Tuesday, December 23, 2014

This is what an economy looks like in Free Fall

http://www.americanthinker.com/blog/2014/12/this_is_what_an_economy_looks_li
ke_in_free_fall.html


The Russian economy is in free fall as the ruble has lost half it's value
during the dizzying slide in oil prices. Last Tuesday, the ruble tumbled 10%
- a follow up to Monday's 10% slide. This precipitated panic buying in the
stores as Russian consumers, fearing their rubles will only become less
valuable in the near term, crowded retail stores to buy up everything in
sight.

Politico:
Although this past week's currency crisis marked the worst fall for the
ruble since Russia defaulted on its debt in 1998, no one was waiting in
bread lines or starting a run on the bank. Instead, anyone with any cash at
all went on a buying spree. Long lines snaked through Ikea branches around
Moscow into the early hours of Wednesday morning as people picked up
furniture, bedding and other household goods at what had suddenly become
bargain-basement prices. Crowds of eager buyers emptied shelves of computer
monitors and snapped up flat-screen televisions at consumer electronics
chains.

People were purchasing refrigerators, washing machines, cameras-anything
that was less likely to lose its value as fast as the plummeting ruble. Cars
in some dealerships were being sold at 30 percent to 50 percent above the
recommended retail price, yet "people run and bring their last money," one
social network user wrote.

 "Yesterday the line for the cash register was to the other end of the
hall," Ravil Daizrakhmanov, an employee of the consumer electronics store
M.video, said Wednesday. "They were buying very expensive tech products."

The ruble has lost over half its value this year as falling oil prices and
Western sanctions over the Ukraine crisis hit Russia's energy-dependent
economy. But a drop of 10 percent on Monday and another 10 percent on what
has come to be known as "Black Tuesday" further shook consumers, undermined
investor confidence and revealed divisions among the country's elite on how
to react. Nonetheless, Russians' approval for President Vladimir Putin has
remained sky-high.

Buying continued on Wednesday as major electronics chains had yet to raise
their prices. "I apologize; I argued with them, but they sold every last
one," an M.video employee informed a man who was trying to purchase a
washing machine. "F-k your apologies," the man yelled back as he stormed off
to complain to a manager.

Others were just out for a good deal. Even after the ruble came down to 67
to the dollar, an iPhone 5S at electronics retailers now cost $100 less than
in the United States. Apple.ru even halted online sales on Tuesday "due to
extreme fluctuations in the value of the ruble."

Inflation is getting worse. Prices went up 8.3% in October to 9.1% in
November. Food prices are spiking and Russians are crowding grocery stores,
buying thousands of dollars in food, hedging their bets against prices going
even higher.

With all of this catastrophic news, you would think Putin's approval ratings
would be in the tank. In fact, 81% of the country supports him. The people
blame the west and the sanctions imposed for Russia's takeover of Crimea for
the rotten economy.

Why shouldn't they? Despite the fact that currency speculators and the dive
in oil prices are far more responsible for Russia's economic predicament,
when the president of the United States brags that sanctions have brought
Putin to his knees - and Putin himself deflects blame for his mismanagement
by citing sanctions - the Russian people are only to glad to ignore reality
and accept the myth.

Some analysts are saying oil could fall to $40 bbl. That would be a
cataclysm that could bring the Russian economy to its knees. In this worse
case scenario, Putin wouldn't be the first leader to look abroad for an
adventure to distract the people from their misery. Wars have begun over
less, so the Russian meltdown bears watching.

No comments:

Post a Comment