Thursday, December 18, 2014

Some questions about Russia's economic crisis

There's been a lot of triumphalist gloating in our media of late about how our sanctions and oil-price-manipulation have got the Russian economy on the brink.

The usual anti-Putin pundits (pretty much the only ones we get to meet on CNN et al) are gleefully suggesting Putin prepare an exit plan.

On the other hand, there is plenty of evidence that the Russian economy is in far better shape, even with sanctions and $50 oil, than the US economy. There is no doubt that Russia can weather a sustained run of sub-$60 oil. The US fracking industry can't.

Long before Russia is crippled, the US fracking industry and the $500 billion in debt obligations tied to it will be ancient history. How that $500 billion write-off will effect the US economy remains to be seen.

Perhaps the prospect of that half-trillion $ default is one reason for the desperate lobbying by Citigroup and others to have Dodd-Frank emasculated. The big banks will have those toxic 500 billions repacked and sold off to one another in some form, and before you know, oopsie!... well what a surprise, the taxpayers are on the hook yet again!

Meanwhile, winter has descended on Europe, as it predictably does at this time of year, and Europe has very limited short and medium term options when it comes to replacing Russian gas. For the most part, they can't and they won't. That makes them half-hearted participants at best in the Washington-driven sanctions regime. Quite aside from their dependence on Russian gas, they must deal with the pressure of their own business communities who are saddled with substantial losses as a result of sanctions.

Obama imposes sanctions; France, Germany, Poland pay the price. How long do you suppose that's going to fly in Europe once sanctions start hurting European employment and economic well-being? While the more obsequious ass-kissers among the European leadership (Cameron, Tusk) make much noise about Putin, the reality is that European business leaders generally consider Russia a sound business partner.

Also overlooked in this recent euphoria is that Russian energy is sold to Europe in dollars. The much-ballyhooed "collapse" of the rouble this week was nothing of the sort. Instead, it was a short-term aberration driven by speculators, and even the most deep-pocketed and well-connected speculators will be unable to sustain it, at least not without having their potential losses underwritten by the US tax-payer or the US government's printing presses. So long as the dollars and euros keep pouring in from outside, it's inevitable that the rouble will rebound.

Short term, the Russian economy is taking some unwarranted bad press in the West, but that's hardly new. The usual suspects who have been salivating for regime change there probably see this as their last best chance.

Unfortunately for them, Putin's popularity in Russia seems to be holding up, and in the medium to longer term, the Russian economy is on much firmer ground than America's.

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