The growth of America's oil production and the refusal by Saudi Arabia to cut production have claimed their first national victim: Russia. That country's currency, the ruble, plummeted today even after the Russian central bank raised interest rates to 17%. Think about that. Investors were pulling their cash out of the ruble even though they could get extremely high interest rates on bonds and bank accounts in rubles. The truth is that world investors understand that there is a great likelihood that Russia will soon have no choice but to default on its debts. The investments that pay 17% interest may sound good, but they obviously don't work if you lose all your money in a few months.
Many pundits mention the sanctions imposed on Russia as a reason for the collapse of the ruble, but that is not true. Russia has lost its ability to fund its debt because its main source of revenue has been sales of oil and gas, commodities whose price has fallen. The sanctions are important only because they make it likely that the World Bank and the International Monetary Fund will refuse to help rescue the Russian economy.
The articles are starting to appear now which detail the damage that will be inflicted on the rest of the world should Russia default and its economy collapse. There's no question that a Russian collapse will hurt other countries, but it will also have some truly good effects. First and most important, if Russia's economy falls, the Kremlin will not be able to finance its adventures in Ukraine or anywhere else. Things could get so bad in the country that Putin is actually ousted as president, but that is not to be expected. For that reason alone, the economic pressure on Russia is a good thing.
Many pundits mention the sanctions imposed on Russia as a reason for the collapse of the ruble, but that is not true. Russia has lost its ability to fund its debt because its main source of revenue has been sales of oil and gas, commodities whose price has fallen. The sanctions are important only because they make it likely that the World Bank and the International Monetary Fund will refuse to help rescue the Russian economy.
The articles are starting to appear now which detail the damage that will be inflicted on the rest of the world should Russia default and its economy collapse. There's no question that a Russian collapse will hurt other countries, but it will also have some truly good effects. First and most important, if Russia's economy falls, the Kremlin will not be able to finance its adventures in Ukraine or anywhere else. Things could get so bad in the country that Putin is actually ousted as president, but that is not to be expected. For that reason alone, the economic pressure on Russia is a good thing.
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