that forever, and when it stopped the market went right back into free fall.

The stock market isn’t alone in its woes. The bond market has been obliterated as well, interest rates are soaring and and the value of the ruble is plummeting, meaning inflation on foreign goods, which the Russian consumer depends upon, is raging.

The falling ruble forces the Kremlin to make Russia’s foreign currency reserves to double duty: it must not only buy Russian stocks but also buy the currency itself, in order to prevent devaluation from turning Russian pocketbooks inside out.

And the worst is yet to come.

The EU and USA have just announced that they will soon impose draconian economic sanctions on Russia, choking off already feeble Russian economic growth and putting even more pressure on the ruble and the stock market.

Are the people of Russia really prepared to make such horrific sacrifices in order to pursue bloodthirsty imperialism in Ukraine? Do they even know that such sacrifices are being asked of them? Kremlin-controlled broadcast TV is certainly not telling them, and the Kremlin has just liquidated yet another independent news source, the respected Lenta.ru website.

The Winds of War in Ukraine

Over on the powerful and influential American Thinker blog, LR publisher and founder Kim Zigfeld sets fire to the series of brazen lies Russia is trying to tell the world about its wanton, horrifying imperialist aggression in Ukraine.

Has Putin finally gone too far this time?

He has if you judge by the Russian economy.  On Monday its stock market shed a whopping 10% of its value, and key stocks like Gazprom and Sberbank were down even more.  The ruble went into free fall as well, hitting a new low against the dollar and forcing the Kremlin to take two dramatic actions, hiking interest rates and spending ten billion dollars in foreign reserves to buy rubles, that will choke off the final vestiges of economic growth and undermine Russia’s ability to grapple with the inevitable recession that will follow.

And he has if you judge by Russia’s relationship with the United States.  On Monday, the USA broke off economic and military ties with Russia, and began planning sanctions that could further imperil the Russian economy as well as instigating an move to eject Russia from its most prestigious international membership, the G-8.

Commentators of every stripe all around the world, including many ardent Russophiles, are condemning Putin’s military invasion of Ukraine as by far his biggest policy blunder since he took office. It may well be that neither he nor his country can ever recover from it.

Russia’s Currency Implosion

The value of the euro against the ruble has soared to its highest-ever level

The value of the euro against the ruble has soared to its highest-ever level as the Russian economy has tanked.

One Russian ruble is currently worth 0.021 European euros, the lowest value the ruble has held since the euro was created.

The ruble has lost 8% of its value against the euro in just the first month of this year, and a whopping 20% of its value over the past twelve months.

While horrifying, these gigantic losses by the Russian national currency are deceptively understated:  They would be much, much bigger if not for the Russian government pouring billions and billions of its foreign currency reserves, obtained from the sale of oil, into purchasing rubles in the currency market to artificially increase their value, blunting the brutal impact of consumer price inflation on imported goods in Russia.

The ruble, in other words, is back in free fall.

It seems like only yesterday that the Kremlin was arrogantly proclaiming its intentions to cease currency interventions and let the ruble float freely on the currency markets, proving that Putinomics had stabilized the Russian economy and given Russia a so-called “hard” currency that could rival those in the West. Oops!  The Moscow Times reports:  “Battling to restore confidence, Economic Development Minister Alexei Ulyukayev on Tuesday backpedaled on plans to free float the ruble by 2015, and the Central Bank on Thursday pledged unlimited interventions to keep the ruble firm.”

Oh well, back to the drawing board.

It’s hardly surprising to see the Russian ruble collapse when you know that Ulyukayev’s last major revelation was that the Russian economy has stalled out and entered a prolonged period of stagflation, with negligible economic growth accompanied by virulent price inflation, the worst of all possible economic worlds.  Who would want the ruble under such circumstances? Certainly not Russians, who are heading for the financial exits and dumping rubles in favor of foreign hard currency, further driving down the ruble’s value.

More Hilarious Dishonesty from Russia Today

It’s really quite hilarious watching the scurrying Russophiles respond to the latest international survey that reveals Russia to be a barbaric outsider among the population of civilized nations. What to do?! Try to spin them, simply ignore them or attack them as blatant acts of “russophobia”? What to do, what to do?

In a recent web item, Russia Today puffed out its chest over the latest “doing business” rating from Bloomberg, in which Russia ranked #43.  You might think Russia would wish to sweep a result like that under the table, considering that it made Russia by far the worst-performing nation in the G-8, and considering that China came in at #28 and Brazil at #38.

But Russia Today considered it great news, since Russia’s ranking had improved from 2012 by 13 spots.  Jaw-droppingly, Russia Today reported the fact that Russia was ranked even with Oman and just below Bulgaria, just above Panama, as if the positioning were unremarkable.

Russia Today chose to conceal from its readers (not providing any link to the Bloomberg data) that four of the other five nations from Eastern Europe appearing on the list were rated higher than Russia (Poland, Czech Republic, Hungary and even Bulgaria easily bested Russia, with only Romania falling behind).

Bloomberg provides an interesting page of data on Russia that Russia Today also chose to ignore.  Maybe that’s because the data on inflation and stagflation is pretty horrifying:  Only 15 countries are more ravaged by inflation than Russia according to Bloomberg, and only 23 are more at risk of the onset of stagflation. Yet, despite these economic blows, Bloomberg also found that only 7 countries in the world were more decadent and vice-ridden than Russia. Another surprising Bloomberg revelation:  Only seven countries have fatter women than Russia.

The dishonesty with which Russia Today “reports” the “news” is truly breathtaking and neo-Soviet in character.  A person who relied on Russia Today for information about Russia would simply have no clue what the real place was like.

OECD Exposes Critical Russian Weakness

Over on the powerful and influential American Thinker blog, LR publisher and founder Kim Zigfeld reviews a recent report on the Russian economy by the Organization for Economic Cooperation and Development in Europe. The report offers shockingly grim analysis of the Russian education system, concluding it is simply not prepared to equip Russians for global competition, and offers a bleak assessment of Russia’s economic prospects under Putin.

The Perils of the Russian Ruble

RussianRuble

Recently there have been two big pieces of news were the Russian ruble is concerned.

First, the Kremlin announced it had decided on a new symbol for the currency.

Second, the ruble continued inching towards a historic law value against the U.S. dollar.

As shown in the chart above, back in 2008, before the ruble experienced a massive drop in value due to the global economic downturn and the falling price of oil, one Russian ruble would buy you 0.045 U.S. dollars.

Today, that ruble will only buy you 0.030 U.S. dollars; in other words, since 2008 the ruble has lost a whopping one third of its value against the dollar.

The ruble now is precariously close to to the value it had at the very depths of the 2009 recession, when it plunged to a value of about 0.028 dollars.

So basically, the Kremlin is fiddling while the ruble burns. Instead of undertaking structural reforms that might bolster the Russian economy, the Kremlin is occupied with ridiculous marketing gestures designed to paper over the structural cracks so they can be ignored. It’s a neo-Soviet “policy” that has no chance of success.

Price Controls for Putin’s Imperiled Russia

With the Russian economy in freefall, rather than offering parachutes to his countrymen the Russian dictator Vladimir Putin is doling out anvils. He has the country racing full speed towards neo-Soviet collapse.

Russia posted 3.4% GDP growth in 2012, and earlier of this year the World Bank had projected economic growth for Russia of 2.3% for 2013.

That was then.

Last week, the World Bank concluded that Russian growth this year would be a stunningly anemic 1.3%, only slightly more than one-third what Russia achieved last year and just over than half what the World Bank had predicted for this year.  Russia’s failing stock market is reflecting the wider economic malaise.

What’s more, the World Bank has cut projected growth for Russia in 2014 from 3.1% earlier to just 2.2% at present.  If 2013 is any gauge, one can expect that projection to once again be far too optimistic, as last year’s was.

But even at 2.2%, Russia’s numbers would lag far behind the other members of the BRIC group (consisting of Brazil, Russia, India and China) of emerging economies to which Russia is routinely compared, and just as far behind the baseline levels Russia needs to sustain its giant population. China is posting growth at roughly four times Russia’s rate, and it doesn’t have to manage the world’s largest national territory, covering eleven time zones.  Nor is it artificially buoyed by vast fossil fuel exports.

Disturbingly, the Putin economy is faltering even though the crude oil prices that form its bedrock have remained strong.

A county with such vast size as Russia, and such a puny economic base, simply can’t afford such anemic levels of growth.  1% economic growth in the USA, whose economic base is eight times larger than Russia’s despite having only twice as many workers, results in adding $160 billion to the economy, $500 for each American.  That same level of growth in Russia produces just $20 billion, a mere $150 for each Russian.  And Russia has such rampant corruption that the lion’s share of that $150 will simply be stolen rather than reaching the pockets of citizens in need.

As the Financial Times reports, Putin believes Russia faces a truly dire emergency and is taking risky steps which could make the situation much, much worse.  Next year, he plans to implement startling price controls on gas, electricity and railroads.  Putin is terrified, you see, that Russia could begin to experience the devastating phenomenon of “stagflation” in which prices rise out of control even as incomes are falling.
And he’s not wrong to be afraid.

Continue reading

The Great Russian Stagnation

The Putin economy will actually post less than half the level of economic growth the IMF predicted for Russia at the beginning of the year, and it will be the lame dog of the BRIC group, bringing up the distant rear.  Over on the powerful and influential American Thinker blog, LR publisher and founder Kim Zigfeld has all the horrifying details.

Tide of Negative Press Sweeps over Putin and Russia

Putin is always late, like a schoolboy, embarrassing his country.

Putin has failed Russia’s villages, and is now reduced to bribing people to leave them as ghost towns.

Putin can’t even keep the lights on in Sochi, and in desperation has cancelled Christmas for its workers.  Meanwhile, yet another Olympic torch bearer burst into flames. Ouch!

Despite a personal appeal in halting English by Putin, Russia loses its World Expo 2020 bid.

While obsessing in a paranoid manner about threats from abroad, Putin is recklessly ignoring the virulent toxins with the body Russia that look poised to destroy the country.

These are these are stories that the BBC, NBC, the Wall Street Journal, the Telegraph, USA Today, the Moscow Times and the Financial Times are telling about Russia. They speak for themselves, don’t they?

The Sad Saga of Putinomics

LR publisher and founder Kim Zigfeld correctly predicted back in October 2012 that Putin’s Russia was headed for an economic tailspin. She has now published her fith installment on the mighty Pajamas Media megablog regarding the collapse of Putinomics.

Here are the links to the full series so far: