Posted on 03/03/2014 5:02:44 PM PST by 1rudeboy
Russia's Micex stock index fell 11% on Monday and the ruble hit an all-time low after Vladimir Putin's weekend invasion of Ukraine's Crimea peninsula. The sour reaction suggests that investors understand that Mr. Putin's Achilles' heel is the Russian economy and its access to world financial markets, if the West has the wit and will to exploit it.
The conventional wisdom in the pundit class is that Russia holds the economic edge because of its natural gas supplies to Ukraine and much of Europe. But that supply is a double-edged sword because Russia needs the foreign-exchange earnings as much as Europe needs the gas. With enough stockpiles to get through the rest of the winter, Ukraine and Europe are also less subject to immediate energy blackmail.
More broadly, the Russian economy is no global tiger. Last year it grew 1.3% and the ruble has been among the currencies hit hardest by the flight away from emerging markets as the U.S. Federal Reserve tapers its bond purchases. Russia's central bank raised its benchmark interest rate to 7% from 5.5% on Monday to stop further flight.
Russia's economy continues to be largely an oil commodity play that has diversified little thanks to Mr. Putin's treatment of foreign and domestic investors. As in most authoritarian regimes, Russia's economy is top-heavy and built on favors for oligarchs who do what the Kremlin wants. Do otherwise and you end up in Siberia like Mikhail Khodorkovsky, or dead like anti-corruption lawyer Sergei Magnitsky.
No one knows this better than the Russians themselves, which is one reason they are so eager to negotiate a bilateral investment treaty with the U.S. They know most foreign investors won't come in without more protective rules. The U.S. should shut down these talks.
(Excerpt) Read more at online.wsj.com ...
Maybe we'll find out.
Russia buys European goods and Europe needs Russian Oil and gas.
The US was the largest economy in the world and had the highest per capita income among the major powers when the British pound was the world's reserve currency. Having the dollar as the reserve currency is a drag on the US economy, not a boon. It was after the dollar attained reserve currency status - after WWII - that the economic gap between the US and the world starting shrinking.
This doesn’t compute. Is Western Europe going to freeze in the dark so they can boycott Russia? I really don’t think so.
China could sell its US currency holdings and take the yuan to the moon, thereby tanking its exports. But they buy our debt because they can get in and out without losing too much money, due to the fact that the Treasury debt market is the largest debt market in the world. The advantage of Treasuries over gold is that the Treasury market dwarfs the gold market. To invest a few hundred billion dollars in the gold market would spike gold prices while buying, and crash them while selling because at $2000 per ounce, total annual world production of 4200 tonnes per year is valued at $300b, about the size of China's trade surplus with the US, compared with the $17T treasury debt market. It's as if an investor with $300b decides to invest all of that money in real estate that is currently valued at $300b - he pays a huge premium going in and gets a bad price getting out, because he is the market.
This doesn’t compute. Is Western Europe going to freeze in the dark so they can boycott Russia? I really don’t think so.
Putin turns of the power, Roman loses Chelsea. It isn’t difficult.
The real question is willlthe European elite forgo the Russian bribe checks so they can boycott Russia? The careerist power broker class in Europe is apparently even more rotten than the beltway crowd here. The German FM is ready to jet off to Sochi for the G8 meeting as Putin is invading his neighbor.
The attitude we are seeing is a flat out betrayal of eastern Europe and a green light for Putin to Finlandize and/or roll tanks over the entire FSU.
Western Europe can buy their gas or oil from anywhere in the world. Contracts don't mean anything. If they pony up a few extra % points, they can buy what they want. Do you really think oil-producing countries that routinely nationalize oil and gas fields will balk at tearing up existing supply contracts to divert fuel to Europe for a few dollars more per barrel or mcf?
The reason Russia's stock market tanked 12% is because domestic investors understand that the EU, with its $32K average per capita income, is relatively insensitive to fuel price increases whereas Russia ($13K per capita GDP), whose economy is roughly 50% or more oil and gas dependent will have issues dealing with fuel price decreases resulting from a Europe- or worldwide trade embargo. Russia will have to sell its oil and gas at cut rate prices to China and India, which were said to be offering a steep discount to the market price for Iranian oil, while sanctions were ongoing.
Ukraine has long been the breadbasket of Russia. That’s not new.
It has also been the site of Russia’s major warm water port, Sevastpol (sp), for about 3 centuries, iirc. (Odessa? the other?)
Control over those is probably more important to Putin than points on his stock market. As a Buckeye, I’ve always known Ohio to be an industrial state and a leading American industrial state. But the largest enterprise in Ohio has always been and remains agriculture. That always surprises me. Then again, people gotta eat.
Naive article.
Europe would not. Their governments would collapse within 30 days. All of them.
Europe can replace Russian oil and gas with coal, oil and gas from Europe and the middle east just as they had used for decades before the Russian pipelines.
“But the largest enterprise in Ohio has always been and remains agriculture. That always surprises me. Then again, people gotta eat.”
I don’t think so. In the 60’s we had NCR (national cash register , Dayton) Proctor and Gamble, cincinati, Hoover vacuum, Canton, Firestone, Goodyear and Goodrich all in Akron, Standard Oil of Ohio, cleveland, Marathon oil, Findlay, Toledo Scales, Toledo, Youngstown sheet and tube, Nationwide Insurance, Columbus, Cincinati Milacron (machine tools) and a lot of auto plants.
Even now, we have Wendys, columbus, Bob Evans, columbus, First Solar (toledo), Honda, Marysville, Worthington Industries, columbus (specialty steel), Limited Stores, Columbus which have replaced a lot of the old industries.
“Also, if we told China to go suck an egg on the debt they hold, what are they gonna do? “
They would do nothing, however, the world wide monetary system would cease to function as the settlements could no longer rely on any US debt to be valid. US money would become the same value as a white sheet of paper.
Good job of Photo-shopping. LOL
You’re way off.
Changing from Russian gas would require HUGE infrastructure costs.
Europe started using Russian gas in the 80's and has plenty of domestic coal reserves. As to infrastructure costs - it's something they would have had to eventually do in order to take advantage of far lower gas prices in the Americas, as well as reduce their exposure to disruptions due to Russian expansionism.
......one way to sock it to Russia and bring them to their knees would be to build the Keystone Pipeline from Alberta to Europe. At that point, all of Europe could tell the Russkies to go pound sand, or something worse!
From Central Alberta to Houston is 2,078 miles. From Central Alberta to the coast of Norway is 3,500 miles with the last 930 miles underwater.
Yes you would have to use Greenland and there are a lot of small bodies of water and the enviro wackos would go ballistic. But, this would NUKE Russia’s economy as effectively as a real bomb.
Let Canada pay for the portion in their territory and Greenlands. Let the Euro’s pay for the portion between Greenland and Norway (930 miles underwater).
If we had any balls and sense, we would push for the immediate passage of the Keystone Pipeline permits and ask Canada to sell it to Europe (already refined by our guys in Texas and elsewhere).
Now, who’s going to have the balls to stand up in Congress and say, “Do it now”?
The Germans now seem willing to accept Russian expansion into eastern europe in exchange for Russian gas. I am stunned by the timidity of the Germans. They are not stupid and have to know Putin won’t stop with Ukraine. They don’t seem to care.
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