Short update about the Ruble and a great interview of Michael Hudson

The Ruble is slowly climbing back up and is already treading at a much more reasonable rate (with probably more readjustment ahead).  See for yourself:

But his happened at a great cost.  See ZeroHedge about this: http://www.zerohedge.com/news/2014-12-25/ruble-rallies-34-after-biggest-russian-intervention-5-years

Also, I would like to highly recommend the analysis of my favorite American economist, Michael Hudson who does a superb job explaining the Russian strategy for the Real News Network: http://michael-hudson.com/2014/12/russian-pivot/

Cheers,

The Saker

Ruble, Oil, Shale Gas, Derivatives and American Hegemony

by Federico Pieraccini

There are two central issues related to the devaluation of the ruble and the dollar depreciation to keep in mind: the preservation of American hegemony and the speculative bubble of derivatives linked to industry of Shale Gas. Without these elements, it is impossible to understand what are the reasons and the consequences of these artificial economic actions.

This case must therefore necessarily be addressed from different perspectives, a geopolitical one and a purely economic one. 

The collapse of oil.

The depreciation of oil seems to be a strategy implemented by mutual agreements between the US State Department and the Royal House of Saudi. As you can read in the article, the meetings in September 2014, between Kerry and Prince Abdullah laid the foundations for a decline in crude oil prices (compared to the market value) and at the same time a denial in the reduction of daily production. An artificial manipulation of oil prices in all means. This seems to be the central reason why, despite a collapse inside the stock market in the UAE (losses between 8% and 20% in a single day on the 16th of December), there aren’t any short-term intentions to decrease the daily output of oil production.

The immediate effects of this situation are tangible in countries where the break-even point ("The break-even point is a value that indicates the amount, expressed in volume production and sales, product sales required to cover the costs previously incurred, in order to close the reference period without profits or losses.") for extraction of crude oil varies over 90$ a barrel. From Iran to Venezuela, passing through Russia, all these countries are affected by the collapse in the value of crude oil. Riyadh is less effected, since it’s break-even point is around 65$.

It's a situation that for some countries is not sustainable for much longer, of course we are not speaking about Russia that has a good economic base (low debt, high gold reserves, much foreign currency liquidity), but rather about countries like Venezuela ( break even in a range 140-160$) which receive much of their income from gains on oil export. Combining this situation with the sanctions imposed on Caracas and we could be facing an economic collapse in Venezuela (Zero Hedge has placed at 93% the chance of a default ). Not to mention that even the Iranian oil is affected by these declines (break-even between 120- 140$), with great satisfaction of Riyadh, the regional competitor.

Flood the market with something that has a very low demand ( are we at the peak for demand of oil ?) and what you get is deflation and this is tangible even to the less attentive observers. If the world economy slows, thus also the need of energy will fall contextually. If this decline is not matched by a decrease in production (as required at OPEC two weeks ago), then the price will collapse to the current value. In a sense, the ordinary citizen could argue that the price per barrel today is much more in line with market values ​​at this stage of the global economy .Unfortunately, it is only one of many points of view from which to observe this scenario and certainly does not offer a complete explanation.

The depreciation of the ruble

Undoubtedly there is a strong correlation between the fall in crude oil prices and the collapse in the value of the ruble. But this theory does not offer a sufficient explanation. There are other factors that cannot be ignored.

The economic sanctions imposed by the United States and the European Union prevent lending to Russian companies, with payment terms beyond 30 days. Given that Russian companies get cheap money from the West banks since the end of the Cold War, the sanctions currently prevent a restructuring of previous loans and refinancing more of the same. The consequences are that these companies must now buy Euros and Dollars to take care of their loans, thus creating more demand for foreign currency in the Russian market and thus weakening the ruble. From a purely business point of view, the Russian companies would like to see a different behavior of the Russian central bank, as explained by Alexander Mercourius:

"What I suspect, about what is happening, is that major speculators against the ruble are just the banks and Russian companies that have a large amount of dollar loans to be repaid before the end of the year. Instead of paying these debts with their reserves, they are putting pressure on the government and the central bank converting rubles into dollars and speculating against the ruble. And this aspect is much more important than any other factor that caused the recent defeat of the ruble. Judging from what Ulyukaev says, the government and the Central Bank have essentially capitulated and decided to help banks by giving them some of the reserves of the Central Bank. This may explain why the rate increase on the 15th of December was so ineffective and why in the last days the ruble has strengthened."

Indeed analyzing the side effects of the Bond issued by Rosfnet on December 12th, 2014 (625 billion rubles - amounting to 11 billion dollars to 15/12), it seems that in the end the Russian central bank bought this bond, letting Rosfnet refinance loans, with Western banks. One could argue that the United States applies the same tactics using the Fed to simply print money and give them out to American business in trouble, in change of bond emissions. The behavior of the Russian central bank, similar to the Fed’s, has been an obligated one. The problem is that the global system is calibrated on the Dollar, not on the ruble. Russia used a Western method to create money and pays the consequences. These same consequences are the mother of all frightens for Americans with the process of De-Dollarization and the Dollar losing credibility.

The geo-political factor of this crisis

"We could of never imagineed what is happening, it is the materialization of our worst nightmares. And in the next few days I think the situation could be comparable to the most difficult period of 2008 " - Sergei Shvetsov, First Deputy Governor of the Central Bank of Russia.

The most interesting question to ask is: could of the Russian authorities predict this combined attack oil-ruble-sanctions? The answer is yes and they did. Too bad no one could of imagined a so immediate acceleration of this strategy. Not even in the deepest nightmares of the Russians, in 6 months, the oil would be reduced to half of its value and the ruble of more than 50% in 12 months. This American tactic requires an extremely high risk factor and that endangers the 'entire global economy, as we shall see .

Why then have the United States and its partners come to take this path so full of unknowns? Even in this case there are multiple answers. Certainly the main thrust concerns the geopolitical strategy of 'regime-change' in countries such as Venezuela, Iran and Russia ( in fact the most affected by the collapse of the price of oil). If using normal methods of softpower obtained not very significant results (Iran is heading to the agreement 5 + 1, Assad is increasingly solid in Syria, Putin is becoming increasingly popular at home and Maduro was able to regain the reins of the country after a period of instability following the death of Chavez and the artificial protests in the summer), in this way the key is an economic leverage. Never the less, there are many risks in this strategy. The collapse of the currency, the decrease in revenues from crude oil, rising prices, rising inflation, declining purchasing power and so on are the weapon with which America is convinced that it can continue its role as a hegemon in the world. The order is to lead to a collapse of domestic rival nations thanks to a combination of factors: sanctions, oil and currency.

What are the risks of this strategy?

After analyzing the motives and methods used to pursue this Kamikaze strategy, we can analyze certainly a more interesting but also more disturbing issue: the risks that these methods implemented by the west could trigger. The crisis in Ukraine, the Eurasian Union, the de-dollarization and the mega agreements between BRICS countries led to a backlash in Washington, with a game of risking everything.

The factor that carries the major unknowns but also the major concern is the market of the Shale Gas in America. Raised as a banner of American energy independence, coveted as a weapon to transit from the Middle East towards Asia (part of the strategy of "Asian Pivot"), it has undeniably played (and still plays) a primary role in the plans of policy makers in Washington.

Yet what is cleverly concealed by the mainstream media are the side effects that the market of shale gas suffers at the current low oil prices. The break-even point for these new methods of extraction is between a range of 60-80$ per barrel. Given this, it is easy to understand that with a prolonged period of low prices, the effects will be devastating for the whole market of Shale gas in the US (the first case of this kind has already happened, the Red Fork Energy Australia yesterday went into controlled administration ). If these were the only consequences, we could simply consider them irrelevant. The problem comes when we focus on the lending process to these companies that fail to return the credits to banks if they go bankrupt. A default in this industry sector could trigger a cascade mechanism which would ultimately affect the mother of all bubbles: the derivatives well hidden in Western banks.

The big global risk that the United States are taking to maintain their global hegemony is not much different from a preemptive nuclear attack (seems a doctrine of first strike in an economic sense). If the price of oil (artificially manipulated) drags into the abyss the Shale Gas Industry of America, all loans that should be repaid to the US banks would go in smoke. With them, potentially, all the derivatives:

Let’s give some the numbers to these words and see how many of these crazy financial instruments, the US banks have:

JPMorgan Chase

• Total Assets: $ 2,520,336,000,000 (about 2.5 trillion dollars)
• The total exposure to derivatives: $ 68,326,075,000,000 (more than 68 trillion dollars)

Citibank

• Total Assets: $ 1,909,715,000,000 (just over 1.9 trillion dollars)
• The total exposure to derivatives: $ 61,753,462,000,000 (more than 61 trillion dollars)

Goldman Sachs

• Total Assets: $ 860,008,000 (less than a trillion dollars)
• The total exposure to derivatives: $ 57,695,156,000,000 (more than 57 trillion dollars)

Bank Of America

• Total Assets: $ 2,172,001,000,000 (a little 'more than 2.1 trillion dollars)
• The total exposure to derivatives: $ 55,472,434,000,000 (more than 55 trillion dollars)

Morgan Stanley

• Total Assets: $ 826.568 billion (less than a trillion dollars)
• The total exposure to derivatives: $ 44,134,518,000,000 (more than 44 trillion dollars)

A useful comparison to fully realize what numbers we're talking about: the US public debt amounts to 18 trillion dollars. The derivatives markets, only of the six largest banks in America, amounts to almost 16 times the US debt!

We are faced with yet the same dilemma already of the 2008 financial crisis: let banks fail or save them? Can the banks fail or are they “to big to fail”? In this case there are two possible ways: Print money (the Feds way of solving every problem) without worry of the increasing public debt (the example used so sustain this theory is Japan with 300% of debt) or let banks fail.

Taking for granted that the manipulation of the oil market and consequently the ruble affair are geopolitical moves, then what is the winning strategy that Washington hopes to obtain, without causing a collapse of the global economy? Foster a regime change in Venezuela, Iran and Russia in a short time or compel these nations to come to terms with the dictates of the West. It's important to note that the time is NOT on the side of the West. The reason is related to the arguments set out above: an oil price so low would send down the drain the market of Shale gas, causing a chain reaction that would destroy the major US banks and could trigger the biggest speculative bubble in human history, the derivatives, which would cause an economic crisis in the face of which what happened in 2008 would be remembered as something easy.

There is one factor that matters more than any other and is considered by the US as the real key to this strategy. If the market of the Shale came to collapse and US banks have to be saved again ( as they are asking the government since December 11th ), the solution would be to simply print more money from the Fed and increase the US public debt. One might object that this would decrease significantly the credibility of the dollar itself. It's a matter of debate and no one has a definite answer. Surely in the US, they are convinced that if this tactic would be successful and lead to a regime change and economic collapse of Russia, China would be forced to "return to the fold" (having lost here number 1 ally), thus ensuring the good solidity of US Treasury (the credibility of the dollar is very dependent on China because of the amount of American Treasury Bonds detained by the Chinese) and confirming the credibility of the dollar itself (even in a situation where the public debt were to move from 16 to 36 trillion dollars).

The basic problem remains geopolitical. The hegemonic view that the US need and want to keep . They currently have no other means to fight a global change that is transiting humanity in a stage no longer unipolar (in which the Americans is the only super-power) but multipolar (more actors on the world stage). We are reckoning and current drift presents an incalculable risk for the entire global economy ... it really worth it?

Ruble crisis: so far so good

At the latest Russian Government meeting Dmitri Medvedev has announced the Russian authorities are planning no additional measures to stabilize the Ruble as long as the current trend continues.  And, truth be told, so far the measures taken by the Central Bank and the authorities did reverse the trend and the Ruble has been gaining some of what it lost against the Dollar:

Dollar/Ruble xrate 17-22 December

Of course, there is much more to the current crisis as just the Ruble's exchange rate against the Dollar or the Euro, but it is undeniable that, at least for the time being, the Ruble's apparent free fall has been stopped.

So far, so good.

The Saker

Keiser Report: Ruble’s Baptism by Fire

Thanks to Veritas for pointing out this episode to me!

Crouching sanctions, hidden revenues

by Lev Igorevich 

Dollars for borsch

There is a lot of speculation about the economic health of Russia in the light of tougher sanctions, falling oil prices and tumbling ruble. Concerns are raised whether Russia can afford it’s existence. However, those concerns are paper thin and are presented in more of a mocking spirit, because in most prediction acrobatics, actual revenues of Russian state are not considered at all. Many sources, in their predictions for Russian economy, are repeating the same mistake over and over again. Roughly speaking - assesments are made under the assumption that Russians pay dollars for their borsch. In reality, Russia sells borsch for dollars. This is important point to consider, because Russia pays it’s public sector expenditures (education, healthcare, pensions, police, army etc) in rubles!

As we all knew (those who didn’t got it stamped in the face this year thanks to the good will of liberal media), Russian revenues are based on natural resources. Sales are conducted in FX (except for special agreements, some of which are still pending). So let’s take a look how the purse of Russian state is being filled.

For the purpose of this article, rough numbers were taken from Nasdaq WTI chart for oil and XE USD/RUB chart for FX. Example will be based on average gas price for Germany in 2013, which was $366 (according to Bloomberg).

Oil Situation

As far as Russian Treasury is concerned, income from oil industry is just fine and is probably exceeding early 2014 estimates for next years budget. Even at tumbling oil prices, falling ruble is compensating more than enough - revenue rose roghly 12% year-over-year.

Year	Month	WTI Crude $	USD/RUB	RUB revenue
2013	1Y AVG	97	33	3201
2013	November	94	33	3102
2014	February	103	36	3708
2014	May	103	35	3605
2014	August	95	37	3515
2014	November	75	46	3450
2014	December	60	60	3600
Crisis Average		88	41	3 497

Gas situation

Let’s take a look at this years picture using the same ruble prices from the oil chart. It is easy to see that ruble revenue almost doubled by the end of the year and avaregad 31% more in year-over-year income.

Year	Month	Gas3 $	USD/RUB	RUB revenue
2013	1Y AVG	366	33	12078
2014	February	366	35	12810
2014	May	366	35	12810
2014	August	366	37	13542
2014	November	366	46	16836
2014	December	366	60	21960
2014	1Y AVG	366	43	15 592

Surprise, n***a!

On paper, Russia will have good fiscal numbers and a solid budget for 2015. This of course is just a cover image. Russia plans major investments for 2015 and onwards (with developments in the west, Russia needs “2020” to happen much quicker) and is most likely to tap it’s floating currency mechanisms for issuing more rubles for those investments. I doubt that Russia will waste FX by selling them for rubles right off the bat if they can print the money against fresh FX holdings. The “big throw” will be reserved for later as we all know what happens to countries that dump dollar overnight. Last thing Russia (and China, too) needs right now is another color/umbrella revolution being sped up. Equally importantly, one must not forget that Russian and Chinese financial systems combined hold trillions of US treasuries (it’s insane to hold cash as bank deposits are guaranteed up to $250K, treasuries have no limit against bankruptcy) which they wouldn’t want to depreceate before major swap and secure measueres are in place. So unless the west comes in with guns, don’t hold your breath for international ruble just yet. Instead, what Russia needs right now is a weak ruble that will force to dump imports and start thinking about substitution and better yet realizing Russias natural potential. The plan is to force Russians to think about long-term local business, not just quick-buck consumerism. Russia must give a crude awakening slap to the late and advantage to the early wakers amids decreasing foreign profits. Make the business to step up with own goods and technologies, initiate a cross-sectoral build up and stop companies syphoning money off-shore where it gets pocketed by western “asset managers”.

Fate’s irony or enjoy your bath

Ironically, weak ruble will also punish EU for doing dirty work for the US. Now it’s for everyone to see that US waves the stick while the EU pays the price. Weak ruble will decrease tourism from Russia and exports to Russia. EU’s agricultural sector is already sensing light, but increasing pain. Tech industry shall follow if Russia is to prolong the embargo and weak ruble combo. Yes, low ruble means less purchasing power abroad. Yet it also means competitive advantage for Russian goods in foreign markets and thus increased selling power - a signal for future development. Mercedes-Benz has announced that it plans to build several plants in Russia. Volvo, Renault-Nissan and others are already there. If this will materiaize - hello jobs for Russians and goodbye long awaited economic recovery for EU! Germany will be punished for it’s ambition to monopolize the distribution of Russian gas by attempting to take Ukraine into its fold through post-coup privatization (now just a crushed dream), while actually opening Pandora’s Box for US to exploit. Get ready for a triple whammy (must be some excellent German engineering)! Firstly - US took Ukraine over and kicked Germany over the fence with Merkel compliantly shutting up. Secondly, EU’s sales to Russia were decreasing and with tumbling ruble are guaranteed to decrease even more. South America, Turkey, India and China will be more than happy to fill the void. And thirdly, how’s prospect of Turkey becoming major regional gas hub for you? Saxon greed has met its borders within the mauling paws of the bear while oldest nations of the world are economically invited to watch the show.

Crackdown on Brokeback Mountain

During the 18.12.2014 press Q&A session, when asked if he has confidence in the elites surrounding him, Putin replied that the biggest confidence stems from the overwhelming support of the Russian people. That was after some quite dangerous fifth column definition gymnastics and attempts to break Putins confidence took place. Russia will use current economic situation not only to punish it’s western “partners”, but also will have the perfect excuse, once comfortable, to clean up its fifth column in the government and banking. While low ruble will add pressure to European economy and steep central bank rate will stop predatory ruble trading, Putin will have a card up his sleeve to unleash the “wrath of Russian people” onto the traitors in the establishment responsible for “susceptibility to western sanctions”, “unexpected currency dive” and “expensive financing”. Switching staff by popular demand will remove a lot of questions internally and give that extra legitimacy externally. “The Moor has done his work, the Moor may go” at its finest. However, lowering the funds rate at the central bank will probably not give any rise to ruble (because of foreign perception, not economic reality), but as previously laid out, that might be desireable all along - easier financing and boosted competitivness is what the business always needs.

Letter from Diogenes on Interest Rate and Russian Central Bank

by "Diogenes"

Preamble: First of all, when I heard of Central Bank decision to increase the rate, I have to admit that number looks suspiciously familiar to me. Yes, I knew Central Bankers manual. If you wish I can send you this

That number 17% was used by my professor of macroeconomics who was lectured Central Bank staff consequently. It was in all American books on Macroeconomics, from 80s - old recipe how to fight inflation.

Paul Volker, then Governor of FED has to deal with double digit inflation from price shock, subsequent increase of liquidity and inflation expectations by the market - hike of crude oil prices caused by OPEC.

Paul Volker was appointed chairman of the board of governors for the Federal Reserve System in August 1979. The Federal Reserve board led by Volcker is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was lowered to 3.2% by 1983. Volker raised the Fed funds rate from 11 to 20% . Professor used exactly 17% interest rate in his lecture. Mr. Volker killed then double digit inflation (caused by plenty of liquidity) to 3% by 1981. Cost of that exercise was deepest and longest recession of US economy since WWII.

The Ladies that run Central Bank of Russia now are belong to macroeconomic sect dogmatic and they won't be able to change their mind quickly.

Consequences of the decision (IMHO):

1) IT WON"T STOP devaluation: Currency speculators wont be scared - they will continue to play against ruble because their collective efforts can push and depreciate ruble more then 17% in a day or two. Why to deposit ruble for a YEAR and earn 17% if one can make same return in a week?

2) Rate of 17% will be impossible burden on real sector industries and banks (except largest - with access to CBR refinancing) even so only very profitable business has margin big enough to afford loan at 20 plus%. Note: In 90s casino's were good borrowers of the Banks

3) Russian stock market will tumble. Stocks evaluation use cost of capital, so called WACC - weighted cost of capital, in denominator- higher rate is - lower stock price.

4) This is not a cure, but poison medicine. Rate increase is a wrong prescription for this situation. It will led Russian economy to deep and prolonged recession and they know it- this is written in their manual.

PS Central Bank will try to increase rate few more times to the range of 20% ( or 30%?) to no avail for exchange rate, unless those ladies are fired.

best regards

Diogenes

Ruble Exchange Rate Fluctuations and the Economic War

by Aleksei Kettunen
Translation to English: Petri Krohn

Russian ruble 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!

The Russian Central Bank's "counterattack" lasted 30 mins!

The result of the Russian Central Bank's hike in interest rates turned out to be worse then my worst nightmares: it reversed the downward spiral of the Ruble for only about half an hour, then the Russian currency resumed its collapse.  Rumor has it that the Central Bank might begin buying Rubles next, which I personally don't see as useful at this point.

I have asked for expert opinions and I hope to get them soon.  In the meantime, here is my own take on this which, caveat emptor, is backed by ZERO personal expertise in these matters.  Still, for whatever it's worth, my own speculations:

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 AngloZionist pressures on OPEC not to cut production
iii) The impact of western sanctions

2) None of the above are enough to explain what is happening.  The real problem is the lack of credibility of the Russian Central Bank and the Kremlin.  Thus the key factor in the fall of the Ruble is distrust of the Russian authorities.

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 strategic 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 Brent.

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 it's director with a rank of Minister of Finance.  Then Russia must take the strategic decision drop the current system of backing each printed Ruble with purchased US Dollar 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