The Saker on Regime Change, Assault on Russia, Weakening of the Ruble—Part 2

[dropcap]Russian ruble[/dropcap] exchange rate changes have all the ingredients of success detective story. On Monday, 15.12. 2014 ruble weakened to a record low since 1998: the dollar cost 64 rubles and 79 rubles to the euro. In recent years, the price of an euro has been hanging around 50 rubles, or 5 000 rubles withdrawn from an ATM for a night of adventures in St. Petersburg would cost around 100 euros.
Last night, the Russian Central Bank raised its base rate drastically from 10.5 per cent to 17 per cent to curb currency speculation. The price of an euro during the day momentarily exceeded the limit of 100 rubles or 80 rubles for a dollar. Now at the end of the market day the ruble has slightly appreciated: $ 1= 72.60 rubles and 1 euro = 90 rubles. The official rates of the Russian Central Bank before tomorrow’s market day are $ 1 = 61.15 rubles and 1 Euro = 76.15 rubles.

What is this about?

The economic sanctions imposed by the US and the EU prevent granting of loans to Russian companies with a payment period of more than 30 days. As Russian companies have been borrowing money from the West the entire post-Cold War period at a lower rate of interest and the penalties now prevent loan restructuring and follow-up funding, these companies must now get euros and dollars to take care of their loans, thereby creating more demand for foreign currency in the Russian market and thus weakening the ruble.

Also, the fall in the price of oil reduces Russia’s foreign exchange earnings, which in a situation of high demand for currency weakens the ruble.

The Eurasian Economic Union comes into force on January 1, 2015. Most likely at the same time the Russian ruble and foreign exchange markets will change drastically, and the Russian economy will take a distance to the dollar and the euro. Now the West is doing its best to weaken the ruble and thus destabilize the Russian economy and the political system before the end of the year. The maxima of the West is to prevent the emergence of the new economic union and closer cooperation within the BRICS. Taking into account the Christmas holidays, the West has little more than a week to succeed.

What are the Russian authorities doing?

Trying their best to defend the ruble and the Russian economy. Their actions are limited by two factors: first, in this battle Russia’s foreign currency reserves may be used only minimally (for which there are far better uses), and, secondly, the entire process must take place under the rules of the dollar-based global liberal economic model (because Russia will disconnect from the dollar system only later).

For the rest of the year the going will only get tougher. Even under the liberal economic model the Central Bank of Russia and the government have much stronger measures to stabilize and strengthen the ruble, which they probably will introduced as needed.

Russia will detach itself from the global dollar economy according to earlier plans .Until then it will continue defending the ruble. The West on its part will make every effort to weaken the ruble. What will be the end result? Time will tell – or the stars. I predict that next year will see a surprise!

What might this 2015 surprise be?

The Russian government has already informed Russian banks that the amounts of reserve currency deposits placed by various ministries in Russian banks will be drastically less than during previous years. These funds will instead be used to finance various domestic infrastructure projects. All this means that the Russian government obsessed with saving during all the 2000s and 2010s will become a big spender investing in strategical domestic projects. This will considerably strengthen Russian economy. Another factor will be the Eurasian Union.

The third factor is a combination of recent Russia-China, Russia-Iran and Russia-India megaprojects and financing from the New Development Bank NDB (formerly referred to as the BRICS Development Bank). Russian President, Government and Bank of Russia have consistently informed the market players that now is the time to concentrate on domestic markets and domestic financial resources. All this will probably mean the unlinking of Russian economy from dollar-dominated Western economy.

Enjoy the cliffhanger!

Listen to this Ukrainian Nazi, speaking in Russian with his fellow Ukrainians, explaining that there are no peaceful civilians in Donetsk but only collaborators with the enemy.  As soon as he is done spewing his hatred he gets hit by an artillery shell.  Call it ‘karma’ or remember the words of the 3rd Psalm “thou hast broken the teeth of the ungodly” but this guy sure got what he deserved.  See for yourself:

[dropcap]T[/dropcap]he horrible events in Pakistan immediately brought to my mind the barbaric attack by Wahabi Chechens against the school in Beslan.  It is amazing for me to see that, apparently, attacking schools and taking children hostage is a God-pleasing action in the sick minds of the human reptiles known as Wahabis.  They also love to slit throats, torture and, occasionally, eat livers.  Truly, this ideology which we can call Wahabism or, probably even more accurately, Takfirism is satanic in its very core.

Ramzan Kadyrov is very wise when he refers to these militants as “shaitans” or devils.  He is, I think, quite literally right. Unlike the Anglo “coalition of the willing”, the Russian and Syrian armed forces have done a superb job killing as many of these “shaitans” as possible, as have the truly Muslim Chechens.  But one can only kill people, not ideologies.  And Takfirism cannot be eliminated by Russian or Syrian guns.  Takfirism can only be defeated by Islam.  This is what Ramzan Kadyrov has done in Chechnia and this is what Hezbollah is trying to do in Lebanon and this is what Iran is trying to achieve in the Middle-East.

In this video, Hezbollah leader Sayyed Hassan Nasrallah explains the nature of Takfirism and the threat it poses to the Muslim world:

1) The Ruble is falling due to three completely separate reasons:
i) The recession in the West which triggers a drop in oil prices
ii) The Anglo-American bloc pressures on OPEC not to cut production
iii) The impact of western sanctions

3) This distrust is fully deserved.  The head of the Central Bank is a notorious 5th columnist which Putin failed to fire, arrest or otherwise remove from that position.  But there is worse:

4) Putin personally is not trusted either, at least not on economic matters.  Dmitri Orlov put it very well:

Some people are starting to loudly criticize Putin for his inaction; but what can he do? Ideologically, he is a statist, and has done a good job of shoring up Russian sovereignty, clawing back control of natural resources from foreign interests and curtailing foreign manipulation of Russian politics. But he is also an economic liberal who believes in market mechanisms and the free flow of capital. He can’t go after the bankers on the basis of ideology alone, because what ideological differences are there? And so, once again, he is being patient, letting the bankers burn the old “wooden” ruble all the way to the ground, and their own career prospects in the process. And then he will step in and solve the ensuing political problem, as a political problem rather than as a financial one.

Orlov, as always, is spot on here. Let me explain, as this is crucial:

First, yes, Putin is an economic liberal.  I hate to admit it, but I am convinced of it.  So while he is “socialist” in a sense of supporting a social state, which helps the poor, needy, sick or old, he also is a “market capitalist” in the sense that he believes that market forces should be left free to maximize the competitivity of an economy.  This might be a result of seeing a (pseudo-) socialist system fail or because he sincerely admires the competitivity of US and other (pseudo-) capitalist economies, I don’t know.  But there is no doubt in my mind that he is an economic liberal.

Second, it would be typical Putin to let the “Atlantic Integrationist” 5th column to fail so badly as to make their removal a political demand of the Russian people.  The problem with that is that this strategy can take a huge toll on the Russian people and economy.

Right now the situation is so bad that the value of some high visibility Russian stocks has begun to plunge.  As does the Ruble.  As does the price of Bread.

I am not much of an economist, much less so a trader.  But I have to agree with the markets here: the current Putin+Nabiulina combo is not one deserving trust and if I had to speculate, I would speculate against Russia right now.

Maybe I am naive or primitive but I see only one way to reverse this death spiral: not only to fire Nabiulina, but to fully nationalize the Central Bank, fire the totality of its current top management and to appoint a new team with Sergei Glaziev as its director with a rank of Minister of Finance.  Then Russia must take the strategic decision to drop the current system of backing each printed Ruble with purchased US Dollars and instead back the Ruble with either energy or metals or a combo of real-word resources.  My own vote would go for gold.

The Saker

 APPENDIX IV