The ruble nosedives

POSTED BY: kpo
UPDATED: Monday, August 4, 2025 19:09
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1KIKI

Saturday, December 20, 2014 5:20 AM

Russia in full recession? How is that any different from the US Great Recession 2007 - 2008? The UK 2008 - 2009 and 2011 - 2012? Germany 2008 - 2009? Italy 2008 - 2009 and 2011 - present? http://en.wikipedia.org/wiki/Great_Recession And it's not like the western economies had anyone TRYING to bring them down. Nope. Rich people did that to entire populations, all by themselves, with that FANTASTIC economic system you think is so wonderful.

SAGAN: We are releasing vast quantities of carbon dioxide, increasing the greenhouse effect. It may not take much to destabilize the Earth's climate, to convert this heaven, our only home in the cosmos, into a kind of hell.

SIGNYM

Saturday, December 20, 2014 11:16 PM

Besides, there's only just so much schadenfreude that a topic can bear.

There's a difference between "the economy" and "the currency". A crash of the ruble doesn't mean a catastrophe in the economy. Heck, Japan has been trying to drop its yen for over a year now! Among other things, the drop in the ruble (from 50 to 80) was really only a speculative surge, not reflective of fundamentals.

Since it happened right on the heels of Russia dropping the South Stream pipeline due to EU harassment, it seems like retaliation in this economic war.

But the fall of the ruble (justified by a drop in oil prices) WILL affect the economy somewhat. Russia has a double whammy going on: the falling price of oil, and sanctions which prevent various businesses from obtaining alternate sources of dollar or euro credit. Apparently, much investment into Russia (ie loans) have been made in dollars and euros, and so must be paid back in the same currency. With the ruble falling in the forex, that means that businesses and banks must exchange more rubles for fewer dollars or euros in order to service their debt. However, the Russian economy is fundamentally strong. Russian banks and businesses face a liquidity problem- they lack immediate cash to service immediate needs. What they don't have is a solvency problem, because both the government and the banks have strong reserves. Also, the actual production costs (called "cash costs without royalities") in Russia (and Iran, btw) are lower than the USA, for example.

This is the opposite of the USA and the UK, both of which ALSO have income from drilling. In the USA, drilling was done on the back of 0% interest loans and the equivalent of junk bond issued by the drillers. There is no shortage of liquidity in the USA, the Fed (and the BoE) have printed tons and tons of money, which is sloshing around in the top 1%. The problem in the USA is solvency: if the debts were required to be settled in some way, a lot would be unresolvable- it's debt resting on a pit of more debt. If debt can't get paid, then a whole chain of lending might implode. I don't think it will be like the crash of 2008 ... the amount of money tied up in drilling loans/bonds/futures is only about a half-trillion dollars, not at all like the real-estate bubble. But it COULD cause a number of firms to go belly-up, and banks to experience a loss.

Not sure what Russia can, or intends to do about this. There are a lot of suggestions, the most obvious being going to China (which has a crap-ton of Treasuries and USD in reserves) and either doing a currency swap or taking out a huge loan. I think that's a win-win for both nations, as they DO want to de-dollarize, and this gives China the oppty to dump dollars. China could also independently be purchasing rubles on the open market.

Putin also says that he sees this an an oppty to diversify his economy and improve internal production, which he has been trying to do all along. (The siren-song of energy production was just too good for investors to resist, apparently.)

Capital controls also work well. That was the route Malaysia took, and it worked well for them.

There are also indications that the Russian government has its eyes on what it perceives to be a fifth column of speculators. The on thing that Putin is NOT going to do (he says) is waste his foreign reserves on propping up the ruble.

Anyway, speculation abounds, not only as to whether Saudi Arabia is colluding with the USA to target Iran and Russia, or whether Saudi Arabia is colluding with Russia to target the USA, or whether its a completely independent actor, and which other producing nations can withstand the weather the longest.

In the end, it's anybody's guess what happens to the Russian economy and finances. Or the USA's for that matter. Too much depends on political decis

KPO

Monday, December 22, 2014 6:17 AM

A good article: The week the dam broke - http://www.telegraph.co.uk/finance/economics/11305146/The-week-the-dam
-broke-in-Russia-and-ended-Putins-dreams.html

It's not personal. It's just war.

1KIKI

Monday, December 22, 2014 6:33 AM

current rate is 58.88

SAGAN: We are releasing vast quantities of carbon dioxide, increasing the greenhouse effect. It may not take much to destabilize the Earth's climate, to convert this heaven, our only home in the cosmos, into a kind of hell.

1KIKI

Monday, December 22, 2014 10:11 AM

Signy

Iceland got itself out of a crisis by shutting off the banks.

SAGAN: We are releasing vast quantities of carbon dioxide, increasing the greenhouse effect. It may not take much to destabilize the Earth's climate, to convert this heaven, our only home in the cosmos, into a kind of hell.

THGRRI

Monday, December 22, 2014 10:04 PM

Russia is suffering sanctions with foreign companies and investors falling over each other in an attempt to get out. Did the same hold true for Iceland or did they have the support of the rest of the world? I think there is a big difference here, don't you?

SIGNYM

Tuesday, December 23, 2014 10:38 AM

Quote:
Russia is suffering sanctions with foreign companies and investors falling over each other in an attempt to get out. Did the same hold true for Iceland or did they have the support of the rest of the world? I think there is a big difference here, don't you?

Because Iceland refused to insure the deposits of foreigners who deposited money in far-flung branches ... principally the UK... Iceland was declared a terrorist state by the UK.

Quote:
On 8 October, Alistair Darling announced that he was taking steps to freeze the assets of Landsbanki in the UK. Under the Landsbanki Freezing Order 2008 ... the Treasury went on to freeze the assets of Landsbanki and assets belonging to the Central Bank of Iceland, and the Government of Iceland relating to Landsbanki. The freezing order took advantage of provisions in Part 2 of the Anti-terrorism, Crime and Security Act 2001, and was made "because the Treasury believed that action to the detriment of the UK's economy (or part of it) had been or was likely to be taken by certain persons who are the government of or resident of a country or territory outside the UK."

http://en.wikipedia.org/wiki/Icesave_dispute

Yep, a terrorist state. Because of that, none of the nations allied with the UK offered Iceland loans to re-capitalize their banks. Iceland actually had to go to China for loans, so the analogy to Russia is fairly close.

--------------
You can't build a nation with bombs. You can't create a society with guns.

SHINYGOODGUY

Tuesday, December 23, 2014 11:51 AM

You know, maybe Putin can still save the sinking ruble. All he has to do is create a Putin Calendar. He can take off his shirt in different poses each month.

I know Giuliani will buy a dozen for him and his cronies. Hell even Sarah Palin will run out and buy one or two. It would be great for the birdcage.

Which reminds me. Where are all the Putin kiss asses? I don't hear anyone talking shit now! Funny, I don't remember hearing the sweet sounds of crickets before.

SGG

Quote:
Originally posted by SIGNYM:
Because what the price of the ruble is telling us is that Russia's economy is in worse shape than Venezuela's? Ukraine's? Argentina's (which is one step away from simply declaring default in its bonds)???

HAHAHAHA! Not bloody likely!

Russia has a decent manufacturing base, a crap-ton of natural resources, a positive balance of trade, and currency reserves for the next two years.

Yes, the ruble should drop because of lower oil prices and sanctions, but dropping THAT much is beyond economics. There's nothing sensible about, so I would look immediately towards politics. There are undoubtedly speculators in the back room who are trying very hard to bring down the ruble. George Soros, for example, brought down the British pound... and that was to a nation that he LIKED! He made an impassioned plea for the EU to back Ukraine's bonds (probably because he lost a crap-ton of $$$ on the hryvnia) and he HATES Russia. For him, this would be a twofer: he gets to make $$ shorting the ruble and gets to kick the bear.

And then there's Goldman Sachs, which played a considerable part in destroying Greece. It has the clout and the resources to swing the ruble market. They were the first bank to jump in and stop trading on the ruble, but the other banks didn't follow their lead.

This is all part of economic warfare. A showdown between the dollar and "something else". Since Russia already said that getting kicked out of SWIFT would be considered an act of war, tanking the ruble and making ruble-denominated trade impossible is the next-best thing,

--------------
You can't build a nation with bombs. You can't create a society with guns.

KPO

Tuesday, December 23, 2014 5:08 PM

Quote:
Yep, a terrorist state.

Haha, no, at no point did anyone in Britain call Iceland 'a terrorist state'. They just used some vaguely-worded language in the Anti-terrorism, Crime and Security Act, that was non-specific to terrorism to legally justify freezing assets.

Quote:
Part 2 (Freezing orders)
This part re-enacted and widened provisions of the Emergency Laws (Re-enactments and Repeals) Act 1964,[3] which in themselves dated from the Defence (General) Regulations 1939.[4]

Usage against Iceland
In October 2008, prime minister Gordon Brown invoked this part of the Act within the Landsbanki Freezing Order 2008 to freeze the British assets of Icelandic bank Landsbanki during the Icelandic financial crisis, by virtue of the fact that the Treasury reasonably believed that "action to the detriment of the United Kingdom's economy (or part of it) has been or is likely to be taken by a person or persons."[5]

Unless explicitly stated, the short title of an Act does not limit the powers expressed within it. The Act does not say "terrorism-related action to the detriment of the United Kingdom's economy". Indeed, the government had defeated attempts to restrict Part 2 to terrorism-related cases during the passage of the Bill through the House of Lords.

http://en.wikipedia.org/wiki/Anti-terrorism,_Crime_and_Security_Act_20
01#Part_2_.28Freezing_orders.29
It's not personal. It's just war.

SIGNYM

Tuesday, December 23, 2014 9:13 PM

Quote:
Haha, no, at no point did anyone in Britain call Iceland 'a terrorist state'

That's not how the Icelanders saw it.
FROM THE BBC

Quote:
Until a few days ago, Britain was admired and respected by the average Icelander. But the UK's moves to seize the assets of this isolated European state have provoked a backlash of feeling and escalating resentment.

"They treated us like terrorists."

Talk to the people, the government, the media, in fact anybody in Iceland, and that is the overwhelming feeling about Britain these days.

The collapse of Iceland's banking system - one in which many Britons had a stake - is the reason for this resentment.

In a bid to claw back some of the money, the British government seized Icelandic assets in the UK under the Anti-terrorism, Crime and Security Act 2001. The die was cast. Your average Icelander draws the line at being called a terrorist.

http://news.bbc.co.uk/2/hi/7667920.stm

All three major banks in Iceland were in default. The krona had collapsed 30% after the Iceland Central Bank gave up supporting it after only 2 days of effort, Standard and Poor's downrated Icelandic bonds to junk status, and stock trades were suspended for three days. The government nationalized all failed banks. Not sure if you remember, but the LIBOR (London Interbank Overnight Rate, the interest rate that banks charged each other for overnight loans) had risen to the astronomical height of (for some banks) 6% right after the Lehman collapse, since NONE of the banks were sure who had what on their books and were terrified of lending each other money and not getting paid back. Nobody wanted the counterparty risk. Interbank lending slowed to a trickle.

Feelings were running quite high, and Iceland was extremely sensitive to the word "terrorist" being anywhere near them.

More importantly, being charged under that bill mean that the UK could press other nations not to extend recapitalization loans to Iceland. The large lending institutions- IMF and the EU, and individual national banks, delayed ... and delayed .... emergency loans because the UK and the Nederlands vigorously blocked any third-party loan agreements.

Quote:
Last week, it seemed as though Iceland would quickly get the billions it needs from the International Monetary Fund and elsewhere. But nothing has turned up so far. A new EU promise may likewise be slow to materialize.

About the only thing Iceland hasn't tried in its efforts to quickly raise billions in much needed cash is to hold a bake sale. Every other strategy, it has become apparent in recent days, has either been tried or is under consideration. Nevertheless, even as both the International Monetary Fund and the European Union have expressed willingness to loan money to the island nation, precious little has actually materialized.

On Monday, the IMF again delayed a final decision on a $2.1 billion (€1.63 billion) emergency loan package for Iceland -- for the third time. The loan package got the initial go-ahead on Oct. 24, but according to the Icelandic daily Morgunbladid, citing Iceland Prime Minister Geir Haarde, the IMF wants more information on how much cash Iceland will be able to raise elsewhere. In addition, an official from the Finnish Finance Ministry, Ilkka Kajaste, likewise said on Tuesday that more information was necessary before the Nordic countries could sign on to the package, according to a report in the Wall Street Journal.

When asked about the delay by the Morgunbladid, Haarde said "we will manage for a while longer, but this is naturally not a good position." Of the IMF approval, he said "I hope it will take place as soon as possible."

But Haarde's isn't the only explanation for the delay in circulation, as he himself hinted at in his Monday comments. "I trust that nothing else is involved (in the delay)," he said according to a report in the English-language publication Iceland Review. "

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