More Bad News for Russia

[fathertime]

For those that still dont get it-- this is putting incredible pressure on Kremlin. They don't have the cash to support the currency and whatever they do-chances it will be the wrong move.
For the dummies who do not get why any of this matters--it will create serious instability within Russia. ( yes-I do need to spell it for some here-- who dont seem to get the connection!!)

1.00 USD   =   84.0299 RUB
US Dollar   ↔   Russian Ruble
1 USD = 84.0299 RUB   1 RUB = 0.0119005 USD


Oil at $26

Added-

nearly 86 now !
http://www.ft.com/fastft/2016/01/21/rouble-meltdown-dollar-breaches-rbs85/

I think you are overestimating the pressure on Russia. You never would have believed Russia would have survived with oil this low, yet it has!   I do know that our own economies are beginning to suffer, the enormous declines in the stock markets, and even oil, are often a grim harbinger. 


Fathertime! 

[BC]

I think you are overestimating the pressure on Russia. You never would have believed Russia would have survived with oil this low, yet it has!   I do know that our own economies are beginning to suffer, the enormous declines in the stock markets, and even oil, are often a grim harbinger. 


Fathertime!

FT,
I think that many believe that the US economy is totally independent.  It is of course not the case.  The global economy is an ecosphere where the downside of one part affects the other.  China is the major factor in play now, but is 'driven' by demand from other countries, thus when economics in china turns negative it's a leading indicator that demand worldwide is dwindling.  I really think the next crisis will be the US rather than elsewhere.  Where there is a bubble, it will burst and right now I see a huge bubble in the US financial markets.  What goes up will come down.. the laws of gravity and equilibrium will prevail.

[mendeleyev]

The idea of a strong dollar trickling down to the everyday Russian is pure stupidity. It is the voice of ignorance.

First, import restriction (reverse sanctions) mean that imports for the common man are simply disappearing from the shelves. Then, the price of domestic replacements has skyrocketed, and those are of dubious quality.

Recently we were shopping in a Victoria supermarket, a popular chain. We wanted ice cream and I watched as my wife pored over the labels very carefully. Over and over again she put the containers back in the freezer while explaining that some sort of oil/fat had replaced the milk. She didn't place any ice cream in the basket that I was dutifully pushing. Next we went to the sour cream and butter, and the same scenario played out. She sighed and picked one container of sour cream with the expression "we'll try it," and then she proceeded to eventually do the same with butter.

The rumour, and I have no idea if it is true, is that dairy products from the Tula (Russia) area contain real milk. She told me that when out and about if I found any dairy product produced in Tula that I should buy it and bring it home.

When McDonalds was forced to give up the fantastic McD farm and production centre years ago, the idea was that McD had taught Russian farmers how to produce quality food products in mass. The idea was that what they had started was an incubator from which Russians could expand. The theory might work in many nations, but Russia remains a mafia state and ownership of any sizable industry is owned at the top. They have little motivation for change and innovation, and thus Russia has continued to import even the most simple foodstuffs from neighbors such as Ukraine, Poland and Finland, etc.

The Kroshka Kartoshka "little potato" chain was among the first foreign firms that discovered the need for consistent product (potatoes for baking) simply were not in supply when the chain was founded. In the early days, before the British owner was chased out of Russia upon threat of his life, the owner was out in the fields teaching Russian farmers who knew how to grow potatoes in bulk, how to produce a spud that was consistent in size and quality for his cafes. That took several years, but over time those individual farms were taken over, most by force, by those with ties to Oligarchs.

Reverse sanctions imposed by the Kremlin was touted as a way to kick-start domestic food production. The only thing that has been kicked are the asses of little consumers. Quality is miserable, as is consistency of production.

The biggest game today is to discern which products are really imports, but labeled as domestic to get around reverse sanctions confiscation. Those cost a lot more but the quality is light years ahead of domestic products in most cases. When Mr. Putin complained that he did not wish for Ukraine to adopt EU standards, he rightly admitted that it would elevate Ukrainian goods to a level at which Russia simply could not compete.

Today the ruble is at 85.

Russian consumers, those who live here and understand what they are seeing, are not rejoicing over some "strong dollar" myth.

They are dismayed. Perhaps they know that they are taking about.

[krimster2]

mendeleyev,
 the information I receive frome my weekly skype conversations with friends/family in Sevastopol are in-line with your experiences.  much higher prices in Crimea now, the quality of Russian goods is much less than Ukrainian or foreign ones that are no longer available.  Most Ukrainian cities have a large out-door shopping area, kind of like a swap-meet and farmer’s market rolled into one, the ones in Kyiv and Odessa are enormous, Sevastopol’s was smaller and known as the “Fifth Kilometer Market” and was located on the road to Balaclava.  A lot of the goods came from Turkey, local entrepreneurs would make the trip by ferry to Istanbul and buy wholesale and resell in the Fifth Kilometer Market, this doesn’t take place now because Crimeans aren’t allowed contact with Turkey, this also means fruit/vegetables from Turkey (whose favorable climate gives it two growing seasons) are no longer avaliable in the winter months like they used to be.  the weak ruble has also pushed up prices on “Teknica”, cellphones, computers, etc cost 3X what they used to cost before Russian annexation

[mendeleyev]

BTW, Russia is not going to implode in my opinion. True, they are up against a massive deficit this year, but nowhere near the type deficits that the USA accumulates for instance.

They key to watch is how much they get squeezed by the Chinese in 2016. Trade was off by 50% with China by the end of 2015 and Beijing ended up renegotiating every single one of the agreements made in early and mid 2015. That has hurt the state, which benefits mostly from such deals.

Social service cuts are getting deeper, especially in transportation recently. You may have seen stories of small protest rallies in some regions. In a nutshell, transportation benefits were cut for seniors, veterans, and students who formally had a free ride on most systems. Today the free rides are mostly limited to the city in which one is formally registered.

Ex: we live just outside the Moscow city limits. My MIL, who is registered at an apartment inside the city limits, can still use her benefit inside Moscow city limits. However, now if she were to take a bus from our suburb to Moscow, she'd have to pay for that service. For low income seniors and veterans in villages, that is a blow as now they must pay just to get to where they can shop, see a doctor, etc.

Even with these protests, most of the protesters have directed their ire at local government officials who do oversee such services. Nobody seems willing to point the finger at the source where local governments get that funding--the Kremlin.

I believe that as long as the Kremlin media piles on the anti-Western blame for everything under the sun, the little people will continue to "take one for the team" and give the Kremlin a free pass.

There is one thing that has in particular swung back to the Soviet era: humour. Back in Soviet times the humour was fairly sarcastic against the government, a natural impulse when you understand what is wrong but are powerless to make change. The same intimidation is creeping back into the social fabric and folk are fearful of making waves.

That form of humour has resurfaced, and was in full display recently after a deadly apartment elevator crash. Two jokes that I heard from Russians were:

- That elevator accident was not caused by the fault of any Russians; the elevator (manufactured by OTIS) was a Western Trojan horse installed by NATO engineers.

and

- That elevator accident was caused because the elevator inspectors had been sent "on holiday" as little green men to Eastern Ukraine.

Both were meant and delivered as sarcastic humour.

[ML]

. . . showing the need for the RU economy to further expand into other non-energy production and industries. 

Perhaps in the production of shoes for export.

I hear those were quite good in Soviet times.

[mendeleyev]

Shoe production in the 1950s, for example, was robust if all one considers is numbers. Led by the Kalinin boot factory in Minsk and Gomel, Soviet shoemakers produced an average of six pairs annually for every man, woman and child. The only problem was that they couldn't sell them all, even to Soviet satellite nations due to issues of quality. Citizens wore them only as a last resort, instead opting to stand in long lines when imports appeared.

The exceptions were a tall fur lined work boot made by the Minsk factory, and an Italian knockoff that was known to fall apart after a few months but at least it looked fashionable before self destruction.

During the Brezhnev era factories were ordered to vastly increase production but they had limited materials. So, to keep up with the numbers required the factories made only smaller shoes for children. They met their production quota for the number of shoes created, but the consequence led to a wide shortage for awhile in adult sizes. Lines got very long at that point.

There is a "Soviet" brand shoe that is sold today, online. It replicates the styles of those years but made (in South Africa) with the quality that the Soviets never mastered. Order here: http://www.zando.co.za/shoes/soviet/

[krimster2]

Shoe production would only lead to defeat

[fathertime]

The idea of a strong dollar trickling down to the everyday Russian is pure stupidity. It is the voice of ignorance.

Nice to see the voice of 'ignorance and stupidity' once again.  I was curious to see if you were interested in continuing to whinily distort what I said once again.  I am not disappointed.   Lets recall YOUR addition to my original statement which I quote here:

     Since oil is usually purchased in dollars,oil producing  nations such as Russia are receiving very strong dollars for their oil, which does lesson the impact of the weak Ruble. Fathertime!

So Mr Whinyface, it has been you that continue to add in all the stuff about 'ordinary Russian people'.  A group I did not expressly single out, as you have.   The strong dollar for their oil does indeed benefit Russia, more than if the dollar was weak...that should be obvious.    You are a little afraid to admit you read more into my statement than I actually wrote, so I should expect the perpetuation of your distortion...for the purpose of saving  face....nothing more, and certainly not the truth of my statement, despite what a few of your sycophant fanboys cheer about. 

Fathertime!   

[fathertime]

BTW, Russia is not going to implode in my opinion. True, they are up against a massive deficit this year, but nowhere near the type deficits that the USA accumulates for instance.

Of course there is a bit of a difference in the debt we (The US) runs up vs Russia.  We are able to print money and get away with it to this point...So we can (and have) run 1 trillion dollar deficits....Russia will not be doing that...but they obviously have a rapidly declining reserve.    That doesn't mean they have to collapse, they can take other steps.


Fathertime!   

[Anotherkiwi]

So Mr Whinyface, it has been you that continue to add in all the stuff about 'ordinary Russian people'.  A group I did not expressly single out, as you have.

Fathertime, why do you not include the "ordinary" people?

The strong dollar for their oil does indeed benefit Russia, more than if the dollar was weak...that should be obvious.

This is rubbish, and even you should realise it.  The strong dollar does not benefit "Russia" (which includes the "ordinary people") in the slightest - it benefits the oligarchs and the Kremlin alone.  They are NOT Russia, and have absolutely no interest in sharing any such "benefits."

[krimster2]

 The answer to Russia’s over-dependence on fossil fuel and mineral extraction industries was to diversify Russia’s economy through the “Skolkovo Innovation Center” which was hailed to be Russia’s “Silicon Steppe” however the $15 billion project looks to be more of a Potemkin Village than a hi-tech innovation center.  It looks like about $4 billion of the project’s funds have already been siphoned-off.  If any of the foreign partners have a look at Russia’s TV, they’ll soon realize that their employees aren’t wanted there.  Then there’s the “brain drain”, the reality is that Russia’s “best and brightest” are leaving Russia at a rapid pace, so there isn’t as much talent to harness as was originally planned, and Russia’s current economy doesn’t have any funds for future development. The latest building project of the Skolkovo Innovation Center was a golf course that remains un-used

As someone who founded what was the largest software development company in Crimea, I can tell you that years ago I would’ve jumped at a chance to do a start-up in Skolkovo, but now I wouldn’t touch it, no matter what incentives would be handed out.  Of the 12 developers I hired and had to lay-off in Crimea in 2014, more than half have left, and of the ones who stayed none are currently employed in a high-tech field, and I expect that slowly the remaining ones will also leave.  I really was someone “with fire in the belly” about working over there and developing products and training the young people there.  Now I just laugh about it.  Ukraine or Russia, it doesn’t really matter, a stupid government run by oligarchs, whose only purpose is to steal as much as they can.  There can be no steps forward in either country because of this. 

[fathertime]

Fathertime, why do you not include the "ordinary" people?

Kiwi, my statement didn't exclude 'ordinary' people..


 

This is rubbish, and even you should realise it.  The strong dollar does not benefit "Russia" (which includes the "ordinary people") in the slightest -

Not in the slightest?  That is an exaggeration.
1. Nations that can produce (in this case oil) for less (wages) do have a competitive advantage over those that can not.  In that sense it can become a race to the bottom.  So from that standpoint there is a benefit to the Russian energy industry, which is obviously huge, so long as it receives strong dollars and pays out weaker Rubles to employees. 
2.  If you believe all the benefit goes to the Kremlin, and 'ordinary' people see no benefit whatsoever than I won't argue that belief...even if I question it. 
3.  In addition, if dollars were weaker, then it would just mean less ability to spend for whoever winds up with all the dollars for oil in Russia....You argue oligarchs/kremlin only, I'm not entirely convinced on that one.
4.  As I've mentioned numerous times, I did not say low oil was good for Russia, obviously it is not.  Having a stronger dollar though does mitigate some of the damage...They do receive a lot of dollars because they produce a lot of oil.  Somewhere in the vicinity of 10,000,000 barrels a day....probably more.   
5.  Reports of Russia's collapse have been greatly exaggerated...although I'm sure there is more suffering now. 


Fathertime!   

[cc3]

The bank rules keep chaning in Ukraine.  Prior to my wife arriving in the USA, I was transfering USD to her account in Kiev.  For some reason she was allowed to only withdraw money in Grivna.  When I am there in Kiev, I can go into the bank and withdraw USD from my American debit card after showing my US passport (assuming theyhad any USD on hand).

Don't know if this has changed, but it is how it was a little over a year ago.

My wife has a US $ account with Privat. I successfully transfer US $ to her every month via Privat.

[JayH]

BTW, Russia is not going to implode in my opinion. True, they are up against a massive deficit this year, but nowhere near the type deficits that the USA accumulates for instance.

There is a vast fundamental difference  in a US deficit. The sheer size and diversity of the US economy   should not be compared to recalcitrant economies like Russia.  Russia had the opportunity to become a powerhouse economy but the kleptocracy robbed Russia of that opportunity. The natural resources advantage was not used to improve Russia fro the Russian people- and even now we see money being spent on the military - not on infrastructure.

What all that equals is that Russia is ill equipped to handle the change in circumstance--implode-- mmm maybe not--but it will collapse by any normal definition of economic performance.

That is what the Kremlin is desperate to avoid-Putin thought he could outlast sanctions and get what he set out to do.Now-- they are trying to negotiate.The problem is that now--everyone seems to understand the posturing and attempts to standover. Eg-- now we have upgraded attacks in eastern Ukraine-- as we have seen repeatedly when any negotiating was imminent-- so overall  Putin and Russia are out of effective tricks-- and money!
Implode? Collapse? maybe not-- but it will only be avoided by very significant  climbdowns by Putin and Russia.

[mendeleyev]

Kiwi:

The strong dollar does not benefit "Russia" (which includes the "ordinary people") in the slightest - it benefits the oligarchs and the Kremlin alone.  They are NOT Russia, and have absolutely no interest in sharing any such "benefits."

You get it. It is the difference between experience and conjecture.

[mendeleyev]

Making the rounds:

Russian father comes home and brings the bad news: "My wages got cut in half due to the sanctions and recession."
His young child, with hope in his eyes: "Papa, will you be drinking less now?"
Father: "No, but you will be eating less."

[Gator]

1. Nations that can produce (in this case oil) for less (wages) do have a competitive advantage over those that can not.  In that sense it can become a race to the bottom.  So from that standpoint there is a benefit to the Russian energy industry, which is obviously huge, so long as it receives strong dollars and pays out weaker Rubles to employees. 

WRONG!   Reduced labor costs help but not significantly because operating labor is not the major determinant of the cost of extracting and delivering oil.   Even if Russian oil workers worked for free (which they might be forced to doing), Russian oil still could not compete with Saudi oil.  US shale costs $40-70/bbl to produce, Russia onshore $50/bbl, Saudi Arabia $10. 

2.  If you believe all the benefit goes to the Kremlin, and 'ordinary' people see no benefit whatsoever than I won't argue that belief...even if I question it. 

WRONG!  Kiwi wrote,  "The strong dollar does not benefit 'Russia'..."  So there is no benefit to the Kremlin  or the people.   This is another of many examples proving you do not read, do not comprehend what is read, or choose to twist what is written.   

3.  In addition, if dollars were weaker, then it would just mean less ability to spend for whoever winds up with all the dollars for oil in Russia....You argue oligarchs/kremlin only, I'm not entirely convinced on that one.

WRONG!   If the dollar were weaker, the dollar price per bbl would be higher.

4.  As I've mentioned numerous times, I did not say low oil was good for Russia, obviously it is not.  Having a stronger dollar though does mitigate some of the damage...They do receive a lot of dollars because they produce a lot of oil.  Somewhere in the vicinity of 10,000,000 barrels a day....probably more.   

WRONG!  Russia produces about 10 Mbbl/day, but uses much domestically.  It exports about 7 Mbbl/day.   And that number is declining because of lack of new investment and reduced maintenance.  Saudi Arabia is slowly winning the market share war. 

5.  Reports of Russia's collapse have been greatly exaggerated...although I'm sure there is more suffering now.   

CORRECT!  You are 1 out of 5 today - an average day for you.

[Gator]

The thought of Russia collapsing is absurd to me.  And the world needs to be very careful.  Putin strikes me as a leader who, if pushed to the edge of collapse, would do something to threaten if not harm Saudi oil production and thereby drive up the price of oil. 

How would he accomplish such?   Before Obama's nuclear weapon treaty with Iran, I would say he could have encouraged Iran to escalate a conflict with Saudi Arabia in Yemen or start a new one in the Gulf.  Iran may still do this, but after the treaty they probably want to try diplomatic means for a while.

Putin's increased role in Syria could eventually be played into some sort of threat to peace, but this would take too much time while Russia's economy suffers. 

So what are the remaining options?  Does Putin have the balls to fund a terrorist attack (e. g., dirty bomb) of oil fields in Saudi's Shia populated areas?  Many believe he bombed apartment building in Moscow to help his election campaign. 

[JayH]

The bad news keeps rolling in!Not to long ago we were being force fed the BS that all was good in Russia as a new deal with China was better that any others! A few knowledgeable people commented then that China would eat Russia alive !Now it is happening--with China either moving on--or renegotiating contracts to a new reality!!


Russia was hit in the jaw by China, or very bad news for the Russian Federation
 
China pretty quickly and effectively has replaced Russia as a supplier of oil Iran, Saudi Arabia and the US.

http://www.amn.com.ua/blogy/rossyya-poluchyla-udar-v-chelyust-ot-kytaya-yly-ochen-plohye-novosty-dlya-rf/

[Muzh]

Mods, thx.

Now, if we could only get rid of the bold 34 point font. 

[fathertime]

WRONG!   Reduced labor costs help but not significantly because operating labor is not the major determinant of the cost of extracting and delivering oil.   Even if Russian oil workers worked for free (which they might be forced to doing), Russian oil still could not compete with Saudi oil.  US shale costs $40-70/bbl to produce, Russia onshore $50/bbl, Saudi Arabia $10. 

WRONG!  What I said about lower wages is true.  It is a benefit. I didn't say it was the only factor though.

WRONG!  Kiwi wrote,  "The strong dollar does not benefit 'Russia'..."  So there is no benefit to the Kremlin  or the people.   This is another of many examples proving you do not read, do not comprehend what is read, or choose to twist what is written.   

Ok lets see what Kiwi wrote just to show you are indeed incapable of reading.

  The strong dollar does not benefit "Russia" (which includes the "ordinary people") in the slightest - it benefits the oligarchs and the Kremlin alone.  They are NOT Russia, and have absolutely no interest in sharing any such "benefits."

WRONG!   If the dollar were weaker, the dollar price per bbl would be higher.

Although this is likely true, it is not the only scenario...therefore you are once again WRONG, by making this a definitive statement. 

 

WRONG!  Russia produces about 10 Mbbl/day, but uses much domestically.  It exports about 7 Mbbl/day.   And that number is declining because of lack of new investment and reduced maintenance.  Saudi Arabia is slowly winning the market share war. 
 

WRONG!  your statement does not contradict my statement. 

 
CORRECT!  You are 1 out of 5 today - an average day for you.

You had Zero statements correct...that is normal for you.....


Fathertime! 

[2tallbill]

WRONG!  your statement does not contradict my statement. 
Fathertime!

FT, all Russian companies must convert the dollar transactions to the Ruble
immediately. It's the law. ₁

While you are correct that there are some benefits to a high dollar, this
benefited the old Soviet Union as well because the old Soviet Union (and
Russia today) needed hard currency to pay for foreign goods.

There are also many, many disadvantages as well.

I am sure that most will agree that the plunging Ruble hurts Russia far
more than it helps them. I didn't read all the comments here but I think
most would agree.

1. http://www.wsj.com/articles/russians-seek-to-soften-impact-of-ruble-depreciation-1439891343

[2tallbill]

I think the key will be controlling inflation and capital flight.  If that is kept under control in the long run it might not be so bad.  Yes prices for imported products will obviously go way up in short order, but that will likely cause more demand for local products, a side benefit of low exchange rates.  RU may impose price controls for the basic necessities.

I highly doubt RUB will fail and am confident they have the will and capacity to recover.

Just a matter of time IMHO.

The key of your point is to keep inflation under control. I don't see how they can do this.
Russia is very bad at making things that anyone wants to buy, even Russians. They can
protect their industries but it just makes everything more expensive.

They can't control inflation, that's the problem as you've alluded to. Russian factories
make substandard goods for the most part. The solution is to invite foreign companies
that have the know how to come in and build modern factories, but none of them will
do it because of vast corruption.

Russians will survive, they've been doing it forever and they will keep doing it.
They've got a zillion problems but surviving isn't one of them. Maybe someday
Russians will get their leaders to clean up the corruption, but I won't hold my
breath waiting for it to happen.

Udachi!

Bill

[Muzh]

My wife has a US $ account with Privat. I successfully transfer US $ to her every month via Privat.

LOL


I was going to privately ask you how you did that.


Do you mind sharing how to do it. My wife would like to send money to her sister.