Putin Took Credit for the Boom. Now There’s a Bust.

As noted many times, Russia has been plagued throughout the centuries with a curse: failed leaders who have put personal ambition and/or ideology ahead of the best interests of the Russian people.  This curse continues to persist under Vladimir Putin who sees himself as a new tsar and who, with his cronies, has raped the Russian economy of assets.   Now, with oil prices falling and economic sanctions for his illegal invasions of Crimea and parts of Ukraine also taking a toll, the question is whether or not the Russian people will rightly blame Putin's years of mismanagement for their plight.  The answer to this question is still out, but some Russians seem to be finally opening their eyes and not being duped by Putin's foreign adventures and anti-gay efforts that were always meant to be a distraction from his failed leadership on the economic front.  Here are highlights from a piece in the New York Times:

Today, the economic troubles that Mr. Putin came here to make a big show of solving are back, only worse and involving far more intractable problems than just the “trivial greed” of tycoons that Mr. Putin blamed for Pikalevo’s tumult in 2009.

Pikalevo, about three hours east of St. Petersburg, and the rest of Russia are now mired in the country’s longest recession since Mr. Putin came to power at the end of 1999, with the World Bank warning last month that the nation’s poverty rate would increase this year to 14.2 percent of the population, “undoing nearly a decade’s worth of gains.”

Russia’s current crisis, though largely caused by market forces beyond the Kremlin’s control, notably a slump in the prices of oil and gas, has pushed Mr. Putin into a corner. After years of taking credit for a booming economy, which also had little to do with his actions, and casting himself as a can-do leader capable of untying the toughest economic and political knots, he faces a crisis that has exposed the stark limits of his power and prowess.

A recent rebound in oil prices has lifted hopes in the Kremlin that the worst of Russia’s economic storm has passed, but it has also highlighted just how much Mr. Putin’s fortunes depend on unpredictable and uncontrollable outside forces like the energy market or the economic sanctions imposed by Europe and the United States.

[T]hroughout his 16 years in power, whether as president or prime minister, Mr. Putin has presented an image of an omniscient and omnipresent leader interested in and capable of addressing his country’s most microscopic concerns.

[C]ost-cutting maneuvers, which keep workers off the unemployment register but in some cases reduce their income to almost nothing, are increasingly popular with Russian businesses hit hard by the downturn. But they are deeply unpopular with a population that had grown accustomed to rising salaries under Mr. Putin.

The downturn seems to be taking a toll on Mr. Putin’s standing, or at least on faith in his policies, as Russians’ fascination and delight with his foreign ventures wanes and pocketbook issues increasingly dominate public worries. Around half of those polled this year by the independent Levada Center said they thought Russia was moving in the “right direction,” compared with 64 percent last summer.

[T]he Kremlin’s current nightmare: With low global energy prices and Western sanctions over the Ukraine conflict crimping Russia’s prospects of recovery, the economy has hit a wall. It simply cannot compete with China, the United States or even the European nations that Russian state media constantly portray as fading has-beens. The easy and popular fixes the Kremlin used in the past to resuscitate the economy — or at least to placate the public — have all been exhausted.

There are few signs, however, that Russians will take to the streets in protest or flock to the banner of a divided and feeble opposition. 

Russian Anxiety Rises as Oil Prices Collapse

Vladimir Putin pictures himself as Russia's new Tsar yet seemingly hasn't learned the lessons of what happened to the real tsars at times when the economy went to hell and foreign wars no longer distract the populous from the inept management of the country.  With the price of oil having plunged further this past week, Russia's oil revenue based government budget is seeing huge deficits and the Russian people are seeing benefits and services slashed.  In the past when the ruling regime has not been able to continue to meet expectations of improving living standards, governments, both tsarist and communist have fallen.  The New York Times looks at the situation which one can only hope may hasten Putin's rule.   As has been the case too often over the centuries, the Russian people have been betrayed by a failed leader who has plunder the country along with his cronies.  Here are article highlights:    

The global collapse in oil prices is reordering economic relations around the world, but the change is particularly daunting for Russia, which relies on energy exports for 50 percent of its federal budget.

In December, President Vladimir V. Putin told the nation that the worst of the recession — the economy shrank 3.9 percent and inflation hit 12.9 percent in 2015 — was over and that modest growth would return in 2016. He has been pushing the oil collapse as an “opportunity” that will wean Russia off energy imports and diversify the economy.

Then in January oil fell below $30 per barrel, with no bottom in sight, and the ruble hit a record low of nearly 85 to the dollar before recovering slightly.

The last time oil prices dropped so low and stayed there, in the 1980s, the Soviet Union disintegrated. Steadily rising prices since 2000 have lifted Russia out of poverty and economic chaos, buoying the prosperity of many Russians with it. Mr. Putin was lucky enough to be president for much of that period, but he now faces an extended decline, with real incomes shrinking.

With the federal budget approved in December based on oil at $50 a barrel, Anton Siluanov, the finance minister, announced that the country faced a budget deficit of about $40 billion, and ministries were ordered to cut spending 10 percent. Budgets were similarly guillotined last year.

Food prices rose 20 percent last year, according to official statistics, but often Russians say their grocery tab is up by a third or more, thanks in part to sanctions Moscow slapped on Western food imports in retaliation for sanctions the West imposed over Ukraine.

“Nobody is starving yet, but incomes are definitely down,” he said, noting that homes are colder, that neighbors turn on just two lamps after dark where they once used five and that people have stopped buying new clothes. Retail sales across Russia were down by 13.1 percent for the year ending in November, according to official statistics, with car sales off nearly 40 percent.

Albeit poorer, Russia remains a petro state, so there are pockets of plenty. Rolls-Royce reported a 5 percent jump in sales last year, the rich splurging as the value of their assets nose-dived.

Others just seemed oblivious. Moscow’s City Hall advertised for tenders for its banquets, noting that menu items should include foie gras and Parma ham (which is banned elsewhere in Russia because of sanctions).

 Social media erupted in mocking resentment. One Russian quoted a famous line by the Russian poet Vladimir Mayakovski from the 1917 revolution, “Eat pineapples, munch your grouse!” and left unstated the second line, “Your last day is coming, bourgeois!”

Russian involvement in wars in Ukraine and Syria has swelled the general whirlpool of anxiety, with the possibility of a global war discussed on state-run television. Some analysts accuse the Kremlin of deliberately seeking overseas adventures to distract people from domestic economic woes.

Some residents, like Mr. Titov, groused that the wealth was being wasted on prestige projects rather than helping ordinary people. Still, he does not expect Russians to sour on Mr. Putin any time soon. In nearby Sochi, Russia spent around $50 billion to host the 2014 Winter Olympics, and a similar construction juggernaut is building stadiums nationwide for the 2018 World Cup.

“The Russian people got what they wanted, a czar ruling the country,” he said of Mr. Putin. “What we need is an effective manager, but what we got is the Olympics, soccer and war.”

In 1913 the Romanov dynasty lavishly celebrated its three hundredth - four years later the dynasty was overthrown.  Is Mr. Putin paying attention or is he too busy envisioning himself as a combination of Napoleon and Hitler?

Putin’s Self-Destructing Economy

Vladimir Putin has sought to distract the Russian populace from the economic misrule of his regime through the Sochi Olympics and various international adventures and, of course, scapegoating gays and pandering to the fossilized leadership of the Russian Orthodox Church.  Meanwhile, the Russian economy has festered and the downturn in oil prices has dealt a further blow to the already struggling Russian economy.  Like so many times in the past, Russia's people are being betrayed by failed national leadership.  Putin likes to see himself as Russia's new Tsar, but seems to have learned nothing from the fall of those he seeks to emulate.  A column in the Washington Post looks at the dismal state of affairs.  Here are highlights:

A little more than a year after “Black Tuesday,” when the ruble lost a quarter of its value in a day, the state of the Russian economy is still uncertain. During the past 12 months, gross domestic product declined 3.9 percent, less than many analysts anticipated a year ago, and the government managed to get inflation below 13 percent. But early official forecasts promising a return to growth by the third quarter of 2015 went unrealized, and subsequent projections of growth resuming later this year also look unrealistic.

Both the international financial institutions and Russia’s economic ministry now agree that the economy will not grow in 2016; . . . Nonetheless, the current consensus is that the economy will resume expanding in 2017. If that indeed happens, one may say that the whole thing was another ordinary economic downturn caused by falling oil prices and Western sanctions. But if growth doesn’t return, then what?

The Russian economy suffers from both the effects of diminishing oil revenue and growing bureaucratic pressure, not to mention the country’s paranoid foreign policy.

Assessing the Russian economy since the early 2000s, one can see two distinct periods. The first runs from 2000 to 2007, when the economy grew by about 7 percent a year, the RTS stock market shot up and average incomes more than tripled. Taxes were lowered and international cooperation increased. Russia rose.

But then came the second period, which now can be called a standstill. Between 2008 and 2015, average annual growth has been close to zero; capital flight has accelerated; foreign investors have been sidelined; the business climate has deteriorated; and dozens of taxes have been newly introduced or increased. Military expenditures doubled as President Vladi­mir Putin launched military operations in Georgia, Ukraine and Syria, and he appears to have completely shifted his interest from economic matters to the geopolitical sphere.

[W]ith the Russian economy now totally subjugated to politics, and the latter becoming more illiberal, there is little hope for recovery, even if sanctions are lifted and oil prices return to more normal levels. Russia has weathered crises before, but neither in 1998 nor in 2008 did so many foreign companies abandon their investments. 

In the past year, more than 20 Western corporations, including Opel, Adobe Systems and Stockmann, have terminated their Russian businesses; around 30 production facilities owned by foreigners have been closed. Net emigration from Russia rose from 35,000 people a year from 2008 to 2010 to more than 400,000, by preliminary estimates, in 2015.

The main reason for this is that in the 1990s and early 2000s, Russia — however chaotic it might have seemed — was a country of hope, and investors were attracted to dynamic and improving domestic conditions. That changed after 2012. Now it is a territory of disillusionment.  

If growth does not resume, it could mean the country has entered a time of economic self-destruction that might mark the third phase of Putin’s reign.  

Valdimir Putin's Insane Jihad Againt "Illegal" Imported Food and Goods

With oil prices plummeting and economic sanctions in place due to Russia unlawful annexation of the Crimea and unofficial invasion of Ukraine, Russia's economy is headed towards potential collapse and consumers are facing a possible return to a consumer market akin to that of the bad old days of the Communist era.  One of Putin's retaliation against European countries that have applied sanctions against Russia for its Nazi regime like behavior is to ban the import of various meats, cheeses, fruits and food stuffs form nations imposing and/or supporting sanctions against Russia.  Now, both the government and self-styled vigilantes are penalizing those who have continued to purchase and consume such foreign foods.  With all of the huge problems that face Russia, one would think that Putin would have larger worries to dwell upon.  Cynics - or perhaps they are realists - believe there is a method to Putin's madness: he is preparing the Russian public for the harsh austerity that is looming in the future in no small part due to Putin's own mismanagement. A piece in The Atlantic looks at Putin's outwardly insane behavior.  Here are highlights:

Russia’s Federal Customs Service has drafted legislation classifying banned foreign foods as “strategically important.” Until now, that label only applied to weapons, explosives, poisons, and radioactive materials.

If it becomes law, the new classification will mean those caught importing banned fruits, vegetables, meat, and poultry can face up to seven years in prison. French cheese is apparently now just as dangerous to the security of the state as plutonium, uranium, assault weapons, and dirty bombs.

And speaking of cheese, the Interior Ministry this week released footage of a bust of what it called a “major cheese-smuggling ring.” Some 470 tons of forbidden cheese was found and six members of the alleged cheese mafia were arrested.

And why stop with food? The head of the Russian Association of Textile Manufacturers says contraband foreign clothing should also be destroyed. Russian authorities have also begun removing household products manufactured by Colgate-Palmolive, Procter & Gamble, and other leading Western companies from stores, claiming health risks.

It’s hard to wrap your head around all this craziness. At first glance, the Kremlin’s jihad against all things Western looks like the post-imperial temper tantrum of a regime that is truly losing the plot. And perhaps it is. Russia’s leaders want their empire back, dammit, and if they can’t have it they’re going to smash their dinner plate on the floor and trash their room.

“All the falling regimes share an interesting pattern. Before a fall they start acting crazy, they are struck by the epidemic of mass idiocy,” political analyst Valery Solovei wrote on Facebook.

Or perhaps there is a method to the madness. Perhaps Putin’s Kremlin is preparing society for what is coming in an era of low oil prices, a weak ruble, sanctions, and a long-term confrontation with the West. Consider it reverse shock therapy. 

[T]he director of the Moscow-based Center for Post-Industrial Studies, wrote that the Russian economy was heading for an era of austerity and autarky, with thousands of private businesses going under and the state sector expanding.

“The real consequence will be Russia’s retreat from the global market and its economy’s transformation into one which is much more closed,” Inozemtsev wrote. “This way leads us towards a quasi-Soviet economy detached from the world and, at the same time, proud of its autarky; towards a deteriorating economy which compensates for the drop in living standards with pervasive propaganda.”

How long the regime can remain stable, to a degree, depends on people like Nikolai the food snitch and Polyakov the food vigilante. It depends on how long patriotic fervor can keep the population supportive with patriotic appeals as living standards plummet. But much of it also depends on how long the elites—who have become accustomed to their comfortable globalized lives—remain cohesive.

We should soon learn whether we are witnessing the death throes of the Putin regime or the birth of a new fortress Russia.

Putin's one misjudgment may be that he has forgotten that Russia's inferior standards of living compared to the West and the Communist police state led to the fall of the Communist regime.  Ironically, Putin is reinstating the exact situation that led to the downfall of the system he so reveres.  The tsars learned to their chagrin that calls for patriotism only go so far when standards of living are falling and oppressive government control is riding.  I know that Putin sees himself as Russia's new tsar, but does he really want to emulate the policies of Tsar Nicholas II (who had good intentions compared to Putin)? 

Oil Price Drops Raise Fears of Unrest From Venezuela to Iraq to Russia

For years - actually decades - oil producing countries (think OPEC) have played a game of economic blackmail on non-oil producing nations, worked to keep oil prices high and enjoyed power and influence that under any other standard they did not deserve.  The side effect that they seemingly never thought through was that over time, such blackmail (i) made exploration and production feasible in places it had never existed, (ii) made secondary and tertiary recovery economically practicable, and (iii) made alternate fuels attractive and more competitive.  The end result has been more worldwide production and falling oil prices - and revenues that have often propped up failed regimes.  As a piece in the New York Times notes, the chickens could be about to come home to roost as falling prices are setting the stage for possible political unrest.  Here are article excerpts:

Oil, the lifeblood of many countries that produce and sell it, appears to be rapidly turning into an ever-cheaper economic curse.

A year ago, the international price per barrel of oil was about $103. By Monday, the price was about $42, roughly 6 percent lower than on Friday.

In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics are growing threats, a new source of instability erupted this month with violent protests over the government’s failure to provide reliable electricity and explain what has been done with all the promised petroleum money. 

In Russia, a leading oil producer, consumers are now paying far more for imports, largely because of their currency’s plummeting value. 

In Nigeria and Venezuela, which rely almost completely on oil exports, fears of unrest and economic instability are building. 

In Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands of demonstrators pour into the streets every week, angered by the government’s economic policies.

Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to preserve its legitimacy, the government has been burning through roughly $10 billion a month in foreign exchange holdings to help pay expenses, and it is borrowing in the financial markets for the first time since 2007. Other Arab countries in the Persian Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are facing fiscal deficits for the first time in two decades.

[N]ew anxieties about frailties in China, the world’s most voracious consumer of energy, have raised fears that the price of oil, now 30 percent lower than it was just a few months ago, could remain depressed far longer than even the most pessimistic projections, and do even deeper damage to oil exporters.

Although the price drop has most directly hurt oil exporters, it also may signal a new period of global economic fragility that could hurt all countries — an anxiety that already has been evident in the gyrating stock markets.

The price drop also has become an indirect element in the course of Syria’s civil war and other points of global tension. Countries that once could use their oil wealth as leverage, like Russia, Iran and Saudi Arabia, may no longer have as much influence, some political analysts said. Iran, which once asserted it could withstand the antinuclear embargo of its oil by the West, appeared to have rethought that calculation in reaching an agreement on its nuclear activities last month.

[W]hile lower oil prices stimulate economies of consuming countries, a protracted decline carries many unanticipated consequences — starting with the economic weakness in developing countries that buy increasing amounts of goods from the United States and others in the industrialized world.

A supply glut has been evident for some time, driven partly by a vast increase in Saudi production and a growing energy self-sufficiency in the United States, which was once heavily reliant on Middle East oil.

Saudi Arabia not only is producing a record amount, but also is increasing the number of rigs drilling for future production. And its Gulf allies, the United Arab Emirates and Kuwait, are following suit. . . . all the exporters in the Middle East are struggling with each other to protect Asian markets, now that the United States is using much less of their oil.

The global glut is likely to worsen if the nuclear deal with Iran is approved, potentially releasing as much as one million more barrels onto the 94-million-barrel-a-day global market in a year or so.  Iran’s oil minister, Bijan Namdar Zanganeh, has made no secret about his country’s intentions. “We will be raising our oil production at any cost, and we have no other alternative,” he was quoted Sunday in Iran’s state-run news media as saying.

The big change in recent years has been the surge of United States oil production, adding more than four million barrels a day to global supplies. But in recent months the oversupply has been driven primarily by the Saudis, who have flooded the market in what economists regard as a deliberate attempt to drive down the price so that other high-cost producers can no longer compete — most notably the Americans.

“The hemorrhaging of government budgets reliant on oil will force dramatic cuts in spending or dangerous increases in borrowing, if not both,” Mr. Goldwyn said. “The countries without significant foreign exchange reserves are most at risk, and they include Nigeria, Angola, Algeria, Venezuela and Iraq. The countries which need to sustain investment to maintain political legitimacy need to be worried, and that’s Brazil, Russia and even Iran.”

[A] longer-term worry about possible miscalculations by Saudi Arabia, on both the duration and magnitude of the oil price drop.

“With a burgeoning population looking for jobs, education and health care every day,” she said, “the expensive social contract between the royal family and Saudi citizens will get more difficult, and eventually impossible, to sustain if oil prices do not recover.”

Past greed, arrogance and shortsightedness may well upset the political apple cart in many countries, especially Saudi Arabia and Russia.  

Czar Putin’s Next Moves

With the midterm elections, the holiday season and most recently the supposed snowpocalypse in the Northeast, the American media, true to form, has lost attention on events in Russia and the dangerous moves of Russian dictator, Vladimir Putin.  For some time now I have noted how many of Putin's moves and claimed justifications for his actions seem modeled on Adolph Hitler's actions in the 1930's - even Hillary Clinton noted some of the parallels back in the spring.  A column in the New York Times looks at Putin's actions and, more importantly what future moves the egomaniac dictator may make in the future.  Here are excerpts:

Last March, former Secretary of State Hillary Clinton was quoted as saying that Russian President Vladimir Putin’s attack on Ukraine, supposedly in defense of Russian-speakers there, was just like “what Hitler did back in the ‘30s“ — using ethnic Germans to justify his invasion of neighboring lands. At the time, I thought such a comparison was over the top. I don’t think so anymore. I’d endorse Mrs. Clinton’s comparison purely for the shock value: It draws attention to the awful things Putin is doing to Ukraine, not to mention his own country, whose credit rating was just reduced to junk status.

Putin’s use of Russian troops wearing uniforms without insignia to invade Ukraine and to covertly buttress Ukrainian rebels bought and paid for by Moscow — all disguised by a web of lies that would have made Nazi propagandist Joseph Goebbels blush and all for the purpose of destroying Ukraine’s reform movement before it can create a democratic model that might appeal to Russians more than Putin’s kleptocracy — is the ugliest geopolitical mugging happening in the world today.

Ukraine matters — more than the war in Iraq against the Islamic State, a.k.a., ISIS. It is still not clear that most of our allies in the war against ISIS share our values. . . . If Putin the Thug gets away with crushing Ukraine’s new democratic experiment and unilaterally redrawing the borders of Europe, every pro-Western country around Russia will be in danger.

 “Putin fears a Ukraine that demands to live and wants to live and insists on living on European values — with a robust civil society and freedom of speech and religion [and] with a system of values the Ukrainian people have chosen and laid down their lives for,” 

I’d support increasing our military aid to Ukraine’s Army now so it can better defend itself from the estimated 9,000 troops Putin has infiltrated into Ukraine.  Ukraine also needs $15 billion in loans and grants in the next year to stabilize its economy, in addition to its bailout from the International Monetary Fund.

Ukraine could also impact the price of oil. The two biggest actors who can shape that price today are Saudi Arabia’s new king, Salman, and Russia’s czar, Putin. If the Saudis decide to cut back production significantly, the price of oil will go up. And if Putin decides to fully invade Ukraine, or worse, one of the Baltic states, and test whether NATO will really fight to defend either, the price of oil will go up. . . . With his economy in shambles, Putin’s regime is now almost entirely dependent on oil and gas exports, so he’s really hurting with the oil price collapse.

Triggering a big geopolitical crisis with NATO is an easy way for Putin to shock the oil price back up. Putin’s covert Ukraine interventions up to now have not succeeded in that. In sum: Today’s oil price will be most affected by two men — King Salman and how he uses his spare capacity to produce oil and Czar Putin and how he uses his spare capacity to produce trouble.

The Price of Oil and Changes in Russian Politics

Much of Vladimir Putin's bellicose actions in Crimea and Ukraine have been motivated by a desperate need to distract the Russian People from the rank corruption and mismanagement that are a hallmark of the Putin regime.   As a piece in The Economist discloses,  past Russian aggression has corresponded to periods when oil prices and hence revenues flowing into Russia have been high.  Now, with oil prices plummeting - when I filled up my car this weekend with premium (a drawback of a Mercedes) the price was $2.249/gallon - Russia's economy is reeling.  Thus, past behavior makes one wonder whether or not Russia may find it necessary to mollify nations it has been antagonizing of late or whether Putin will continue his Hitler want to be policies.  Here are some article highlights:

IN DECEMBER 1979 Soviet troops invaded Afghanistan. The oil price at the time was at its peak of $101 a barrel. The high price combined with fast-growing production of oil in Western Siberia provided the Soviet Union with unprecedented revenues. Instead of saving this money for a rainy day, the Soviet government financed foreign adventures and imports of food. Seven years later the Brent crude oil price fell to around $30 a barrel and Mikhail Gorbachev launched the policy of Perestroika (restructuring) and convergence with the West. The high oil price coincided with Soviet aggression, but as the price fell the Soviet Union became more democratic and friendly to the West.

That the oil price correlated with Soviet politics is not surprising – in the uncompetitive command economy oil and gas revenues accounted for 67% of all exports. But the correlation remained just as strong after the end of the Soviet Union and transition to a market economy, and oil and gas remained the main source of Russian export revenues. When Vladimir Putin came to power the price of oil was $25 a barrel. Mr Putin allied himself with America, did not object to NATO’s enlargement that took in the Baltic States and saw September 11^th 2001 as Russia’s chance to get closer to NATO. Seven years later the oil price was at $105 a barrel and Russia invaded Georgia and the relationship with America was at the point of nadir, but thanks to the global financial crisis oil prices fell to $67 a barrel and Russia accepted America's reset policy even though it soon went sour.

Russia’s latest and most serious foreign adventure in Ukraine and its annexation of Crimea took place when the price of oil was still over $100 a barrel. But as the oil price fell Russia has not (so far) become any friendlier to the West nor to its neighbours. Mr Putin seems determined to break that correlation.

Mr Putin seems determined to break that correlation. Indeed, he has offered the war and patriotic euphoria as a compensation for the falling oil prices and lack of economic growth. The only way to bend the trend is by escalating aggression. This year will see a contest between Mr Putin's regime and the oil price. It will not be a pretty sight.

 

Scenes From Putin's Economic Meltdown

Throughout the centuries Russia has been plagued by horrific rulers.  Yes, there were moments of brilliance under tsars and tsarinas such as Peter the Great, Catherine the Great, Alexander I or even Alexander II, but all too often the Russian people have paid the price of failed leadership.  Vladimir Putin is following in the footsteps of royal predecessors whose dynasty his communist party over through.  Politico looks at the current economic melt down facing Russia's economy due to the failed leadership of Putin who seems to view himself as some modern day mixture of Ivan the Terrible and Adolph Hitler.  One might even argue that Putin makes the ill-fated Nicholas II look better in hindsight (Note to Putin: starting a European war does NOT help once chances of staying in power long term).  Here are article highlights:

Whatever’s on your holiday shopping list—buy now, it may never be this cheap again! In a single day this past week, the ruble exchange rate dropped from 59 to 80 to the dollar, further eroding confidence in the Russian economy and ensuring a deep recession next year—but also briefly turning Moscow into the shopping capital of the world.

Although this past week’s currency crisis marked the worst fall for the ruble since Russia defaulted on its debt in 1998, no one was waiting in bread lines or starting a run on the bank. Instead, anyone with any cash at all went on a buying spree.

People were purchasing refrigerators, washing machines, cameras—anything that was less likely to lose its value as fast as the plummeting ruble. Cars in some dealerships were being sold at 30 percent to 50 percent above the recommended retail price, yet “people run and bring their last money,” one social network user wrote.

The ruble has lost over half its value this year as falling oil prices and Western sanctions over the Ukraine crisis hit Russia’s energy-dependent economy. But a drop of 10 percent on Monday and another 10 percent on what has come to be known as “Black Tuesday” further shook consumers, undermined investor confidence and revealed divisions among the country’s elite on how to react. Nonetheless, Russians’ approval for President Vladimir Putin has remained sky-high.

The falling ruble has launched a spate of jokes in the style of Russians’ notoriously dark humor. One from a few weeks ago—“What do Putin’s age, the ruble and the oil price have in common? They all hit 63 next year”—has already become a grim reality.

According to Marina Krasilnikova, head of quality of life research at the independent pollster Levada Center, while affluent areas like Moscow saw a buying spree on expensive products, most Russians are in fact hunkering down to weather the crisis with what little they have.

For centuries most of the Russian people have had to hunker down thanks to the misrule of their leaders.  Putin needs to go.  The only question is that of how long before the majority of Russians recognize this reality.

Why Putin's Bubble Has Burst

I have noted before that throughout the centuries, Russia has been plagued by bad rulers.  Those who bear the worse consequences of such misrule are typically the Russian people.  With Russia's economy imploding and its currency in a free fall, all of Vladimir Putin's misrule is catching up with him and the picture is not a pretty one.  Putin, of course blames the west for Russia's woes rather than look in the mirror for the ultimate cause of that nation's misfortune.  Like Adolph Hitler, who Putin seems to be trying to emulate in many ways, the fault is never his or that of his corrupt cronies.  A column in the New York Times looks at how Putin and company have brought Russia to this point.  Here are excerpts:

If you’re the type who finds macho posturing impressive, Vladimir Putin is your kind of guy. Sure enough, many American conservatives seem to have an embarrassing crush on the swaggering strongman. “That is what you call a leader,” enthused Rudy Giuliani, the former New York mayor, after Mr. Putin invaded Ukraine without debate or deliberation.

But Mr. Putin never had the resources to back his swagger. Russia has an economy roughly the same size as Brazil’s. And, as we’re now seeing, it’s highly vulnerable to financial crisis — a vulnerability that has a lot to do with the nature of the Putin regime.

The proximate cause of Russia’s difficulties is, of course, the global plunge in oil prices, which, in turn, reflects factors — growing production from shale, weakening demand from China and other economies — that have nothing to do with Mr. Putin. And this was bound to inflict serious damage on an economy that, as I said, doesn’t have much besides oil that the rest of the world wants; the sanctions imposed on Russia over the Ukraine conflict have added to the damage.

But Russia’s difficulties are disproportionate to the size of the shock: While oil has indeed plunged, the ruble has plunged even more, and the damage to the Russian economy reaches far beyond the oil sector. Why?

Actually, it’s not a puzzle — and this is, in fact, a movie currency-crisis aficionados like yours truly have seen many times before: Argentina 2002, Indonesia 1998, Mexico 1995, Chile 1982, the list goes on. The kind of crisis Russia now faces is what you get when bad things happen to an economy made vulnerable by large-scale borrowing from abroad — specifically, large-scale borrowing by the private sector, with the debts denominated in foreign currency, not the currency of the debtor country.

When the nation’s currency falls, the balance sheets of local businesses — which have assets in rubles (or pesos or rupiah) but debts in dollars or euros — implode. This, in turn, inflicts severe damage on the domestic economy, undermining confidence and depressing the currency even more. And Russia fits the standard playbook.

Russia’s elite has been accumulating assets outside the country — luxury real estate is only the most visible example — and the flip side of that accumulation has been rising debt at home.

Where does the elite get that kind of money? The answer, of course, is that Putin’s Russia is an extreme version of crony capitalism, indeed, a kleptocracy in which loyalists get to skim off vast sums for their personal use. It all looked sustainable as long as oil prices stayed high. But now the bubble has burst, and the very corruption that sustained the Putin regime has left Russia in dire straits.

It’s quite a comedown for Mr. Putin. And his swaggering strongman act helped set the stage for the disaster. A more open, accountable regime — one that wouldn’t have impressed Mr. Giuliani so much — would have been less corrupt, would probably have run up less debt, and would have been better placed to ride out falling oil prices. Macho posturing, it turns out, makes for bad economies.

I feel bad for average Russians suffering because of Putin's misrule.  The ultimate solution?  Rise up and drive Putin from power and take back the wealth stolen by Putin and his cronies.

Putin to Blame for Ruble’s Collapse

Like many failed Russian leaders before him, Vladimir "Adolph Want to Be" Putin is destroying Russia's economy as he pursues his own megalomaniac agenda.  Right now, Russia's currency, the ruble, is in free fall because of Putin's failed policies and a big drop in oil and gas prices, the country's main source of hard currency.  Much of the suffering will impact the Russian people as has been their plight throughout history.  Meanwhile, Putin may become even more dangerous.  An editorial in the Washington Post lays fault directly at Putin's feet.  Here are highlights:

THE DRAMA playing out in Russia on Tuesday was not pretty. The ruble’s exchange rate has collapsed by some 50 percent against the dollar since mid-June, with an accelerating fall in recent days. A panicked attempt by the central bank at 1 a.m. Tuesday to stop the slide was a failure. Russia now faces a full-blown currency crisis.

For President Vladimir Putin, the crisis is his own doing, a direct outgrowth of a meddlesome adventure into Ukraine, in which he seized Crimea and subverted the Donbas region with pro-Moscow separatists. Mr. Putin’s incursion led to Western sanctions on Russian industry that are blocking badly needed refinancing on global financial markets; huge debts are coming due. The oil giant Rosneft is particularly hard-hit and has implored Mr. Putin to deliver a bailout. Russia has billions of dollars in foreign currency reserves but can’t easily bail out everyone who needs to repay loans. These squeezed companies are in many cases led by Mr. Putin’s cronies, and they have little room to maneuver. 

The currency slide is also a consequence of the fall in global oil prices. There are a number of reasons for that decline, but the inescapable fact for Russia is that it remains heavily dependent on oil exports and Mr. Putin did little in recent years to diversify the economy. Lower oil prices will crimp Russia’s budget revenues, and the higher interest rates ordered by the central bank will cut into economic growth. Prosperity and stability in recent years have been essential elements in Mr. Putin’s formula of repressing critics while remaining popular. 

It’s important to keep Mr. Putin and his capricious behavior the target of Western policy — and remember that he is the chief cause of Russia’s troubles. The ruble’s plunge may portend a dangerous moment. Until now, Mr. Putin has steadfastly refused to back down in Ukraine and has escalated violence when his allies were cornered. He may respond to the latest uncertainty by striking out again in Ukraine or elsewhere, and he will most certainly ramp up the anti-American rhetoric.

Putin Has Plunged Russia Into Economic Decline

While seemingly having based his foreign (invading Ukraine of flimsy claims of protecting "ethnic Russians) and domestic policies (making gays the equivalent of Jews in Germany) on Adolph Hitler's ultimately disastrous agenda during the 1930's, Vladimir Putin apparently forgot what Hitler ultimately brought down upon Germany.  With energy prices dropping across the globe and economic sanctions kicking in, Russia's economy seems headed toward melt down.  One can only hope that Russians will open their eyes and realize that the nation's problems are not due to the west, but rather the result of Putin's failed leadership.  Like so many despotic Russian rulers of the past, Putin has harmed Russia and the Russian people.  He needs to be overthrown.  A piece in Vox looks at the worsening economic picture for Russia.  Here are excerpts:

The Russian economy is in bad shape. On Monday morning, Russia's central bank announced that it expects the Russian economy to grow zero percent in 2015 and 0.1 percent in 2016. The value of Russia's currency, the ruble, plummeted more than 8 percent in the past week alone — and it's down more than 40 percent since the beginning of this year.

The fall in the ruble appears to be mainly the result of two factors: a sharp decline in global oil prices and sanctions that Western countries put on Russia in retaliation for invading Ukraine. Those two things might not appear connected, but in a sense one led to the other. Many Russia-watchers believe that, when Russia's economy began weakening, and, thus, so did Putin's approval ratings, Putin responded in part by trying to increase his popular support by stirring up nationalism. That is likely one of the reasons why he invaded Ukraine, which also distracted from the poor economy.

If that's right, then that would mean that the sanctions meant to weaken Russia's economy are also a result of Russia's weak economy. And that, in turn, should prompt questions about what Putin might do to shore up his support in the face of this new bad economic news.

[T]he value of the Russian Ruble has plummeted since the beginning of the year. It's down more than 40 percent against the dollar since January and down more than 8 percent in the last week alone.

That's a problem for Russian consumers, who have seen the prices of food and other necessities shoot up in recent months. According to the Wall Street Journal, consumer prices rose by 8.3 percent in October, 8 percent in September, and 7.6 percent in August. Food prices have risen especially quickly because Moscow banned imports of Western meat, dairy products, fish, fruit, and vegetables in August. The government is reportedly considering imposing price controls on "socially important" goods.

Falling oil prices have hit Russia hard because the Russian economy is heavily dependent on energy exports. In 2013, oil and gas accounted for a stunning 68 percent of Russia's total export revenues.

Russia's other big problem is that it's under economic sanctions as a result of its occupation of Crimea and other military adventures in eastern Ukraine.   The sanctions cut off a number of major Russian companies and individuals from international capital markets, including the energy giant Rosneft and financial institutions like Gazprombank and Vnesheconombank. The sanctions appear to be accelerating the economy's decline.

Since taking power in 2000, Putin's power has been based on an implicit agreement with the Russian public, in which he delivers high economic growth, and in return Russians accept his government's abuses, which include corrupt cronyism and authoritarian crackdowns on civil and political rights.

Arab World Unrest Grows, Oil Prices Surge and the USA Has No Energy Plan

It's just a few years shy of the 40th anniversary of the first major oil price shock to hit the USA. And as the stability of the Arab world - based on autocratic disctatorships - teeters, it is disturbing that the USA still has no comprehensive long term energy plan. The GOP in particular has prostituted itself to big oil for decades while the Democrats have lacked the spine and leadership to push for a change of the status quo that equates to zero future planning. Sarah Palin and similar mental midgets "chant drill baby drill" yet that's not a solution. Having worked in the oil industry, I know only too well that it takes YEARS to bring new production online and get it available at the gas pumps and home heating fuel suppliers. And that less than cheery reality doesn't factor in an even bigger problem: the USA lacks sufficient recoverable reserves to meet the nation's huge demand for oil and its derivatives should the Arab world spigot get turned off or significantly reduced. As CNN reports, oil prices are surging even as uninformed soccer moms continue to drive about in their gas guzzling SUV's. Depending on how the revolts in the Middle East and Arab world play out, the USA could find itself in one hell of a mess. A mess that will be in significant part self inflicted. Pretending that oil and gas consumption can continue unchanged is insanity. Yet, no U.S. politician has the balls or honest to tell Americans that a harsh day of reckoning may be in the offing. Here are highlights:
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The gasoline Americans buy is made not just with U.S. supplies but mainly with oil from around the globe, and that fuel is surging in price. Since a protester lit himself on fire in Tunisia at the end of December, sparking revolts across North Africa and the Middle East, global oil prices have jumped. Brent crude, pegged to oil prices in the North Sea, is up over 12%.
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Much of the oil being made into gasoline now actually costs $105 a barrel. For this we can blame a few of the usual suspects – try Middle East unrest and strong overseas economic growth – and one new one, a weak link in the U.S. petroleum supply chain.
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[I]it projected a 1-in-3 chance the gas price will break $3.50 this summer and a 1-in-10 chance it will hit $4. And if anything those estimates may understate how fragile the balance is. . . . Even a smaller rise could slow the snaillike recovery of the U.S. economy.
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A study released last month by IHS Global Economics says a 25-cent rise in the gasoline price, all else equal, will reduce employment by some 600,000 jobs over the following two years. And the steeper the rise, the more jobs that stand to be lost. "Suddenness is very important in determining how much damage is done to the economy," says IHS economist Gregory Daco.
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Pipelines that take oil out of Cushing [Canada fields] are at least two years away, and oil companies that stand to rake in fat refining profits aren't exactly looking to rush that timeline. . . . Prices are likely to rise regardless heading into the summer refining season. If the U.S. recovery gains steam, a replay of the ugly summer of 2008 looks like an unhappily good bet.

Rising Gas Prices Pump up Virginia's Oil Industry

Virginia does not have much of an oil industry to speak of. However, with rising oil prices, exploration becomes more economically viable in areas previously overlooked. The reality is that once before - in the early 1980's before the oil industry crashed - there was a great deal of interest in possible production in Virginia. One of my compatriots in the law department for Union Texas Petroleum Company ("UTPC") with some input from yours truly helped draft Virginia's original oil and gas related statutes since at that time there were none. Moreover, UTPC at one point was the largest leaseholder in Virginia. Of course, after the oil crash of the early 1980's oil and gas exploration languished in Virginia - until now. Unfortunately, increased domestic production will NOT solve the USA's oil dependence on the Middle East no matter how much the Chimperator or John McCain pretend otherwise. Here are some highlights from a story in the Virginian Pilot:

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For decades, companies drilling for natural gas here in the remote mountains of southwest Virginia have known that the wells yield another coveted resource: crude oil. Until recently, though, the quantities were considered too small to matter - a nuisance byproduct of gas production that sometimes was released back into the ground. But that was before market prices for crude soared above $130 a barrel. Now, the state's gas industry, which is experiencing its own boom, is welcoming this "nice bonus" - separating crude at wellheads, storing it and later selling it for refining into fuels, said Jerry Grantham, a top officer with the Virginia Oil and Gas Association, a trade group.

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Coal remains the richest fossil fuel mined in Virginia by far. But the energy resource drawing the most attention these days in the state is coal bed methane, a natural gas that looks, acts and smells like conventional gas. Methane is typically found in gaps within untapped coal seams, often at much shallower depths than conventional gas. Its withdrawal, then, is cheaper and helps to safeguard coal mining, as methane is known to easily explode.

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A record amount of natural gas was generated from Virginia wells in 2006, at more than 102 billion cubic feet - enough to power all residential users in the state. This fact, too, was a first in Virginia, according to government and industry officials. About 80 percent of this total output was coal bed methane, worth more than $660 million.

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The skyrocketing trend, ongoing since the late 1990s, continued last year: The Virginia Department of Mines, Minerals and Energy reported last week that 112 billion cubic feet of natural gas were produced in 2007, yet another record. "And there's still a lot of potential out there," said Grantham, who also is vice president of Pine Mountain Oil and Gas Co., based in Abingdon. "We expect the industry to continue growing - more wells and more exploration in the region," he added.

The Coming Energy Wars

That's the title of an article in the latest Newsweek that looks at the potential future and the economic impacts of soaring oil and gas prices. If accurate, the future will not be pretty nor will it be painless in the USA or elsewhere. As a former in-house attorney for an oil company, I am hardly someone who is violently anti-oil companies. I know full well the costs and high risks involved in both exploration ventures and the number of "dry holes" drilled for each successful producing well, not to mention the challenges of overseas exploration and the difficulties of dealing with foreign governments. However, as one who lived through the energy crisis of the early 1970's, the USA and its citizens have been on notice of the potentially impending energy cost nightmare for over three decades. Rather than face up to the reality, both the U.S. givernment and the citizenry have closed their eyes to the situation, which may be about to come home to roost. During the married phase of my life, I lived for 20 years in upscale suburbia in Virginia Beach where (i) there is virtually no public transportation that's worth a damn and an auto is needed to go just about anywhere, and (ii) countless soccer moms drive around in gas guzzling behemoths that serve no useful purpose other than to evidence conspicuous consumption: Suburbans, Hummers, Escalades, Navigators, etc. Hopefully, the coming economic pain will result in needed conservation efforts and changed habits that should have begun in earnest 30 years ago. Here are some story highlights:

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This spring, America hit a historic point. With average gas prices per gallon edging toward $4, America's notoriously profligate ways started to change fast. Americans are driving less, using mass transit more, buying fewer gas guzzlers, indeed shopping less wantonly in general, and lowering their previously unshakable confidence as consumers. Suddenly, Americans are acting differently; if not exactly like Swedes, then not quite like themselves, either. It's a shift that could change the world.

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And there are more changes to come. So far the price shock has triggered the most obvious consumer shifts in the United States. Europeans, already greener, are also are buffered by a stronger currency, and Asians are protected from the spiking price of oil by subsidies that control the impact on gas prices at the pump. But if oil prices continue to rise, and the subsidy dam breaks, as seems likely, the energy revolution now transforming America will spread.

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As the per-barrel price climbed over the last few months, with futures reaching $135 last week, the consensus began shifting to a new more gloomy view: that not only would long-term demand, led by China and India, continue to grow, but that the supply threats, including increasing conflict, falling investment, industry bottlenecks and downward estimates of big field reserves in major oil states—aren't going away any time soon. Now many (though not all) serious people take $200 oil—and the prospect of another '70s-style oil shock—seriously.

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Oil drives so much of the global economy, it's almost impossible to fully imagine the world of $200 oil. No question, the shock will force nations to go greener much faster than now, particularly by conserving energy and developing and adopting new non-fossil fuels. But none of this can happen full stop in six to 24 months. So the predictions tend to be gloomy: some analysts see a shift toward regional trade, and even a major reversal of globalization itself, as rising transport costs make it too expensive to ship many kinds of goods long distances.

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No industry will be unaffected. Any company that moves goods or people needs oil. At $200 oil could make the long-predicted death of Detroit, or at least one of its Big Three, a reality. Airlines are vulnerable too. Skyrocketing jet fuel prompted American to announce it would cut flights due to the grounding of numerous older, less fuel-efficient planes. . . . The oil-induced depression of the American consumer may be a harbinger of what's to come elsewhere. In the United States, consumer confidence is now at a 15-year low. Energy Department data show that $4-a-gallon gas is finally forcing Americans to cut back on driving; this year gas consumption in the country is expected to drop for the first time since 1991.

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With oil futures up 40 percent in just the last two months, the sense of an accelerating shock is already palpable in the United States. While American automakers were moving slowly toward smaller cars before the spike, sales of SUVs and pickups are now falling so fast, they appear to be caught flat-footed. "At $200, GM tanks," says energy expert Philip Verleger. "They just don't have time to fix their fleet."

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So, what's to be done? For starters, policy makers might stop grilling big oil companies about why prices are so high (since they now control only a small percent of known reserves, it's largely out of their hands), support smarter green initiatives (wind and solar credits rather than ethanol boondoggles) and stop pandering to voters with subsidies and gas-tax cuts that ignore the new reality—oil is a finite resource, more people want more of it, and the profligacy with which we've used it is going to change. . . . By some estimates, the world could save 25 percent of its oil usage with simple measures like driving the speed limit, turning off lights, and fully using the green technology we already have (hybrids, better insulation, etc, etc).

$100 Oil May Mean Recession as U.S. Economy Hits `Danger Zone'

The financial news just seems to be getting increasingly sour. Bloomberg.com is reporting that oil prices are setting the stage for even more bad news (http://www.bloomberg.com/apps/news?pid=20601109&sid=a1aGJ64Na3g8&refer=home), particularly if other economic shocks occur. Here are brief highlights:

Nov. 12 (Bloomberg) -- Rising fuel prices that businesses and consumers took in stride earlier this year may now be near the point of pushing the weakened U.S. economy into recession. `We are in a danger zone,'' says Nariman Behravesh, chief economist at Global Insight Inc. and a former Federal Reserve economist. ``It would take two shocks to bring the economy to its knees. We got one shock in the form of the credit crunch. Oil could be that second shock.'' Crude-oil prices are poised to cross the $100-a-barrel mark while the U.S. economy is still reeling from a surge in corporate borrowing costs. Europe and Japan are vulnerable as well, after the U.S. subprime-mortgage collapse contaminated their credit markets.

The world economy may still dodge recession as emerging markets continue to expand. A report last week by Deutsche Bank AG said gains in energy efficiency mean the effect of more expensive oil will ``remain muted.'' Even so, gloom is spreading at a speed that suggests ``we're walking a really fine line,'' says John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``Even a month ago, you probably wouldn't have thought we'd be seeing a sustained credit problem and oil holding up above $85 a barrel.''

Meanwhile, the New York Times is reporting that the deal structured last week to prop up subprime loan investment securities probably will not work (http://www.nytimes.com/2007/11/12/business/12siv.html?ref=business):

When the country’s three largest banks reached agreement on Friday on how to structure a $75 billion fund to prop up distressed securities, an exhausted group of its top planners gathered in a Bank of America conference room to toast their success with 12-packs of Bud Light. But the big question is: Will it actually help? The answer, some analysts and big investors say, is probably not much.

The backup fund will not save troubled structured investment vehicles, or SIVs, that hold billions of dollars in packaged loans, though it could delay their demise. It may help calm the turbulent credit markets by preventing a sharp sell-off of securities, though analysts say the fund will probably not be able to offset the deteriorating prices of the securities.

The backup fund will not purchase the most distressed assets in the SIVs. Bank organizers agreed that it would not accept any subprime mortgage-related assets and only certain types of risky complex instruments like collateralized debt obligations. But the criteria means that SIVs, or the banks that sponsor them, will be left holding their most battered securities or worse — they may be forced to sell them at fire-sale prices.