MESS WITH RUSSIA AT YOUR OWN PERIL!

Submitted by: Donald Hank

A Full-Blown Economic Crisis Has Erupted In Russia by Michael Snyder URL: http://wp.me/p3c1Bb-aUO The 8th largest economy on the entire planet is in a state of turmoil right now.  The shocking collapse of the price of oil has hit a lot of countries really hard, but very few nations are as dependent on energy production as Russia is.  Sales of oil and natural gas account for approximately two-thirds of all Russian exports and approximately 50 percent of all government revenue. So it should be no surprise that the fact that the price of oil has declined by almost 50 percent since June is absolutely catastrophic for the Russian economy.  And when you throw in international sanctions, wild money printing by the Central Bank of Russia and unprecedented capital flight, you get the ingredients for an almost perfect storm.  But those of us living in the western world should not be too smug about what is happening in Russia, because the nightmare that is unfolding over there is just a preview of the economic chaos that will soon envelop the whole world. So far this year, the Russian ruble has fallen nearly 50 percent against the U.S. dollar.  That is a monumental shift.  And as the collapse of the ruble has accelerated in recent days, we are seeing scenes in Russia that are reminiscent of the Weimar Republic.  For example, just consider the following excerpt from an article that just appeared in the New York Times... Scenes that Russians hoped had receded into the past reappeared on the streets: Currency exchange signs blinked ever-changing digits, and Russians rushed to appliance stores to buy washing machines or televisionsto unload rubles. “We are seeing an economic crisis,” Natalia V. Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.” In a desperate attempt to stop the bleeding, the Central Bank of Russia made an astounding move.  Last night it raised its key interest rate from 10.5 percent all the way up to 17 percent. It was hoped that this desperate move would keep the ruble from plummeting any further. And it did work for a few minutes, but then the collapse of the ruble resumed.  This is how Zero Hedge described the carnage... For those wondering if the CBR’s intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74, and sending the Russian stock market plummeting by over 15%. So why is this happening now? Well, the biggest reason for the freefall of the ruble is the fact that the Central Bank of Russia just printed up about 625 billion rubles and gave it to their friends at Rosneft. Rosneft is an absolutely massive oil company that is controlled by the Russian government.  For months, Rosneft has been asking for a bailout (sound familiar?) to refinance loans that can no longer be rolled over with western banks because of economic sanctions. And on Friday they got one. In an attempt to quietly slip this massive injection of new money past everyone, Rosneft issued 625 billion rubles worth of new bonds just before the weekend and the Central Bank of Russia gobbled most of those new bonds up with freshly created money.  Unfortunately for Rosneft and the Central Bank of Russia, the rest of the world took notice... With the oil giant in a bind, the central bank ruled that it would accept Rosneft bonds held by commercial banks as collateral for loans. Rosneft issued 625 billion rubles, about $10.9 billion at the exchange rate at the time, in new bonds on Friday. The identities of the buyers were not publicly disclosed, but analysts say that large state banks bought the issue. When these banks deposit the bonds with the central bank in exchange for loans, Rosneft will have been financed, in effect, with an emission of rubles from the central bank. So that is what led to the panic selling that we witnessed on Monday. Meanwhile, money is being pulled out of Russia at an absolutely staggering pace.  As confidence in the ruble and in the Russian financial system disappears, wealthy people are feverishly trying to protect their wealth by moving it somewhere else.  The following is an excerpt from an editorial that Mohamed A. El-Erian recently penned for Business Insider... Rather than bring in buyers at these substantially cheaper levels, Russian currency weakness is inducing more selling, including by a growing number of worried bank depositors who, instead of holding their savings in ruble, are opting for safer dollars. The larger the extent of this “currencysubstitution,” the bigger the scope for capital flight out of Russia. This puts even greater pressure on the currency, aggravating the output contraction, imported inflation, and the general sense economic and financial instability. It has been estimated that total capital outflows for 2015 will reach an astounding $128 billion. And this could just be the beginning of the economic troubles for Russia. If the price of oil stays this low or goes even lower, the Russian economy will shrink.  The only question is how much it will contract... The Bank of Russia said Monday that the country could sink into a deep recession next year if oil prices remain at $60 a barrel. GDP could contract by as much as 4.7% in 2015, and then by a further 1.1% in 2016 unless oil prices pick up. Sadly, it isn’t just oil producing nations such as Russia that are going to be devastated by the coming crisis. Eventually, the entire globe is going to feel the pain. Last week was the worst week for global financial markets in three years, and so many of the exact same patterns that we witnessed just prior to the great financial crisis of 2008 are happening once again.  We have been living in a false bubble of relative stability for the past couple of years, but now time is running out.  The next great financial crisis is rapidly approaching, and 2015 promises to be the most “interesting” year that we have seen in ages. Western Bankers Have Committed Two Acts of War Against Russia In the past several days, Western bankers have committed two overt acts of war against Russia, namely, the plunging of oil prices and the recent cutting off of all liquidity to Russian banks. This reminds me of the days before World War II in which the United States followed a doctrine called the eight point plan which was designed to provoke Japan into attacking America so Roosevelt could use this as the excuse to get involved in World War II. As Mark Twain once said, “history doesn’t repeat itself, but it sure does rhyme”. Ditching the Ruble Has the American public received any reasonable explanation on how oil prices have plummeted at a time of year when they historically spike in order to price gouge holiday travelers? Of course there aren’t going to be any new revelations on this point. Here is the real story behind dropping oil prices. Zero Hedge first reported  that brokers are now advising their clients that any existing Russian Ruble positions will be terminated without any further notice because of concerns related to the lack of Russian “capital controls”. At least that is the excuse that Western banks are using to run from the Ruble. The truth of the matter is that the West has declared war on Russia and its BRICS partners for undermining the Petrodollar. No Turning Back Ditching the Ruble marks a shift in Western banking strategy directed at the Russians. This change was necessitated because the West’s scheme to plunge the price of oil is not having an immediate effect on Russian economic actions. Although American consumers are reveling in their recent good fate with regard to the collapse of oil prices which have resulted in cheaper prices at the pump, there are some very dire consequences attached to American consumer’s good fortune. The price of a barrel of oil is reaching the point where it will not be cost efficient to even ship the oil because to ship the oil is becoming more costly than the middle men transporting agents can  make. This will result in an artificial shortage of available gasoline. In the United States, shortages will soon appear and prices will spike to unimaginable levels. This will undoubtedly collapse our fragile economy. The strategy of dropping oil prices in order to bring the Russians to their knees, will not work says Walker Todd. In a reported conversation with my colleague, Paul Martin, Todd told Martin that the low oil prices will not make Putin immediately blink because of (1) inflation and (2) Putin has a year’s reserve of oil and cash. In other words, the fuse has been lit for World War III. Does anyone think that Putin will allow his reserves to be depleted? The Time Parameters for World War III The Russian financial situation is about to go critical, despite their ability to temporarily weather the storm related to falling oil prices. The WSJ is reporting, the next driver of the Russian crisis is unquestionably going to begin in the Russian banking system because as the WSJ stated “...global banks are curtailing the flow of cash to Russian entities, a response to the ruble’s sharpest selloff since the 1998 financial crisis.” In other words, Western banks are cutting off all financial liquidity to Russia. This will soon paralyze the Russian economy.   Russia’s banks are now isolated from the Western world. This is an act of war! The only question remaining is when Putin will launch a pre-emptive nuclear strike upon the West in order to preserve its economy? Will Putin wait until 25% of his oil reserves are gone? Will he wait until 50% of his oil reserves are spent? Before you answer, keep in mind that Putin will need his oil reserves to fight World War III. After receiving this news, yesterday, I reached out to my contacts with the information hoping to have these developments debunked. Unfortunately, my sources provided  information which seems to collaborate the fact that we are headed for war. Disturbing Developments I have learned that leaves for critical military personnel have been canceled effective on January 1, 2015. The leaves are not uniformly canceled cross the breadth of the military. However, I have learned that military leaves for personnel serving in the nuclear command structure and specific elements of the nuclear submarine fleet are now canceled. The implication should be obvious as to what someone as to what the Pentagon believes is coming. Schlumberger International is the largest oilfield corporation in the world employing 126,000 people in 85 countries. Recently, the son of Texas talk show host, Vinnie Pope, stated that Schlumberger has canceled all travel anywhere in the world. This travel ban began immediately after Thanksgiving. Clearly, Schlumberger is anticipating that something big is ready to happen. One could assume that whatever is coming is related to oil since this is the business of Schlumberger. It is interesting to note as an aside that four years ago on my talk show, researcher Dianne Hunter reported the interconnections between Schlumberger to the Nature Conservancy and ultimately to the Queen of England. These connections are worthy of further investigation which will be forthcoming Conclusion Clearly, something big is anticipated by people/corporations who are in position to know. I am hopeful that this article will shake the bushes a little bit in order to get a better grasp of the particular nature of what’s coming. One thing is for sure, Putin’s tolerance level for these sanctions will soon be exceeded.