Read 'em and weep
One thing the war in the Ukraine has produced in spades are armchair generals and gnostic geopolitical poseurs who pretend they have the "magic key" to understanding the conflict in the Ukraine. Following a disappointing but hardly disastrous Ukrainian offensive (something to do with not just treating Ukrainians like expendable cannon fodder), some of these idiots are now "sure" that Russia is going to win. What they fail to realise is that this is an economic war, first and foremost, and a military conflict only secondarily.
The key data point here is the real value of the rouble, which is what the rouble would be on an open and undistorted market. Right now that is probably 300-400 roubles to the dollar and falling, although on the international markets it is officially trading in the range of 90-to-100 roubles to the dollar.
This value, however, is merely a reflection of how the exchange rate is distorted by central government interventions in the currency; interventions that invariably lead to massive damage to the Russian economy. These interventions always happen when the rouble starts to go into a tailspin, right about when it nears the one-rouble-to-one-US-cent mark. When that happens, there is almost no desperate measure Putin's government will not use to avoid passing that dreaded psychological barrier.
The easiest way to protect a falling currency is to push up interest rates, but the downside of this is that it destroys credit and liquidity in the economy and thus undermines almost all economic activity. As the graph below shows, Russia has been hitting the "high interest button" like a monkey seeking dopamine, with a higher than expected 2% rise in October, bringing it up to an eye-watering 15%.
This measure seems to have reached its ceiling, however, as Putin is now trying other even more desperate measures, like forcing his own appointed oligarchs and fellow gangsters to sell their foreign currency reserves for worthless-in-the-future Russian roubles.
As reported by Fortune:
"Putin signed a decree Wednesday meant for Russian export companies—43 of them in total across energy, agriculture, and other sectors—to sell some of their foreign currency revenues on domestic markets in exchange for rubles to help bolster Russia’s currency."
For someone like Putin, this is the equivalent of pulling up the boards and beams of the ship to feed its steam boilers.
While Putin's fellow gangsters can forgive him slaughtering up to 300,000 of his own troops in this still unresolved war, they are a lot less likely to forgive him for forcing them to exchange their valuable foreign currency for roubles that look set to drop disastrously, as the Russian economy limps into 2024 with brutal interest rates, a massive labour shortage, and other toxic problems.
While Putin's fellow gangsters can forgive him slaughtering up to 300,000 of his own troops in this still unresolved war, they are a lot less likely to forgive him for forcing them to exchange their valuable foreign currency for roubles that look set to drop disastrously, as the Russian economy limps into 2024 with brutal interest rates, a massive labour shortage, and other toxic problems.
All this is going to make the fake election victory of Putin in the staged Presidential election in March 2024 look faker than ever -- assuming he lasts that long.
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Colin Liddell is the Chief Editor of Neokrat and the author of Interviews & Obituaries, a collection of encounters with the dead and the famous. Support his work by buying it here (USA), here (UK), and here (Australia).
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