Yes, they are. As I said previously, they are buying gold to prop up Russian gold producers . But at some point Russia runs out of foreign cash. Russia is quickly depleting its foreign cash reserves. So at some point in the near future, as I said previously, Russia will begin selling gold to raise cash and imposing capital controls to conserve cash.
And Russia continues to crumble, Russian are rushing out trying to buy anything and everything just to dump their rubles. MOSCOW — Despite the Russian central bank’s extraordinary move to defend the currency, the ruble’s value continued to slide on Tuesday, presenting President Vladimir V. Putin with an acute set of political and economic challenges. Scenes that Russians hoped had receded into the past reappeared on the streets. Currency exchange signs blinked ever-changing digits. Russians rushed to appliance stores to buy washing machines or televisions to unload rubles. Unsure of prices, car dealerships like Volvo in Russia halted business, while Apple stopped online sales in the country. After a middle-of-the night interest rate hike, a sense of economic chaos settled over the Russian capital. The ruble was in free fall, dropping under 80 rubles to the dollar, after opening the day at 64 to the dollar. Continue reading the main story “We are seeing an economic crisis,” Natalia V. Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.” The Russian central bank is now predicting a 4.7% recession next year. Just a few weeks ago the prediction was for flat growth. As I thought flat growth was overly optimistic, I think 4.7% economic contraction is still too optimistic. I am thinking double digit recession is in the cards for Putin's Russia. Russia's emergency overnight actions to stem the fall of the ruble have failed. The ruble is in free fall with no sign of a bottom in sight. Things are getting really nasty in Putin's mother Russia and they are going to get worse before they get better. I don't see Putin playing nice anytime soon. The guy values his ego too much. He has become a pariah and an international fool and for good reason. Unfortunately, it is the people of Russia who will pay the price for his profligacy, ego, and incompetence.
Checkmate: "The problem is Russia's already-weak economy needs lower interest rates to push up growth, but Russia's companies need higher interest rates to push up the ruble. Those big corporations, you see, borrowed a lot of money in dollars, so the plummeting ruble makes their debts harder to pay off. That's why Russia's central bank jacked up interest rates from 10.5 to 17 percent at an emergency 1 a.m. meeting Monday night. Higher interest rates should, in theory, make Russian households and businesses more likely to hold their money in rubles that will pay them a lot than in, say, dollars that won't. That failed. After a brief rally, the ruble resumed its free falling ways on Tuesday, reaching a low of 80 rubles per dollars, before finishing at around 68. In all, the ruble was down around 4 percent on the day despite the financial shock-and-awe from the big rate hike. The real story here is oil: it fell, so the ruble did too. The even worse news, though, is that Russia has gone from not having an economy and 10.5 percent interest rates to not having an economy and 17 percent interest rates. That should be enough to turn its recession into a full-on depression — and make all of this self-defeating. Think about it this way: Russia's central banks already says its economy will shrink 4.5 to 4.7 percent next year — about as much as the U.S. did in 2008 — if oil stays at $60-a-barrel. But now that interest rates are sky-high, nobody's going to want to borrow, either. The economy, in other words, is going to crater as households hunker down and just try to survive the double-digit inflation that the crashing ruble will bring. That brings us to the economic catch-22. Remember, the point of raising rates was to prop up the ruble so Russian companies wouldn't default on their dollar debts. But sacrificing the Russian economy to try to save the Russian currency means that those companies will lose their customers, and default anyways. This cycle of doom means even fewer dollars will come into Russia, and there'll be even less demand for rubles — and its price will start falling again. So it doesn't matter whether Russia raises rates to defend the ruble or not. It will keep declining, and the economy will keep collapsing. This is typically where someone says the word "checkmate." What, as a certain Russian leader said, is to be done? Well, if Russia were any other emerging market country, it'd be begging banks for an emergency loan to inject dollars into its economy, and, hopefully, restore confidence. Failing that, it'd go the IMF for a bailout. Russia, though, isn't any other emerging market country. It's an international pariah. Western sanctions over its incursion into Ukraine mean that Russia can't get money from overseas banks. And even if it's not persona non grata with the IMF, Vladimir Putin probably isn't willing to put up with whatever conditions — like not invading his neighbors — they would put on any aid. There's one way, and only one way, that this ends: with capital controls. Or, in plain English, by making it illegal for people or companies to turn their rubles into foreign currency. That would get rid of the selling pressure, and let the ruble settle at a new, lower equilibrium. Putin, though, is loath to use capital controls, because his political base—the oligarchs—wants to move their money abroad, whether that's to their London or New York hideouts. But Putin might not have a choice before long. Russia, you see, can't afford to worry about its crashing economy making it go broke. It has to worry about the crashing price of oil making it go broke right away. Or, even worse, the crashing confidence in the ruble making all of this moot. Money, after all, only has value as long as we think it does. If ordinary people decide that they'd rather turn all their rubles that are rapidly losing value into things that won't—like cars, Ikea furniture, and Apple products—then the ruble will die even faster. It's a bank run on the currency. And that's exactly what's happening: Russians are using any rubles they can't turn into dollars to go on shopping sprees. That, along with the ruble's rapid collapse, is why Apple has suspended online sales in Russia for now. http://www.washingtonpost.com/blogs...putin-russias-economy-is-stuck-in-a-catch-22/
After "checkmate" one often hears "game over." How wide that game ending will be come is unknown at present: The Brazilian Real is at a more than 5 year low. Unfortunately, I have already converted the dollars I brought from last visit to USA.
Actually, it is more like 90 billion dollars Russia has spent defending the ruble. "Russia's central bank has not only been raising interest rates, but has spent nearly $90 billion trying to defend the ruble and prevent prices spiraling out of control." http://money.cnn.com/2014/12/15/investing/russia-ruble-economy-crash/ It didn't work, that is why they recently raised the primary interest rate to 17% and even that is not stemming the decline in the ruble. As I said before, I expect Russia will likely resort to capital controls and selling its gold reserves. Short of capitulation to the West, it really doesn't have any choice in the matter. And I don't see Putin capitulating anytime soon. It goes against the strong man image he has so carefully created...you know all the pictures with lions tigers and bears. What remains to be seen is how far Putin's fellow oligarchs will let this go. Putin's oligarchs don't want to keep their wealth in Mother Russia where it can be confiscated on a whim or where rampant inflation will grossly devalue it. Capital controls will not be popular with Russian oligarchs. But from Putin's point of view, Putin doesn't have any good alternatives. A rational honest ruler would remove Putin's vacationing troops and the Russian equipment they took with them on vacation from neighboring countries (e.g. Ukraine and Georgia) and renounce his annexation of Crimea.
That would kill him either politically or literally. Arguably their would be worse things that can happen. Considering theirs probably some backroom talks with the west that aren't going so well considering they are proposing new sanctions. then theirs the oil prices that are still predicted to go down
Russian President Vladimir Putin held his annual end-of-year news conference on Thursday ( a few hours ago). Below is an interesting extract of the news conference. There are many more at the link. In contrast, the US expects to need more debt to balance its 1.1 Trillion dollars spending in next FY, which should be no problem to borrow, if China does not decide to replace significantly the dollar as the reserve currency via gold back RMB bonds, paying higher interest than US can afford. That could make the dollar and the rouble both rubble and triple the price of gold in a week. China is not only the world's largest economy, lagest producer of gold but also has world's largest reserves at > 3.2 Trillion dollars (gold included at much less than China actually has). Japan is #2 with 1.3 trillion. Russia is #4 with 498.6 billion.* The US is #18 with 148 billion (4.5% of China's reserves) See data (quantities and graphical) on most countries here: http://www.indexmundi.com/g/r.aspx?v=144 Even Brazil has more than twice the US's reserves (gold included in all data at above site). Reserves are not an indication of economic strength - they only tell how well a country can weather a sever "economic storm." * Probably at least 10 billion less now, but Russia is also a large producer (#2 or 3) and buyer of gold. Both Russia and China would like to see the price of gold much higher. China's yuan has been growing stronger wrt the dollar. Was 7.6 until 1 Nov 2010, but now only 6.2 Yuan required to buy a dollar. (A 23% gain on the dollar and increasingly used in world trade.) More on Russian leader's POV here: http://www.chinadaily.com.cn/world/2014-12/18/content_19112592.htm Finance minister, Putin, & CEOs of main companies met yesterday for discussion of the Rouble's troubles.
Putin is still blaming everyone and everything other than himself for his woes and he doubled down yesterday in annual press conference. Putin is still spouting the paranoia crap. “They will always try to chain it,” Putin said, likening Russia to a bear protecting its territory. “As soon as they chain it, they’ll rip out its teeth and claws.” Putin thinks this will be over in two years and he can survive. That clearly says he has no intention of retreating anytime soon. So the worst is not over for Mother Russia. If Putin is still in power in a few years, Russia’s condition will not improve. It looks like a long downhill slide for the Russian economy. It is very clear Putin hasn’t touched base with reality for a very long time. http://www.bloomberg.com/news/2014-12-18/putin-says-central-bank-shouldn-t-use-reserves-to-protect-ruble.html Here is another interesting observation. Putin’s aggression is correlated with his aggression. As Russian reserves have swollen, so has Putin’s aggression. He seems to think he can afford his aggression. I think he has a lesson coming, one that he will not like. Russia’s reserves are shrinking faster than he anticipated and he needs more than bluster to fill his bank accounts. http://www.bloomberg.com/news/2014-...bet-on-ukraine-backfires-in-ruble-crisis.html
Please Register or Log in to view the hidden image! Chinese Premier Li Keqiang, left, & Russian Prime Minister Dmitry It looks to me as if the Russia / China relationship (weak to financially strong) may be evolving to be like than of Israel / US's relationship. The big strong guy backing up the weak one* with hostile enemies around it. Thus, I don't expect Russia (or even 80+% popular Putin) to go down for the count. * "weak" except for nuclear weapons, in both cases.
Except there is no indication of that, China is acting solely in China's interests. China is being opportunistic and advantaging itself at Russia's expense. China has no interest in subsidizing Putin as the US does with Israel, and Putin's ego wouldn't let him take Chinese weapons. We have not seen, nor will we see the Chinese central bank running to Putin's rescue. So your analogy is a little off. This is the other part of the article you referenced: "Putin gave no indication yesterday he was entertaining the idea of asking for Chinese help. In an annual press conference, he warned that his nation’s economic slump could drag on for two years. Blaming the U.S. and Europe for the crisis, he advised his central bank not to spend shrinking currency reserves to protect the ruble, which has plunged 32 percent in the past two months against the dollar." http://www.bloomberg.com/news/2014-...-offer-for-crisis-hit-russia-.html?cmpid=yhoo Putin in his annual interview, said the next two years will be rough but prognosticated Russia will endure and survive. Putin said the economy would be flat. That doesn't sound like he expects a Chinese bailout anytime soon. But his central bank predicted a 5 percent contraction next year - big difference. Putin has shown no interest in backtracking on aggression toward neighboring states. It will be interesting to see if in a year he still holding to that position. One thing is certain as certain can be, things are going to get much worse for Russians before they get better - if they get better. Russia has already spent almost a 100 billion dollars without success to prop up the ruble. It will take perhaps a trillion or more to provide the kind of aid Russia needs to prop up the ruble. To you really think China is willing to giveaway a third of its foreign currency reserves to prop up Putin's regime just so Chinese leadership can feel like the big man on campus?
Russia is bailing out her banks. "Russia is facing a “full-blown economic crisis”, a former finance minister has warned, as the country is forced to take emergency financial measures. The economy has been battered by a wave of sanctions as a result of tensions over Ukraine, geopolitical uncertainty, and falling oil prices. Alexei Kudrin, a former finance minister and once considered an ally of President Vladimir Putin, said: “Today I can say that we have entered or are currently entering a full-blown economic crisis. Next year we will feel it in full force.” Analysts have warned that the Russian economy will not improve in the long-term unless either the oil price or relations over Ukraine improve. Speaking at a press conference in Moscow, Mr Kudrin went on to say: “As for what the President and government must do now, the most important factor is the normalisation of Russia’s relations with its business partners, above all in Europe, the US" http://www.telegraph.co.uk/finance/...economy-faces-full-blown-economic-crisis.html
If China were to help Putin bypass sanctions, that would simply leave us with no choice but to include China's banks in those sanctions too (in my opinion, fascist China should never have received access to western banking systems in the first place and shouldn't have it now, but that's another issue). Were it to come to such a choice, China has far more at stake in maintaining its trade relationships with the west than it does in helping out a megalomaniac next door who poses plenty of his own problems as a neighbour. There's also that whole elephant in the room about Russia's oil wealth largely coming from territories it stole from China in the first place, territories they still want eventually returned. Regarding Russia's other options, they simply don't have any. They can either capitulate to the west and accept a minor downturn, or they can defy the west and continue fighting a full-blown depression, making it even worse with every attempt.
I'm not much of a history expert, but I think it went the other way. I. e. The USSR entered the Asian part of WWII just before it ended, so it too could take parts of China. I may be wrong - if so, please correct me with references. Not a good idea, imo, as US spent more than two decades loading China's supper canon - If it fires it (sell fraction of its US Treasury paper), the dollar is toast. China does not want to do that - prefers current path: Now world's largest economy, largest producer of gold, largest buyer of gold, Yuan growing stronger wrt dollar and used as increasing fraction of world trade, now for first time a net exporter of capital (FDI)* ... When ready, China will back its bonds with gold in small volume intitially and only for central banks and the IMF. They are already reducing the fraction of reserves held in dollars and gold back Chinese bonds paying higher interest rate than deep-in-debt US can afford will accelerate that trend - about a dozen years ago ~ 90% of international reserves were in dollar but now that has dropped down about 30% to ~62%. China uses the "Put lobster into cold water on the stove, not boiling water" approach. - Lots of tiny steps to make the RMB the preferred reserve currency. Don't force them to switch to the "Drop lobster US into boiling water" approach. - Not a good idea. * I. e. China's banks don't need US - the world needs China to buy it growing fiat debts and finance new infrastructure projects - like high speed trains, etc.
Relative to post 94, I searched a little. It seems most of the land China lost to Russia was during the "opium war" and WWII only got China to cease claiming it. Please Register or Log in to view the hidden image!Why this will not post? See it here: http://en.wikipedia.org/wiki/File:Manchuria.png Note that now China must go thru N. Korea or Russia to get to the Sea of Japan they once controlled.
Putin implements price controls on the nation's most important product... vodka. Putin knows he has to keep the vodka flowing if he wants to keep Russians happy. http://www.independent.co.uk/news/w...-russian-economic-crisis-deepens-9944869.html
Standard & Poors says it could downgrade Russian debt to junk next month. http://m.huffpost.com/us/entry/6383064
When Putin began his exploits in Ukraine, he anticipated he would suffer sanctions, and he thought he could weather the resulting sanctions for two years. Well, it looks like Putin was far too optimistic. Russian cash reserves are falling almost as fast as a lead ball. There is a very real possibility we could see Russian companies default this year. If the current situation persists, Putin will not be able to last the 2 years he initially anticipated Ukraine would cost him. http://www.telegraph.co.uk/finance/...ish-and-derivates-flash-default-warnings.html
Well that didn't take long, we are only 10 days into the new year an Fitch has already issued another downgrade of Russian debt with a negative outlook, meaning more downgrades are likely. "Fitch has downgraded Russia's credit rating and painted a horrific picture of a struggling economy rocked by a collapsing rouble, falling oil prices, high inflation and declining international reserves. The ratings agency cut the country to BBB- from BBB with a negative outlook, meaning further downgrades are possible. But it was the language Fitch used in its reasoning that was most shocking. Russia's economic outlook "has deteriorated significantly" in just six months, Fitch stated. Gross Domestic Product will shrink 4pc this year, the agency added, far worse than the 1.5pc contraction it previously expected. "Growth may not return until 2017," Fitch said. Western sanctions, imposed after President Vladimir Putin's took Russia into neighboring Ukraine, "continue to weigh on the economy" but the plunging oil price is causing just as much, if not more, damage to one of the world's energy giants. " http://www.telegraph.co.uk/finance/...ignificantly-as-Fitch-cuts-credit-rating.html http://www.cnbc.com/id/102292450 I think the 70 dollar oil Fitch expects is optimistic. Oil is now selling in the low 50's and I wouldn't be surprised to see oil bottom out at around 30 dollars per barrel around April when oil refineries shut down for their annual maintenance. Worse is yet to come for the Russian economy. Putin isn't the only one who has consistently underestimated Russia's economic woes. There is a lot of wishful thinking going on inside and outside of Russia. The situation in Russia is dire and it will do nothing but worsen over time. The Russian economy is in a death spiral. It desperately needs cash and to raise cash, it needs to sell more oil, further adding to the global oil glut and driving down oil prices even further.
