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A Stable Ruble Is The Key To Russia’s Survival

The trend is clear. The West is broke. The endless hunt for taxes to shore up federal budgets will continue.

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Authored by Tom Luongo:


The Russian ruble moved sharply this week as the global equity and commodities rout continues in the wake of the Federal Reserve raising interest rates.

Russia’s central bank over-reacted to a rise in inflation as the global economy moves towards a chaotic and politically dangerous 2019.

Oil prices are moving in sync with equities as the markets have entered a panic phase anticipating a global recession next year. Normally the Ruble is very strongly tied to oil prices. But as I showed in an article just before Thanksgiving, the ruble didn’t respond at all to a drop in Brent Crude from $80+ per barrel to around $60.

Amidst a 38% drop in the price of Brent Crude since October, the ruble has fluctuated in a 4% band around 67 to the dollar. This is shocking stability given the volatility in oil prices.

Ruble weakness from earlier this year was an over-reaction to heightened sanctions by the U.S. especially at a time where the threat of further sanctions on Iran and Venezuela’s collapse kept prices high.

Oil’s Outlook

And now it is catching up to this drop in oil prices with this week’s weakness. Oil prices are unsustainable above $65 per barrel amidst this level of supply.

They are equally unsustainable below $40 per barrel for just about everyone due to budget constraints (the Saudis) or debt-servicing (U.S. Frackers).

Since free-floating the ruble back in late 2014, Russia has been less and less affected by the fluctuations in oil prices. Because domestic costs are paid in rubles and income earned in dollars is offset by the weaker ruble.

It is government expenditures which suffer during waves of lower oil prices. But this year’s high prices have swelled Russia’s state coffers, running a 2.1% of GDP budget surplus this year.

Russia has an auto-budgeting system based on oil tariff revenues the budget will adjust based on anticipated oil prices.

And given the announced 1.2 million barrel per day cut from OPEC don’t expect the Russians to budget near $80 per barrel for 2019. That was a bearish signal, a sign of weakness.

Energy makes up the bulk of the country’s exports but that proportion is falling steadily as other industries mature. In 2017 oil/gas made up just under 60% of exports down from 69% in 2014.

They’ll likely be up as a percentage this year because of higher prices, but non-resource exports hit a record $147 billion this year, according to a recent statement from Andrey Slepnev, Chief Executive of the Russian Export Center.

That’s the important part.

The double whammy of increased sanctions (with threats of even more) and lower prices should have sent the ruble skyrocketing similar to what we saw this year with the Turkish lira.

I’m sure that’s been the hope on Capitol Hill.

But we haven’t and that speaks to the growing proportion of Russian trade settling outside the dollar.Russian exports continue to grow thanks to the weaker ruble and Putin’s continued growing stature as a statesman.

This is having the positive effect of opening up more markets for Russian goods and working with countries willing to skirt U.S. sanctions.

The Real Ideological War

Trump and Putin are locked in an ideological war of how to conduct trade now. And the shoe, nominally, is on the other foot. I have to marvel at Trump turning mafioso, punishing people for doing business with anyone but him while Putin pulls a Dale Carnegie looking for wins where he can get them.

Trump has his stick. Putin offers carrots.

It’s a sad commentary on what’s become of the U.S. that Trump believes he can bully his way to remaking America in his image. He talks a lot about America being respected again. But that’s not the sense I get when I look around the geopolitical game board.

In fact, it is the opposite. Trump may get obedience and he can choose to see deference to the U.S.’s power as ‘respect’ but it’s not. It’s resentment. And he should be smart enough to know this.

He’s undermining the one thing that makes the dollar the dollar. Stability and consistency.

Putin, on the other hand, chooses to ignore Trump where he can and make offers which tie Russia and its neighbors together in a web of trade. The hysterical neoconservatives here shout incoherently about “undo Russian influence.”

This is simply code for, “We want Russia poor, weak and incapable of defending herself so we can take it over.”

But the reality is that with each pipeline built between Russia and Europe, India and/or China the likelihood of war between them recedes. Viewed through that lens, Russia uses its energy resources to defend its future.

The West calls it ‘Pipeline Diplomacy,’ and our opposition to it stems from outdated ‘Great Powers’ theory of how to play the great game of geopolitics.

Because Russia knows all too well the belligerence of U.S. and European elites towards it. It’s been dealing with it for centuries. And Putin, as a student of history, knows that time is Russia’s greatest ally.

Stability Becomes Reserves

When looking at the geopolitical picture you have to look at the overall trend, the players at the table and where their motivations lie. For Russia the goal is an independent path which does not leave it at the mercy of U.S. political imperatives.

No one gets out of a conflict with the U.S. over trade unscathed, but that’s not the goal. The goal is minimizing the damage and building stronger local relationships which fell into disrepair after the fall of the U.S.S.R.

Prime Minister Dmitri Medvedev finally made it clear that Russian political leaders have turned a corner on their thinking.

He added that US sanctions have pushed Moscow and Beijing to think about the use of their domestic currencies in settlements, something that “we should have done ten years ago.”

“Trading for rubles is our absolute priority, which, by the way, should eventually turn the ruble from a convertible currency into a reserve currency,” the Russian prime minister said.

That’s what Putin’s endless meetings are all about, building trade across central Asia with the ruble as a viable alternative for the dollar.

The trend is clear. The West is broke. The endless hunt for taxes to shore up federal budgets will continue. The U.S. is interested solely in maintaining its power. This is really what Trump means when he says, “Make America Great Again.”

And he will do anything to achieve that goal, regardless of the secondary effects. This makes U.S. policy aggressive, violent and vindictive. And that is not the recipe for long-term economic or political stability.

This is what Trump and his national security team most fear, a Russia capable of building a parallel institutional system operating outside their control.

Because people respond to incentives. And each day that Trump makes using the dollar more expensive is another day where someone else makes the decision not to use them.

So, a stable ruble, unfazed by sanctions and wild swings in the price of oil, makes that decision that much easier. Each day that brings another small deal settled in rubles or another load of oil paid for in yuan and swapped for gold is another day closer to that reality.


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TjoetherevolutionwasTerryOlivia KrothPaddy Jameson Power Recent comment authors
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Olivia Kroth
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President Putin is a genius himself, and he has very able economic advisors.

Paddy Jameson Power
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Paddy Jameson Power

He’s the only statesman alive today, head and shoulders above all contenders, despite his small stature.

Olivia Kroth
Guest

President Putin’s body is trimmed and fit. He looks surprisingly young for his age of 66. His mind is sharp like a razor.

therevolutionwas
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therevolutionwas

The US (Gov’t, deep state, elites,…) must know what China and Russia are doing to increasingly do business outside the petrodollar. They realize Russia and China have been accumulating gold, and especially China has for decades and is estimated to have around 20,000 tons. https://www.goldmoney.com/research/goldmoney-insights/gold-s-monetary-rehabilitation I think the struggle going on in western governments is over how to respond to the rise of the east. I hope the “peacefully” side of the struggle wins out. But with all the political and economic lunatics running the asylum I fear it may end badly.

Terry
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Terry

Russia is now placed above most European countries in the World Bank’s latest ease of doing business report. It is above France,Poland,Portugal, Czech Rep, Netherlands, Switzerland, Belgium, Italy, etc. Its also above Japan, Turkey, China and India.
http://www.worldbank.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf

therevolutionwas
Guest
therevolutionwas

the marketplace works to the degree governments let it be.

Terry
Guest
Terry

According to the RCB charter, stability of the currency is it’s main function. According to the article it seems it has been successful in that task.

Tjoe
Guest
Tjoe

Every country that Russia trades with should have a quantity of Rubles (readily convertible to their own country money) and Russia should have a quantity of the trading countries currency (also readily convertible).

Make an equity system…not debt like the US Dollar. Germany did it in the late 20’s and it lifted all German citizens from abject poverty…including Jews (not including Wiemar bankers).

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Putin’s State of the Nation Part III – Raising Russians

President Putin’s State of the Nation talk began with the most important element of any society – the family.

Seraphim Hanisch

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Parts I and II of this series outline much of Russia’s “face towards the world” in terms of both economic / trade and military matters. Part III actually comprises the great majority of what President Putin addressed in the Russian State of the Nation Address on Wednesday, 20 February. As he pledged upon his re-election to his fourth presidential term, the 66-year old leader focused primarily on domestic affairs within the Russian Federation.

The whole speech is available at Kremlin.ru, and by following this hyperlink.

We have selected excerpts along the reasoning of illuminating those parts of domestic policy in Russia that reveal why the globalist and secularist elíte in the West are so determined to block Russia’s success as a nation, even to isolate it and destroy it if possible. We will emphasize and comment on various points from the speech.

One of the biggest differences in Russia from the US is the centrality of traditional families, with children. Children are wanted and needed in the Russian Federation, and President Putin started his speech by addressing the matter of raising new Russians:

President of Russia Vladimir Putin: Members of the Federation Council, State Duma deputies, citizens of Russia,

Today’s Address is primarily devoted to matters of domestic social and economic development. I would like to focus on the objectives set forth in the May 2018 Executive Order and detailed in the national projects. Their content and the targets they set are a reflection of the demands and expectations of Russia’s citizens. People are at the core of the national projects, which are designed to bring about a new quality of life for all generations. This can only be achieved by generating momentum in Russia’s development…

Therefore, the work of the executive branch at all levels should be coordinated, meaningful and energetic. The Government of Russia must set the tone.

At the same time, I would like to emphasise and repeat: our development projects are not federal and even less so agency-based. They are national. Their results must be visible in each region of the Federation, in every municipality. It is here, on the ground, that the majority of specific tasks is implemented.

Here, President Putin seems to be alluding to the importance of nation. While Russia has a much more openly socialist style government than the US does, it is nonetheless also much more efficient in its work in many ways. Communism failed, but it did teach some lessons about how to do a lot of work with few resources. There is a reason the largest nation on earth does not have to go into huge debt year after year.

Let me now share some specifics on our objectives. I will begin with the key objective of , which means providing all-around support to families.

Family, childbirth, procreation and respect for the elderly have always served as a powerful moral framework for Russia and its multi-ethnic people. We have been doing everything in our power to strengthen family values and are committed to doing so in the future. In fact, our future is at stake. This is a task shared by the state, civil society, religious organisations, political parties and the media.

This, while states in the US are trying to pass radical abortion laws to even be able to kill babies who survive abortions.

Russia has entered an extremely challenging period in terms of demographics. As you know, the birth rate is declining…

We succeeded in overcoming the negative demographic trends in the early 2000s, when our country faced extreme challenges. This seemed to be an impossible challenge at the time. Nevertheless, we succeeded, and I strongly believe that we can do it again by returning to natural population growth by late 2023 – early 2024.

Today, I wanted to talk about a new package of measures that has already been prepared to support families.

First: It is important that having children and bringing them up do not put families at the risk of poverty or undermine their wellbeing. As you know, we have already provided for the payment of subsidies for the first two children until they reach 18 months…

Starting January 1, 2020, I propose raising the bar to two subsistence wages per family member. This is what people have requested and these requests come directly into the Executive Office. This measure will increase the number of families entitled to additional benefits by almost 50 percent. Some 70 percent of families with one or two children will be able to benefit from help from the Government.

Second: At present, carers looking after children with disabilities and people disabled since childhood receive an allowance of only 5,500 rubles. I suggest increasing this to 10,000 rubles, starting July 1. Of course, I understand that it is still a small amount. However, it will be an additional measure of support for families with a child who needs special care.

Third: The income of Russian families must, of course, increase. This is a serious task that requires a comprehensive solution. I will speak about this in greater detail later. But we need direct measures. First of all, the tax burden on families needs to be relieved. The approach should be very simple: the more children there are, the lower the tax. I propose increasing federal tax relief on real estate for families with many children. I also propose lifting taxes on 5 square metres in a flat and 7 square metres in a house per each child…

Fourth: The Government and the Central Bank need to consistently maintain the policy to lower mortgage rates to 9 percent, and then to 8 percent or below, as stipulated in the May 2018 Executive Order. At the same time, special measures of support should be provided for families with children, of course… A family making a decision to buy housing certainly makes plans for a long or at least medium term, a lasting investment. But with this [present] programm, they take out a loan, start paying the installments, and the grace period ends. The interest is actually subsidized only for the first 3 or 5 years. I propose extending the benefit for the entire term of the mortgage loan.

Yes, of course, it will require additional funding, and the cost will be rather high: 7.6 billion rubles in 2019, 21.7 billion rubles in 2020, and 30.6 billion rubles in 2021. But the programme is estimated to reach as many as 600,000 families. We certainly need to find the money. We know where to get it. We have it, and we just need to use it in the areas that are of major importance to us.

And one more direct action solution. Considering the sustainability and stability of the macroeconomic situation in the country and the growth of the state’s revenues, I consider it possible to introduce another measure of support for families having a third and subsequent children. I suggest paying 450,000 rubles directly from the federal budget to cover this sum from their mortgage. Importantly, I propose backdating this payment starting January 1, 2019, recalculating it and allocating relevant sums in this year’s budget.

Let us see what we have. If we add this sum to the maternity capital, which can also be used for mortgage payments, we will get over 900,000 rubles. In many regions, this is a substantial part of the cost of a flat. I would like to draw the attention of the Government and the State Duma to this issue. If need be, the budget will have to be adjusted accordingly. An additional 26.2 billion rubles will be required for this in 2019. The relevant figures for 2020 and 2021 are 28.6 billion rubles and 30.1 billion rubles, respectively. These are huge funds but they should be allocated and used in what I have already described as a very important area.

There is a great deal more detail on the notion of various tax breaks for families with children. It is worth a read, and it is also worth noting the very clear language set forth here. It appears rather refreshing to hear these ideas laid out in such a blunt fashion.

 

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Pressure mounts on Theresa May to agree to 3 month Brexit extension (Video)

The Duran – News in Review – Episode 181.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris take a look at how the EU, in coordination with forces inside the British Parliament, are pushing for Theresa May to agree to a three month “Brexit day” extension.

According to a Bloomberg, Theresa May must resign as British prime minister and Conservative leader later this year after delivering Brexit, according to politicians at the highest levels of her own government.  May has promised her party she will stand down before the next general election, slated for 2022, but she’s likely to face pressure to go within the next three months. Once the U.K. is out of the European Union, and local district elections on May 2 are over, the premier will have no reason to stay in office, one senior minister said, speaking privately. Britain is scheduled to leave the bloc on March 29.

A person familiar with another minister’s views agreed with the timescale, arguing that the prime minister should leave in the summer, so a new leader can be in place in time for the party’s annual conference in October. A third senior member of May’s administration pointed out that Tories had no way of formally seeking to remove May before December under the party’s internal leadership rules. May will never voluntarily resign, despite her previous pledge, the person said.

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Via Zerohedge

Theresa May once again failed to extract concessions from the EU27 on Wednesday after yet another meeting with Juncker (surprise, surprise) as the Continent refuses to budge on May’s demands for “legally binding changes” to the deal – specifically to the troublesome Irish backstop, which many Brexiteers fear could result in the UK being reduced to a “vassal state” of the EU by becoming interminably trapped in the customs union, with zero say over its rules. Talks between Brexit Secretary Stephen Barclay and EU27 chief negotiator Michel Barnier on Thursday were similarly inconclusive.

And with only 36 days left until “Brexit Day”, it’s becoming increasingly clear that May will need to ask her EU colleagues for an extension to the two-year negotiating period, something that would cut against her commitment to take the UK out of the EU “as scheduled”, though she has never explicitly ruled it out. According to Bloombergthe EU expects May to request a 3-month “technical extension,” which would be the first, and hopefully only, delay, (because anything further would ratchet up the pressure for the UK to participate in the upcoming European Parliament elections…an unnecessary complication).

Still, without meaningful concessions on the backstop, it’s difficult to see a way forward. Rebellious Tories and the “Independent Group” have so far focused their efforts on securing a legally-binding commitment to take a “no-deal” exit off the table. And with the deadline unlikely to be extended past this point, if a deal isn’t reached during the March 21-22 UK-EU summit, he way forward will appear impossibly vague.

But with dozens of Tories reportedly ready to rebel unless the PM offers concrete reassurances that ‘no deal’ isn’t an option, and that rebellion will likely take the form of support for an amendment tabled by former minister Sir Oliver Letwin and Labour’s Yvette Cooper to give Parliament the power to delay Brexit Day if no deal is reached by mid-March.

Meanwhile, thanks to the latest round of defections, the “Independent Group” has become the fourth-largest party in Parliament.

But all of these threats likely won’t take on real significance until the March summit with the EU, thanks to the Continent’s reputation for holding out until the last minute. Meanwhile, MPs have told the media that a vote on May’s Brexit “Plan B” deal – which had been set for next week – is unlikely.

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Trump’s Syria military pullout, not under John Bolton’s watch (Video)

The Duran Quick Take: Episode 89.

Alex Christoforou

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RT CrossTalk host Peter Lavelle and The Duran’s Alex Christoforou take a quick look at the announcement from the Trump White House that the United States has decided to station a ‘peacekeeping group’ of roughly 200 US soldiers in Syria for a ‘period of time’ after the much hyped withdrawal.

Once again we see that once the US enters a country for a regime change mission, it becomes nearly impossible to fully disengage, ultimately leaving America in the role of invader and occupier, for an indefinite amount of time.

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Follow The Duran Audio Podcast on Soundcloud.

Via RT…

Despite President Donald Trump’s promises to withdraw American troops out of Syria, the US intends to maintain presence on the ground with a “small peacekeeping group” for an unspecified “period” of time, the White House said.

“A small peacekeeping group of about 200 will remain in Syria for a period of time,” White House spokeswoman Sarah Sanders said in a statement without elaborating.

Trump took the world by surprise back in December, when he announced the US withdrawal from Syria without specifying a timetable. The initiative was not well received in the Pentagon, even forcing Defense Secretary Jim Mattis to resign after clashing with Trump, as both the generals and politicians have been claiming that US presence in Syria is vital and that Islamic State (IS, formerly ISIS/ISIL) terrorist group would inevitably reemerge if all of some 2,000 Americans leave.

The US withdrawal is being stalled by concerns about potential Turkish incursion into the territories currently controlled by the US-backed Syrian Kurds. On Thursday, Trump had another phone call with his Turkish counterpart Recep Tayyip Erdogan on the issue. Washington wants Turkey to agree to a buffer ‘safe zone’ in northeastern Syria and is also contemplating arming the Syrian Kurds, despite Ankara’s strong opposition.

While the US continues its diplomatic maneuvering, some noted the irony, wondering if the White House was using the term ‘peacekeeping’ correctly or was even aware of what it actually means. Others questioned the logic and the motive of maintaining such a contingent on the ground, noting that 200 troops could serve as a human shield, but is unlikely to really sway the outcome of the conflict.

Traditionally, the term peacekeeping has been used to describe the UN Blue Helmets whose missions are strictly mandated by the Security Council. American troops, however, hardly have any legal basis to remain in Syria, as they had never been invited by the official government in Damascus.

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