Russian Ruble Turns to Rubble

March 1, 2022

14 min read

A number of readers here know that I have sometimes written articles for RT.com, owned by the Russian government. I got paid $200 per article via direct deposits from Moscow into my bank account for each article I wrote. Never did I write anything about the US that I was not willing to publish here or on other US sites. There is always plenty of corruption and shortcomings in any nation to write about, and you all know this site regularly writes particularly about US financial shortcomings, especially from the Fed.

As soon a Russia invaded Ukraine, I terminated that relationship with an email to the editors at RT prior to any sanctions going in place. It was not about the sanctions and not about the biases claimed against RT and certainly not about the editors. At no time, had the editors ever tried to get me to slant stories against the US or change what I had to say in any substantive way, and they were always totally pleasant to work with and good to their word in paying for articles they requested or approved based on my query to them.

However, with the commencement of a war being perpetrated by Russia so close to US allies, I do not want any ties with the Russian government. I find what they are doing so reprehensible that I have spent a lot of time on RT in the last few days writing copious comments on their articles about how wrong Putin is for invading Ukraine. Those comments, to me, were more important than any article I ever wrote for RT, and it would have been a conflict of interest in my opinion to keep receiving Vlad’s money from Moscow by publishing articles on RT while using their comments section every day to oppose what the Russian government is now doing.

It was, to my way of seeing things, one thing to write for them when Russia was behaving itself more or less since I wasn’t saying anything different than I was saying all over the US. After all, many US companies did business with Russia. It became quite another experience in my heart, which felt sick when Russia began invading Ukraine, a nation on our allies’ borders friendly to the US and to Europe and never aggressive toward the nation of Russia that I know of. (Note, I said “NATION.” I’m not weighing in on what Ukraine may have or may not have done to ethnic Russians in Ukraine because Ukraine, itself, took that to The Hague this weekend to have the world court try the matter. So, I’ll the court decide that, but the fact that Ukraine brought the matter to court indicates to me there is more to the story than what Russia has claimed; but we’ll see.)

I want a clear boundary line of my own between me and Russia now that it is attacking Ukraine so that it is absolutely clear which side I stand on. While my choice meant losing as much as $800 a week in income and the opportunities that were twice given to me for television interviews on major media (not something I’ve ever experienced), my heart goes out entirely to Ukraine as I know the hearts of most Americans do … or, at least, as the heart of every American I know or can imagine does. There are other things vastly more important than money, which is why I am not concerned about the costs of sanctions to Americans like myself either. I will absorb them as well the income lost in preference to watching Vladimir Putin try to resurrect the old Russian empire but especially over watching him subjugate Ukraine.

The hypocrisy of nations, including the US

I’ve heard it many times this weekend while likely burning the bridge to Russia for good with my comments on RT: “How can you criticize what Russia is doing when the US has been so imperial for years or when Ukraine’s government came about by a US coup and is run by Nazis? Who are you to talk, being an American?”

No doubt Ukraine is far from being a pure country and has as many Nazis as the US … or Russia. Likewise, Amerika is tainted with lies all over its media and scandals and Nazis and imperialism and financial corruption. That’s why I write this blog — to keep a laser light shining on corruption, the lies, the ineptitude and the bad economic philosophy. The UK is far from pure. So is the European Union and other European nations, AND SO IS RUSSIA! Therefore, arguments about whether one side is pure enough to stand up against another nation for its wrongs only add up to saying no nation ever has the right to confront the wrongs of another, and no one from within that nation has such a right, as all are impure, many in the same imperial ways at different points in time.

I am glad to see the US and its NATO allies and other nations unite around Ukraine. To be certain, this is a perilous situation in that Putin has three times used his nuclear missiles to threaten any nations that interfere with his plans — first when he launched nuclear-capable missiles from the Black Sea just before his invasion of Ukraine to flash is powers and show them off loud and clear; then when he used them in a potent verbal threat to keep all nations from interfering with his invasion of Ukraine by saying, “Any nation that interferes with what Russia is doing in Ukraine will immediately experience the gravest of consequences they have ever experienced;” and then when he announced that he was putting all of his missiles on some kind of undefined higher level of readiness that is not written in Russian nuclear doctrine but that sounds like attack readiness. This he did as soon as serious sanctions were imposed.

I am inspired and honored and blessed and thankful to see that no nations backed down to Putin’s nuclear threat, perilous as that is. One can’t always count on such strength from Europe, but Europe has been strong in all of this. While they showed some reluctance on some sanctions, I recognize those will hit them much harder than the US so that it has taken a few more hours to work out the details to minimize the damage to Europe. Strengthening of NATO arms and financing and troops increased. More nations asked to enter NATO. Numerous nations sanctioned Russia as intensely as any nation on earth has likely been sanctioned or very close to that, and numerous nations started running arms into Ukraine while the US promised today to deliver $350 million in arms to Ukraine.

At the same time, I am equally inspired and honored and blessed and thankful to see that NATO is not flapping its silo doors as Putin has done, and NATO is honoring its commitment not to fire on Russia unless Russia attacks one of its member nations first. That keeps it clear in my mind that NATO nations have always had more to fear from Russia’s missiles than Russia believes it has to fear from NATO. There has been no hint of nuclear threats that I’ve heard from NATO nations and no NATO soldiers firing at Russia so far, in spite of Putin’s brazen threats. May it remain so. While the nations of the world have laid siege against Russia by financially cutting it off and physically cutting off many transportation routes, etc., they stand down and stand by without firing a shot. May it remain so.

Russia already started this war with a pack of lies for weeks on end to buy time just to build up and position and train its forces for the road ahead, then launched an all-out invasion of a nation that didn’t attack it, doing exactly as the US warned the entire time it was going to do. There was no false yellow-cake claims or WMD claims made by the US administration this time — just straight truth, and Putin immediately went about the job of proving it all true, though silly people quibble over Biden being wrong about the day, as if Putin couldn’t change the day in a heartbeat because Biden had warned about it in order to keep everyone a little off balance.

I don’t care about all the reasons Putin laid as his basis for taking Ukraine back in one form or another — most likely as a vassal state with a Putin puppet government in place. That includes the coup the US wrongfully sponsored in Ukraine in 2014, which I have spoken against and sometimes written against. The reason I don’t care is the reason I gave above: No nations are pure, and Russia is by no means more pure than any others. It has a very long history of its own imperial aggression.

It’s a kindergarten argument that says, “Mommy, Johnny hit Eric, so it was OK for me to hit Sammy.” No, it doesn’t work that way. You don’t get to justify your own invasion because someone else has invaded other nations at other times because that path of reasoning is nothing but an argument for eternal war. Those of us who are US citizens can try to stop the US from its foolhardy invasions in the future, but we can never undo those in the past. That does not give Russia carte blanche to do the same or the US a requirement to stand down when Russia does do the same. If we only let pure nations take a stand, no nation is eligible. So, it is inevitable that Russia is being confronted by hypocrites who have done the same kinds of things, but at some point it has to stop, and letting Putin conquer Ukraine and, in one way or another, tuck it into his imperial belt would, in my opinion be gross negligence on the part of the rest of the watching world.

Sanctions are an act of war!

Let us also not assuage ourselves by thinking sanctions are not an act of war. Since when has laying siege to an entire nation not been an act of war — cutting it off financially, cutting it off physically? We know that will have the effect of starving out the people. Sieges and sanctions always oppress the people of any nation where they have been implemented in force. Sanctions are just a modern form of siege. They will certainly cause great human suffering, so let’s not pretend they are not a modern form of warfare. They are certainly as much warfare as cyber-warfare is, and we don’t hesitate to label that as a from of war.

So, as most of the world lays siege against all of Russia, it might be good to note that Putin may very well be threatening nuclear attack over sanctions as being “interference” with Russia’s plans. We should not delude ourselves into thinking, then, that sanctions are less warlike or safer from Putin’s threatened nuclear reprisal. If the sanctions don’t hurt much, he may weather them out, having weathered many others out. If, however, they result in thousands of Russians starving to death in the cold, things will get pretty desperate, and desperate men do desperate things.

Oh the other hand, if these sanctions don’t result in financial cataclysm, then the entire enterprise will be completely useless because the hope of sanctions or siege is really always that you eventually starve the enemy into compliance by attrition. Sanctions have no magic; that is why they so seldom accomplish anything. They work only if they inflict great pain and even death. As we’ve seen with North Korea and Iran, they are almost useless even when the pain is severe.

That is why sanctions do not obviate the need to supply arms to Ukraine so Ukrainians can fight their own battle with enough force to win. Sure, even Ukraine is far from pure as the driven snow and has done its own vile acts that helped get things to this horrible point; but we’re here now, and nothing that has been done justifies Putin’s CLEARLY EXPRESSED imperial ambitions of restoring Russia from the greatest catastrophe in modern history and righting the wrongs of innumerable past border changes, etc., etc. by slaughtering Ukrainians and severely damaging their nation.

We’re in this, and the situation is even more dangerous than the Cuban Missile Crisis in my view because it is right on the border of Europe, threatening all nations that try to interfere with Putin’s current plans, and many of those nations are, unlike Cuba, already armed with nuclear missiles and are at short distance from Russia’s missiles, allowing little time to respond.

That doesn’t mean, however, the best answer is to cower and let Putin intimidate the world into letting him seize control of Ukraine, which he has blatantly stated more than once does not deserve to be a sovereign nation. His invasion speech made it abundantly clear that all of this is as much about righting what he sees as the worst calamity of the last century — that being the fall of the Soviet empire with respect to which he is particularly obsessed about getting Ukraine back. It is also more dangerous because, frankly, Putin looks a little unhinged, but letting an unhinged man seize more power does not make an unhinged man less dangerous.

The ruble crashed into rubble

While the so-called “peaceful” sanctions are anything but, the good news is they are wrecking considerable havoc overnight. They have actually had leveraged impact due to the war, itself, and the existing fragility of the global economy, and especially Russia’s long-starved economy.

The ruble has fallen off a cliff in just a few days to its lowest level ever against the US dollar!

Russia’s central bank was cut off from most international transactions, sparing only those that would hit European allies as hard or harder than Russia. To stop the crashing ruble, the Russian Central Bank (RCB) doubled already high interest rates that had been set against already high inflation to a whopping 20% to stem further collapse of the ruble. That move saved the currency from further decline and even bounced it back up some, but that solution means Russians will be under greater strain, regardless, because most credit costs will soar at at time when the prices are also soaring all over the world and when economies are sinking into recession everywhere, Russia’s in particular now that it is under near total sanction. So, the RCB was forced to tighten very fast into a rapidly growing recession.

“It’s going to ripple through their economy really fast,” said David Feldman, a professor of economics at William & Mary in Virginia. “Anything that is imported is going to see the local cost in currency surge. The only way to stop it will be heavy subsidization.”  

AP

But subsidization with what money when most money has been sanctioned out of circulation already? Printing more rubles in other banks to make up for those out of circulation is the likely answer, but that may easily overshoot mere replacement and cause more inflation, making the problem worse, but their best hope may be to print new money inside financial institutions that still function.

As a real cost of the sanctions, today saw runs on Russian banks, leading to temporary bank closures and long lines around the block at ATMs where money is dribbled out on demand. That is instant on-the-ground pain. As a result, the European subsidiary of Russia’s biggest bank came to the brink of collapse over the weekend.

Russia’s government was also frozen out of $630 billion in emergency funds, including foreign currency and gold, which Putin had set aside to fortify Russia’s financial system precisely for times of financial meltdown like this under sanctions or the weaponization of the US dollar.

Russia’s stock market continued to crash so badly it had to be shut down completely today. Shares of Sberbank in London plunged by 70%. Gazprom down almost 40%.

Here is the leveraging effect: The fall of the ruble relative to most currencies will make the cost of imported goods from the few nations still trading with Russia much more expensive as will the greatly diminished supply of goods going to Russia due to trade sanctions. Cutting supply of goods via trade sanctions raises prices all by itself; cutting off financial institutions makes it hard to find ways to pay for the goods you can find. Inflation was already high, but raising the cost of credit so those without money can’t get more money compounds all of those problems. In one day, Russia was handed a massive mess by the majority of the word. Now it gets to sort it all out … as even more sanctions are likely figured out and put into place.

SWIFT, of course, was mostly cut off to cripple international financial transactions, but perhaps more interesting is that SWISS was also cut off. Switzerland broke with its resolute neutrality stance for the first time in history and sanctioned the Swiss bank accounts of Russian oligarchs, one of whom was already ranting on Russian television over the fact that he no longer has access to two of his Italian villas, two of whom are now publicly pleading with Putin to find a path to peace. The determination seen by Switzerland to squeeze sacrosanct Swiss bank accounts at the cost of breaching decades of neutrality had tremendous symbolic value as well for showing just how strongly Europe and the world stands behind Ukraine and against Russia’s Putin government. That was a sanction I think few if any saw coming.

Putin and his buddies have now all been sanctioned by multiple nations, including the US, which puts Putin in the rare ranks of only three other national leaders — King Assad of Syria, Khameni of Iran, and Kim of North Korea, the KKK of the new axis of evil, all Putin’s friends so they make a cozy club of maniacs. That won’t hurt Putin much financially because he lives in palaces bought and paid for by the Russian government with elaborate services also bought and paid for by Moscow. He lives high on the hog, in spite of reportedly owning comparatively little as part of his own personal wealth, but it symbolically assigns him to some pretty low company in the world’s eyes, so it is personally disgracing to enter this club of low-lifers.

The great petroleum-exporting nation may even find its tanks running out of fuel. I don’t mean the storage tanks at petroleum tank farms. I mean the tanks running on tracks across Ukraine. They may run out of fuel before they make it to Kiev as Ukrainians have successfully slowed their advance to such a meager crawl they idle away their fuel in what has piled up to a now seventeen-mile column of bumper-to-bumper tank traffic, linking both sides of the road, which may make it hard to move fuel supply trucks to the tanks. One can only hope Ukraine somehow manages to strafe the perfectly tidy line with stinger missiles and take out the whole column so neatly lined up for them. That would be an astounding battle victory as they sit there like a row of ducks, but I’m sure there are plenty or factors that make that harder than it looks via satellite.

With his emergency reserve fund cut off, the RCB cut off, and so many other banks cut off and SWIFT — the system used internationally to move money between banks — mostly cut off, Putin may even be out of money by the time his long column of tanks reaches Kiev. Well, that may be a little wistful, but at the slug’s crawl they have been creeping along at, it’s not impossible.

In fact, their pace is so slow that Putin is reportedly enraged at the bogging down, so to speak, of his advancing army. Who can know for sure if he is enraged, however, since he has lived throughout the COVIDcrisis as a holed-up hermit, rarely taking meetings in person, sitting at the far end of extremely long tables from the few people he does meet with because he is so paranoid about getting COVID? Many speculate that may account for his mental decline. He’s hardly seen. His generals and others have to do routine stool samples to prove they have no infection before meeting with him. No wonder they had such grumpy looks on their faces when he was informing them of the possible need to go full nuke.

All of that and so much more, really is not bad for just a weekend’s work, and many of the sanctions haven’t even had time to be fully implemented yet!

Here is what I find most impressive: In just one week’s time, Russia has become the pariah state of the world with very few nations even slightly hesitating from distancing themselves and with the citizens of all nations that have imposed sanctions strongly behind their governments in spite of the fact that sanctions will mean even more inflation on top of the inflation we already have when we cannot afford more economic disruption. Putin has succeeded in nothing so much as superbly and tightly uniting the world against Russia and in support of Ukraine faster than any global response any of us have ever seen and to a broader extent than ever before.

It is no wonder Putin has tried for years to insulate Russia from dollar dependency. He new what he was eventually going to do, and had some ideas of the increased sanctions he would face. It just didn’t work out for him as smoothly as he thought he had prepared for because he underestimated the world’s outrage and subsequent unanimity.

In just one week’s time, we are already seeing the most stunning decline of a nation I have ever witnessed, and I lived through the collapse of the Soviet Empire in my thirties when I spent a summer with a group of Russians who were sailing in replica wooden ships on a voyage commemorating Vitus Bering. They arrived in Seattle where I lived before moving to Hawaii. They had a broken mast and a few other problems and could not get their ships repaired because their $2,000,000 rubles became worthless in the US under Gorbachev’s devaluation of the ruble at the time it happened. So, they were entirely dependent on local hospitality and fundraising for their repairs. I spent the summer having them over for dinner or dining in their galley, sharing our condo with them and the swimming pool, letting them use the phone to call their wives or girlfriends in Russia and even sailing the one ship that was still in good shape. Because we spent a lot of time together right at the crux of that collapse, I saw what the Russians went through back then.

That was nothing compared to this unfolding catastrophe. Putin has single-handedly thrown Russia into a collapse worse than the one he railed against only days ago when he began his attempted conquest of Ukraine. Russia will end up in the dust bin of history unless and until good Russians unite against Putin to rapidly turn this around and say, “This is not our war!” The world is not going to let up otherwise, and time is not on Putin’s side.

Therefore, thank God, tens of thousands of Russians are now trying. May they succeed before the sanctions cause them great harm as sanctions are fully intended to do if they are to work at all because I’d like to sail with my Russian friends again some day if we can ever put this behind us. For Ukraine, putting it behind them will be a lot harder, and my heart fully goes out to them in their struggle, and I admire their courage.

My next post will be for my patrons only on the housing bubble bust.

Reprinted with author’s permission from The Great Recession Blog

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