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.