While all of us are watching the Ruble crash, there is an ongoing collapse in Ukraine: http://www.nakedcapitalism.com/2014/12/imf-world-bank-halt-lending-ukraine-franklin-templeton-4-billion-ukraine-bet-goes-bad.html.
I posted IMF 'note' on the emergency visit to Kiev last week http://trueeconomics.blogspot.ie/2014/12/14122014-imf-emergency-mission-to-kiev.html which, in simple terms, amounted to nothing... as in nada... or no new lending.
And to note a simple fact: yesterday's Moscow dramas were nothing compared to Kiev dramas: http://trueeconomics.blogspot.ie/2014/12/15122014-russia-ukraine-cds-hitting.html and
The Russia/Ukrainian 'Arc':
But back to Russia for now, as West's newest 'ally' East of Dniper is out of criticism or questioning... Ruble is tanking, still, as predicted in the first link above:
The reason is that when you have a 1am Governing Council meeting, you signal to the domestic economy that things are out of control (and they are), which prompts:
- Companies facing upcoming debt redemptions or holding Ruble deposits to run for FX cover and demand dollars or euros or pounds or Mongolian tugriks; and
- Households facing actual inflation (in PPP terms, not CPI) to run for FX deposits and demand same dollars or euros, less so unfashionable pounds and certainly not Mongolian tugriks...
The only way to stop this is... capital controls. All of which has little to do with the actual economy as a cause of the malaise, but all of which will cause actual economy to contract.
Oh, Happy Birthday, Wassily Kandinsky... your Composition VII aptly illustrates the whole mess:
1 comment:
What in your opinion is the chief driver here,sanctions or the collapse in oil prices?
I was under the impression Russia s oil revenues were in Dollars and production costs in Rubles!
Is there something else at play here.?For instance is this some downstream effect of the demise of the yen or deflation or a massive drop in world demand.?
I find it difficult to believe its sanctions as they have impacted even more on the Ukraine in a vicarious way.
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