The Crash of the Putin Economy

Just this month alone, the value of the Russian currency is down 5%. But that is nothing.

Russia’s stock exchange has just entered bear market territory. It is down a whopping 15% this month alone.  The month isn’t even over yet, of course.

And then there’s capital flight.  Last year, Russia bled money at the terrifying rate of over $20 billion per quarter, racking up over $80 billion in total by year’s end. This year?  Russia has seen $42 billion in capital flight in just the first four months of this year alone!  In other words, Russia’s rate of capital flight in 2012 is nearly double what it was in 2011.

Putin has placed his nation in a terrifying vortex of failure.

On the one hand, Russians see economic crisis in Europe and they believe, quite rightly, that this crisis will severely impair European demand for Russian oil and gas. Since that is the bulwark of the Russian economy, the value of Russia’s stock market is immediately obliterated, and nobody needs rubles to buy anything.

On the other hand, Russians see Putin’s return to power as “president for life” seriously restricting the sort of liberties that are necessary for business to thrive, and they realize that “more of the same” only means that Russia’s life-threatening problem with corruption will be unchanged.  As a result, Russians conclude that they must remove their assets to foreign shores where the prospect of utilization and safety is far better.

Recent opinion polls show that Russians are terrified of what lies before them, so much so that they are even turning on Putin himself. This means a vicious cycle will result, with Putin needing to crack down ever harder in order to maintain his power, breeding even more mistrust and economic disaster.  But if the people of Russia are so foolish as to hand unlimited power to a proud KGB spy, who can say they do not deserve this pernicious fate?