The free market triumphs again 5

This is from an editorial at Investor’s Business Daily:

As Russia’s ruble plunges, its economy is fast melting down. …

Russia’s central bank raised official interest rates to 17% from 10.5% in a bid to halt the ruble’s stunning plunge, the largest since 1998’s ruble crisis. But on Tuesday, even that desperate rate-hike move failed, as the ruble continued to dive another 4%.

Next up, in all probability, will be capital controls. Putin might even confiscate citizens’ savings by forcing them to swap dollar-based savings accounts for debased ruble ones. This kind of shabby thievery has been done before, but mostly by Latin American dictators. …

How could Russia’s economy go into meltdown mode so fast? …

The major reason for Russia’s implosion is the decline in oil prices. The country relies on selling oil to earn dollars, and the more than 30% drop in oil prices has hit the economy and the currency hard.

A recent estimate by Russia’s Finance Ministry says oil has to average about $117 a barrel for the government to balance its budget. At a current oil price under $60 a barrel, Russia is a fiscal disaster.

The U.S. fracking revolution is a big reason for this. America now puts out more than 9 million barrels of oil a day — up from 7 million barrels just two years ago.

The oil and natural gas fracking boom is happening on private and states’ lands – against the will and the policy of the Obama administration.

As crude prices have declined, oil producers from Venezuela to Saudi Arabia to Iran have felt extraordinary economic pain. Now Russia’s feeling it too, and with political turmoil growing, Russian and foreign investors are leaving the country in droves — and taking their hard currency with them. …

Capital flight is a disaster for the ruble, and is likely to set off double-digit inflation soon.

Interest rates may have to go even higher to stave off a total ruble collapse – 20%? 25%? 30%? No one knows.

But higher rates, soaring inflation, a 60% decline in the stock market and reduced oil revenues mean 2015 is likely to be a nasty year for Russia’s caving economy. …

“Putin’s consistent policy of increasing state economic control may well be leading Russia on the path to stagnation and economic decline,” according to a report issued by the Heritage Foundation in September. …

[Russia’s] reliance on oil exports, the trigger for this crisis, is an obvious one. … Russia also faces a shocking demographic decline — its population is actually shrinking, and it has the odious distinction of being the only industrialized nation in which the average life span is falling. … Russians with skills and schooling are leaving in large numbers, a brain drain. A 2013 survey found 45% of university students wanted to leave the country and live permanently outside the former USSR. What’s left to run Russia’s enfeebled economy is a shrinking, unproductive remnant.

Russia should try a free market economy. It is the only way to prosperity. And then we could have peaceful trading relations with Russia at last. But Russia is very unlikely to do that. The Russian people have never known freedom under the rule of law. They have never wanted it. They get the governments they deserve.

  • Don L

    Schadenfreude! Yes, hearing of Putin’s Russian economic misery is good news. Yet, before the cork is popped on the sparkling vino, buy gold!

    The FOMC (FED Open Market Committee), it was anounced that it would hold interest rates at zero (c’mon think about that lunacy) for another 6 months. The market shotup 400 points. Where Schadenfreude fits Russia, the axiom “there are none so blind as those who will not see” fits America and the West.

    Just stop and consider: the trillions of dollars (the savings, investments, incomes, hopes & wishes) in economies across the planet are all subject to the whim and will of some ecto-constitutional, private. politically-influenced, plunder-driven (profits are earned) secretive committee and/or Chairmwoman of the FED. Words are spoken and the world crashes, spasms or resumes….this is not market stability. This is, and has been, the world always on the precipise of doom.

    Monetary manipulation of FIAT currency can bring any nation or Union (as the USA is) to it’s knees at any given moment…by merely uttering the wrong words!!! The dollar has value only so long as it is BELIEVED to have value. It in actually has no value except faith. The faith has been lost in the ruble more than just lower oil costs. And, economies around the world are retracting…demand for oil is falling (did I miss that point in the article? More socialism failing than free enterprise winning to be accurate.)

    HAVE NO DOUBT…continued FED borrowing (which inflates the currency), government expansion by FED loans (inflates the currency) and continued FED ‘easing’ (printing more money inflates the currency) will result in an economic crash. The dollar is worth 99% less than when the FED took over. It is about to become worthless and all will know…faith lost. (Ah, factually, rising prices are a symptom of inflation. Inflaction is the expansion of the currency…more currency chasing the same or fewer goods.)

    The moment the FED raises it’s funds rate…the crash will begin as the interest payments will be beyond belief. Notice the market drops as the a rise in funds rate was merely a possibility. Again, economic stability?

    Planned economies, like the USA is today, Central bank monetary manipulations and FIAT money….whether Russia or the USA…it is the formula for a crash and the “kick-the-can” delaying tactics are running out.
    Merry Kristmas…Happy New Year, buy gold and END the FED!

  • I hate the Left

    How anyone could feel anything other than joy at the shale revolution going on in North America right now is beyond me. Well done to the American industrialists and capitalists who are responsible for this, you have my admiration.

  • REALBEING

    “Putin’s consistent policy of increasing state economic control may well be
    leading Russia on the path to stagnation and economic decline,” according to a report issued by the Heritage Foundation in September. …

    Well, Washington D.C. …………better take notice of this!!

    • liz

      Fracking is a big reason for this, so what does Obama want to do?
      Ban fracking, of course! I guess he wants to compete with Putin for “socialist with the most stagnant economy” award.

      • REALBEING

        The man is an open book on this sort of thing. Right now, the only thing on his mind is Hawaii and the beach. I just wish he’d stay there………..incommunicado!