Tuesday, March 4, 2014

The Economic Disaster Awaiting Russia

            I hate to be the bearer of bad news sometimes, but I forewarned Russia and the European Union that any invasion into sovereign Ukraine would further destabilize Russia's economy. Over the past few days since Putin made the massive mistake of invading Crimea "to protect Russian speaking citizens- of Ukraine"- Russia's economy has suffered an economic loss of tens billions of dollars. Mind you, this is in just a few days.

RUSSIAN RUBLE Mar 2014 (E) (CME:6R.H14.E) Future Chart
Declining Value of Russian Ruble Since December 2013 as of March 4, 2014

                As they say, one picture says a thousand words. The world is not happy with Communist Putin and his current position on Ukraine. It will continue to get worse economically for Russia if they cross over into mainland Ukraine.What could happen if Russia does invade Ukraine is that another cold war erupts and Russia goes into a steep economic decline.
                Russian stocks took a 10% hit on Monday and over the past three months the Ruble, Russia's official currency has been devalued by 10% as well. As of trading at mid-day today, the Ruble was falling even further. I believe that it will continue to fall in value the longer that Russian troops are in Crimea.
                Russia could threaten to cut off the supply of oil to the European Union, but that would be Putin's second folly of the year (the Crimean invasion being his first). It is ironic that the excuse that Putin gave was "to defend Russian speaking citizens" and Russian citizens. Well, considering the fact that the only Russian citizens in Crimea are military at Svestopol - Black Sea Naval Base (a closed city for all concerns), and that there was no immediate threat to the naval base, his rationale falls flat. I speak some French and some Spanish as well, but I would never ask Spain or France to come to my rescue.
               Now, what Russia needs to do is say, "We are sorry that we invaded the sovereign country of Ukraine. We apologize for any problems that our illegal invasion may have caused and we will abide by the rulings of the newly established government of Ukraine as long as the former citizens of Russia (who we no longer wanted in 1997) are guaranteed the protection of their basic human rights. We also agree to remove our Black Sea Naval Base back to Russian soil within the next year. Once again, we apologize for the actions of our rogue leader who against the wishes of his own citizens, brought his country to a near war, and economic ruin. WE promise that it will not happen again."
               Does anyone in all of Russia have the courage and fortitude to say these words to the rest of the world?Does Vladimir Putin have the courage to admit that he was wrong? I doubt it.
               Russia's planned Eurasia Economic Union is now a non-starter. Everyone that was even vaguely interested in investing in Russia has taken a deep breath and three steps backwards and has turned around to see where the exits are.
               This morning I read where an academic economist in Russia predicted the economic collapse of the United States if we sanctioned Russia. Just who does this economist think is coordinating the balance of payments on this planet? Certainly not Russia of all countries. If Russian businesses refuse to pay their loans, their assets would be seized. If Russia cuts off  the European Union's oil supply, there are other cheap sources of oil all over the world. No matter what happens, Russia will lose more than it gains in every scenario.
               So, what was Putin's first mistake? In my humble opinion, his first mistake was not asking Pres. Yanukovych to put the decision of which economic union Ukraine would join to the people in a general election. His second mistake was doing a behind the back deal with President Yanukovych. His third mistake was threatening those that he wanted to keep as customers. Anyone with a lick of marketing skills could have told Putin that you cannot make someone buy from you. His fourth mistake was retaliating out of his frustration that his evil plans did not come to fruition by invading Crimea. His fifth mistake was making up excuses as to why his unjustified behavior was acceptable.
               It is time for Vladimir to take his toy ships and soldiers and go home. When he learns some manners, he might be invited over for dinner or a play date. Anger management counseling should be required for Putin. He is too old to stand in a corner or spank.
              Putin's sixth mistake was thinking short term. I always take at least a ten year approach and even longer. Then I sit back and think about what could happen if........ I then reduce risk if the worst case long term scenario happens. I may lose a few battles, but I lose very few long term objectives. No one thought my plan for the economic recovery of the European Union would work (at first), but now that recovery is happening all over Europe, everyone is breathing easier.
             On a final note, once this minor snag in Ukraine is resolved there will be only three more countries where civil unrest is occurring (war). Those areas are the Central African Republic, South Sudan (who I had set up a ten year economic plan for), Syria (over 2 million refugees - dictator backed by Russia), is there anyone else fighting their own countrymen?

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