RUSSIA IN TROUBLE – AT 8:01 A.M. ET:  We mentioned this on "Short Takes" last night.  In part because of the steep decline in oil prices, Russia's economy is in serious trouble.  The implications are global.  From Britain's Telegraph:   

Russia has lost control of its economy and may be forced to impose Soviet-style exchange controls after "shock and awe" action by the central bank failed to stem the collapse of the rouble.

“The situation is critical,” said the central bank’s vice-chairman, Sergei Shvetsov. “What is happening is a nightmare that we could not even have imagined a year ago."

The currency crashed to 100 against the euro in the biggest one-day drop since the default crisis in 1998 as capital flight gathered pace, despite a drastic rise in interest rates to 17pc intended to crush speculators and show resolve.

Yields on two-year Russian bonds spiralled to 15.36pc, while credit default swaps are pricing in a one-third chance of a sovereign default. The shares of Russia’s biggest lender, Sberbank, fell 18pc.
Neil Shearing, from Capital Economics, said the spectacular failure of the rate shock may bring matters to a head. “If a rise of 650 basis points won’t do the job, we are near the end. That means stringent capital controls,” he said.

Michal Dybula, from BNP Paribas, said the rouble plunges risk setting off a systemic bank run. “A large-scale run on deposits, once under way, would make capital controls pretty much unavoidable,” he said, adding that the authorities may start by forcing state-controlled companies to sell foreign assets and repatriate funds.

In Washington, the White House said it had no intention of easing pressure on Russia to halt the freefall. "It is president Vladimir Putin's decision to make. The aim is to sharpen the choice that he faces," it said.

COMMENT:  One fear is that, if Russia gets into serious trouble economically, Putin may do what other dictatorial leaders have done under those circumstances.  He may go to war, rallying the people around the flag.  Ukraine is the place to watch.

Interesting year coming up, ay?

December 17, 2014