CNN: “Russia Headed for Crash.”

Russia, known for its long, hard winters, may be entering a very long, very hard one. (Photo by Elen Schurova)

Russia, known for its long, hard winters, may be entering a very long, very hard one. (Photo by Elen Schurova)

In the headlong rush toward the edge of the cliff at the end of the industrial age, Russia has suddenly pulled ahead by a nose(dive). The headline “Russia Headed for Crash” has appeared on the CNN Money website, although the news mavens in the Situation Room see no reason to go wall-to-wall with coverage when there are Cosby accusers to flush and another Bush is thinking about (!) running for president(!) in 20016! The lamestream media are trapped deep in the spurious narrative of the steely-eyed Putin resuming the Cold War as if it were 1950 and he were the Soviet Union, while Chinese tentacles slither across the globe projecting the power of the world’s largest (!) and weakest (!) and quite likely stupidest (!) economy.

The reality that is now rearing its ugly head in Russia has nothing to do with geopolitics and everything to do with food, personal safety, staying warm in winter, that kind of thing. It’s about what happens when governors place such a low priority on the welfare of the governed that they sacrifice it for things that seem to them more important — such as gaining  another country to run into the ground. History has not been kind to such megalomaniacs, nor will the present.

Russia is experiencing runaway inflation and a flight of capital that together are  destroying its currency. Russia’s wealth is its oil, which according to its own finance minister peaked this year and is now in decline, so it was already clear that the notion of Russia Resurgent was on shaky ground, long before Putin annexed Crimea and threatened Ukraine, thus clamping his economy under tough sanctions imposed by the West. Now his remaining national income has been cut nearly in half by the precipitous drop in oil prices.

Yesterday, the exchange rate for the Russian ruble fell below $60 US, about half its worth at the beginning of the year. The weaker the ruble, the harder it is to pay for imported goods and to repay foreign debts, and one result is an inflation rate that is on its way to 10% per year. High inflation means that necessities, such as bread and heating oil, are increasingly out of reach for the poor.

But wait, there’s more. Like most of the oil companies in the world, Roseneft, the Russian-owned oil company that brings in most of the country’s oil revenue, is up to its eyeballs in debt. It has avoided default because the Russian central bank keeps bailing it out with cheap, imaginary money — you know, like the Federal Reserve has been doing for America’s largest and richest corporations for five years or so.

Bailouts for the Too Big to Fail are one thing when renting money is virtually free, coming in the door at under one per cent per year. It’s quite another thing, however, when your desperate central bank has to increase interest rates to 17 per cent per year, as the Russians just did. That’s in addition to fire-hosing $90 billion into the economy to prop up the ruble and slow the flight of capital. High interest rates and hemorrhaging treasuries are the bad news; the worse news it, it’s not working.

Russia’s abrupt decline has made it the temporary leader in the race to destruction, but if your money’s on China unraveling first, don’t despair. Everything is getting worse, fast, there as well. And don’t count out America — the financial conflagration that is consuming the oil-fracking industry has spread to the junk — I’m sorry, I mean “high yield” — bond market and the smoke can be smelled now on the floor of the New York Stock Exchange.

Hang on to your bets. We’re coming into the stretch.

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10 Responses to CNN: “Russia Headed for Crash.”

  1. Tom says:

    Yeah, well if that was ‘America’s strategy’ it consisted of shooting ourselves in the leg in the process, and now we’re bleeding out too. Since the entire world is connected, especially economically, if Russia defaults there’ll be a LOT more dominos falling with them (like Europe for example, and Ukraine’s already there).
    Looks like 2015 is shaping up to becoming ‘interesting times.’

  2. It really disgusts me when an American bush-league Doomer such as yourself bathers on about Russia. You are certainly are not Dmitry Orlov:

  3. James Eberle says:

    Mr. Lewis.

    I wonder if you have any comment about how the drop in oil prices might affect Canada’s revenue stream? Canada gets a huge part of it’s revenue from the tar sands, and tar sands have an even higher break even price than oil produced by fracking in the Bakken and Eagle Ford plays.

    • Avery says:

      As he noted earlier this month, tar sands oil is currently being sold at something insane like $30 a gallon.

    • Tom Lewis says:

      Actually, it looks like tar sands tar (please don’t call it oil — it isn’t) is going to be hit harder, faster than fracked oil. It is more expensive, more energy intensive, and lower quality. And the impacts on living things of its extraction are even more hideous. So yes, Canada is going to take a hit, but how large it will loom in the context of the damage being inflicted by its neocon government is hard to say.

  4. hidflect says:

    Is this the same CNN that’s still shouting North Korea did that hacking? No credibility at all.

    • Tom Lewis says:

      What I heard them report was that the United States government concluded that North Korea was responsible. If that turns out to be not true, I don’t think it’s CNN’s credibility that suffers.

  5. SomeoneInAsia says:

    It’s just beyond tragic that the country that produced Tolstoy, Turgenev, Tchaikovsky, Rimsky-Korsakov, Dostoyevsky, Stravinsky, Prokofiev, Rachmaninov, Shostakovich and Solzhenitsyn should come to this.

    I’m emphatically NOT dreaming of a white Christmas.

  6. venuspluto67 says:

    At the very least, the ruble appears to be stabilizing in a pretty major way this week.