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Putin’s Russia: A Cornered Bear
High energy prices have been a boon to Russia for years. Shrewdly, Vladimir Putin spent this mountain of cash solidifying his grip on power. He eliminated rivals, silenced critics, and propagated a cult of personality to create a millions-strong volunteer army of often violent devotees. In the minds of many Russians, l’etat c’est Vlad.
But with a massive oil glut from North America and OPEC, Russia’s economy is crashing. The ruble has been dropping for a week. To prop up the currency, the Russian central bank suddenly and surprisingly jacked up interest rates to no avail.
Scenes that Russians hoped had receded into the past reappeared on the streets. Currency exchange signs blinked ever-changing digits. Russians rushed to appliance stores to buy washing machines or televisions to unload rubles. Unsure of prices, car dealerships like Volvo in Russia halted business, while Apple stopped online sales in the country.
After a middle-of-the night interest rate hike, a sense of economic chaos settled over the Russian capital. The ruble was in free fall, dropping under 80 rubles to the dollar, after opening the day at 64 to the dollar.
“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.”
The Russian economy is getting battered by the painful combination of Western sanctions and low oil prices. The country is expected to fall into a recession next year.
Many Western commentators view the awful news for Putin as an overdue comeuppance to the pec-flexing tiger-hunter. Surely Vlad will stop wasting money on military expansion or nervous Moscow oligarchs will take him down. While it’s fine to celebrate Putin’s increasing misfortunes, remember that a cornered bear tends to lash out.
NATO has announced more than 400 airspace violations by Russia in the past year. Saber-rattling has reached a new high, especially for the Baltic states and Poland. Ukraine is still in a desperate fight to maintain independence from Moscow. Putin has responded to their fears by calling the region Novorossiya, or New Russia.
An economic collapse could damage Putin’s political future, but it could well improve it. Failing markets didn’t hurt the Castro or Chavez regimes. The Kim dynasty’s grip on impoverished North Koreans (and Sony Pictures) has only tightened. And the fastest way for leaders to quash internal dissent is to blame it all on an shadowy foreign enemy.
Putin has been demonizing the West for years, so additional scapegoating should meet with public acclaim. He has proven again and again that he will brutally destroy dissenters, whether rich or poor. Putin not only has the military at his disposal but a vast army of hackers who could wreak havoc on financial and governmental interests around the globe.
While we all hope Putin’s troubles will force him to change his belligerent ways or be peacefully ousted by Moscow billionaires, that outcome is unlikely. If history is any guide, Russia is more dangerous now than it has been in decades.
Published in General
I agree.
I keep predicting that Vlad will turn off the gas to Europe, rattle more sabers (incursions here or there), and use it all to try to extract tribute from a Europe that is incapable of defending itself, even from a wounded and crippled bear.
If it happens, it will have to be this winter. By next winter, Russia will be too far gone to pull it off.
It is worth mentioning that currency is largely about perception – Russia’s increase in rates LED to today’s runs. Weakness breeds weakness.
Psychopathic dictators always end up the way of psychopathic dictators. As do the nations run by them.
I say, squeeze harder. Squeeze till his ugly head pops.
Our intent isn’t to weaken his grip in his own country. I could care less what he does there. If the muzhik wants him, let the muzhik have him.
Our intent is to prevent him from doing what he intends to do elsewhere. And for that, putting Russia in the same category of pariah states as Cuba, Venezuela and North Korea, is precisely the idea.
Putin, and Russia, are all show. His army is a junkyard, with about 50 modern planes in total. Militarily, this is a non-issue.
Historically, Russians with lousy self-esteem managed to kill tens of millions of their own people, and the people in the hapless countries around them, in order to assuage the self-image of the (then) current idiot in charge. Putin is nothing new in this regard, and he’s not going to bat an eye if Russia suffers for some indeterminate period of time in defiance of Western interests.
I think it’s a lot less about tanks and guns than it is about starvation. Military interventions are going to be a hard sell if there are food riots in Moscow.
One must exercise extreme caution when taking the bottle from a drunk.
“If history is any guide, Russia is more dangerous now than it has been in decades.”-Jon Gabriel, Ed.
Well put Jon. And history has shown us that usually the way out is war.
Not so fast:
1) The private sector in Russia is heavily indebted to Western banks. How are those loans going to be paid back? Where are they going to get loans in the future?
2) With 50% of the Russian gov. budget coming from oil revenues, how is the Russian gov going to make up for the…massive…shortfall in income? Who is going to pay those drunk Russian “vacationers” in Ukraine?
3) Blocking off Russia’s access to debt markets in the West due to sanctions…makes points 1 and 2 particularly important.
No income, no debt. Russian’s just became 8% poorer today. They become 10% poorer yesterday.
Being “debt free” is easy to do if you run a tin pot country depended on a single natural resource. It’s not particularly, practical, or advisable.
Anyone who has ever taken a rudimentary finance class knows that there is an optimal level of debt. The US gov has debt because the cost of debt for the US government is pretty much…negative. And that’s because everyone around the world wants to buy US gov debt. The US gov. would be stupid not to incur debt, if people are willing to give us money for next to nothing.
Hence, these things are incomparable.
The comedy here is that just a few months ago this ridiculous Little Dictator was talking about making the dollar redundant by creating a new global currency based on the “BRIC”s :) Today, his own ruble falls into…rubbles :)
PS: Even more ridiculous, the people at Zero Hedge were saying the same thing. Oops…
Some people who fantasize about war, are going to end up really disappointed.
Well I hope Putin is really disappointed.
And the losers, as always, are the ordinary Russian people. They have no idea of how to live in a society where you have the opportunity to live in relative freedom, get a good useful education, make a living, support your children, communicate with friends and relatives un-censored, and aspire to a better life than your parents had. The Russian people have never, in recorded history, been really free-they are so used to oppression they don’t know how to handle freedom when they get some. So they remain fodder for dictators and the (oligarch) dictator’s cronies. The already-low Russian birth rate is falling, rates of alcoholism and drug use are rising-in my opinion the Russians have a collective case of major depression.
Ricochet has members all over the world. Do we have any Russians?
There is reason to encourage Russian military posturing over the Baltic and in the Black Sea–it’s expending rubles they can print at their peril and dollars they’re running out of. If Putin pulls the trigger and goes to war, he’ll have to go nuclear early or lose, even against a soft Europe. His economy can’t sustain a shooting war, and the Red Army is not combat ready. Even at the height of the Cold War, the USSR Red Army had no effective reinforcements beyond their front line units, FA and LRA OR rates were in the 50%-60% range, and they had no maintenance inventory. Things aren’t better today.
It’s time, even so, to squeeze Russia further: cut them off from all foreign exchange facilities and don’t roll their debt. They have $120B of debt due in 2015, and $400B of foreign currency reserves. The arithmetic gets interesting.
We also need to be forward basing troops and air forces in Poland, the Baltics, and the Czech Republic, pushing naval units into the Baltic and eastern Med (the Black Sea is a fish barrel for modern weapons), and we need to be arming Ukraine–and not with pea shooter defensive weapons; the Ukrainians need offensive weapons so they have a chance of driving Russia from occupied Ukraine.
Settlement terms: complete withdrawal from Ukraine and Georgia and explicit repudiation of its nuclear threat against Poland. There’s no good demanding reparations, Russia hasn’t the wherewithal to pay them.
And get ready to choose war or surrender. Putin still can pull this out.
Eric Hines
There’s a word the Russians use for these type of people: vatnik.
Myself, I prefer the term “muzhik”. It’s a more historically correct term.
Unfortunately, the one common denominator of Russian history has always been the fact that it is the “anti-West”. The bizzaro West, if you will. They look somewhat like the West. But they are in fact the opposite. It’s a trend that goes back at least to Peter the Great (before that they didn’t really have much contact with the West anyway)
And the losers, as always, are the ordinary Russian people.
I have no sympathy for these. During the Kulak collectivization, the Russian people, not the Stalin government, although it certainly was Stalinist policy, also, actively starved 14,000,000 Ukrainians and White Russians to death. Babies died in their starved-to-death mothers’ arms in fields utterly barren because the last blades of grass had been eaten already.
The Russian people, not Stalin, made the NAZIs look like altar boys.
The Russian people have never known freedom? Cry me a river. Neither had any other people until the first time. The West figured it out. Russians aren’t inferior in their intelligence.
Eric Hines
We are. US planes are already based in the Baltics. US missiles will soon be based in Romania. There were multiple US exercises throughout Eastern Europe in the last few months. The message is more than clear.
I would disagree. The Ukrainians don’t seem much willing to fight their own war to begin with.
The best revenge is to help Ukraine economically. Integrate them into the West, and invest there. That’s what this war is about. Not about some frozen potato fields in Donbas.
War isn’t going to happen. The West has an enormous numerical and technological superiority to Russia. Putin knows this. He isn’t interested in that. He’s interested in maintaining power, and keeping the former USSR sphere of influence from falling into the West like the Baltics did.
All we need to do is cut off his money supply: oil.
In fact, I have to say, I’m rather certain the reason the oil prices are falling is because of a coordinated US effort to do just that. Cut off Russia from the world markets through sanctions, and then cut off the money supply.
For those who think the US has no “foreign policy” and “no teeth”…watch and learn. This is how you win.
Nice work Eric. Russia has been positioning for this for longer than the last 2 weeks, or the last 2 months. Ukraine was not a random act of aggression. They knew this was coming a long time ago, and it’s going to get worse now that strategic defense positions have been removed.
A country like Russia doesn’t go quietly into that good night without taking plenty of souls down with her.
Agreed.
The Russian people chose this path, and have always chosen this path when given a chance.
Of course, this doesn’t apply to many individual Russians. But most of those, live in the West now, and for good reason.
We are. US planes are already based in the Baltics. US missiles will soon be based in Romania. There were multiple US exercises throughout Eastern Europe in the last few months.
A couple of flights on short-term rotations don’t count. The missiles, so far, are just Obamatalk. The exercises have been little more than walk-throughs, critical at this stage, but that’s all. And the ground forces are totally absent.
The Ukrainians don’t seem much willing to fight their own war to begin with.
They’re as reluctant to kill their brothers as we were in our Revolutionary and Civil Wars (some might say our two civil wars). And they don’t have the weapon suite and are only just beginning to gain the personnel experience necessary to a serious offensive operation against a skilled, determined Russian foe, however hollow the Russian shell might be by more modern standards. They’ll fight well enough when they’re properly equipped.
Obama’s excuse for not arming the Ukrainians isn’t that they have no stomach for the fight, it’s that doing so might dismay the Russians.
War isn’t going to happen.
Perhaps not. But at this stage, Putin has very little to lose by war, and everything to gain with it–and quite a lot to lose by doing nothing. I favor his going to war because it’s a chance to finally and completely destroy the Bear.
But I’ll be satisfied if my settlement terms are met, even without a shot being fired. Of course, neither the Georgians nor the Ukrainians have consulted with me on their settlement terms….
Eric Hines
Well, he certainly didn’t spend it improving the infrastructure. Investigative journalists keep falling down elevator shafts they are investigating.
Can’t talk about any topic without bringing Obama into the mix, can we?
These don’t count, those don’t count, that’s not big enough, this isn’t big enough. So what does count and what is big enough? Deploying half the US army?
Here we go back to blaming Obama. Again, pay attention to what’s happening to Russia’s economy. You think that’s coincidence?
There’s no point in arming the Ukrainians because they don’t lack weapons. They have the same junkyard weaponry the Russians have. They have the same drunken soldiers the Russians have. What they lack is a proper government and a proper economy.
Ukraine is one of the largest weapons exporters in the world. Weapons, they don’t lack. They don’t have anyone to use them, however.
That can’t be a serious comment, can it?
Same as above.
Looks like US ground forces to me:
Poland
Estonia and Latvia
http://youtu.be/1WsZKZhP84c
Germany
http://youtu.be/WkQ6xaREVRg
http://youtu.be/zeNOLF0T_r0
Baltic Air Patrol
Ukraine
Romania
Hungary
And on and on…
There were probably another dozen or so military exercises by US troops in Europe during the last few months of 2014, including the Czech, Dutch, Spanish, Turkish etc. Also probably about a dozen exercises around the world, including Korea, Japan, India, Malaysia, Indonesia, Nigeria, Colombia etc.
Hmm. Somehow we’ve got to spin this to blame Obama.
Well, people with REAL money, his oligarch buddies, are watching huge piles of cash vanish down the toilet for his megalomania and hubris. When they get tired enough of his antics, Putin will go the way of the Tsars….
So we decreased the price of all by massively restricting new drilling permits on federal lands and routinely demonize “big oil” as a matter of public policy?
If we’re winning, it’s not because of genius at the policy-making levels in government.
He’s betting on there being an oil spike after Iran nukes Tel Aviv.
In matters of conflict, leadership and will are very, very important.
If Obama is not willing to escalate against Putin, Putin will win. It does not matter who has more airplanes. It matters who is willing to give the order.
Putin has very few options. The least bad one is to backtrack on Ukraine. It is not impossible if he finds a face-saving way out, for example “the negotiations have been successful etc etc”. But even with that, he will still face an economic crisis and big budget deficit.
Let’s take this to its logical end.
Putin is cornered. He may become desperate.As and when sanctions, cheap oil, and the collapsing ruble add up, where does it leave Putin?
With a nuclear force. And no reason not to use it as leverage.
Let’s say Putin realizes he only has that card left. And he plays it: open all sanctions, give us Ukraine, and pay $Xbillion tribute. Or Berlin gets it.
What stops him?
This is not a hypothetical case. Iran is building Nukes specifically to do this very thing!
No, it isn’t a hypothetical case. The Russian government already has threatened nuclear war. Following which we canceled plans to deploy an IRBM defense system in Poland and Czech Republic.
Iran is building Nukes specifically to do this very thing!
Here I disagree. Iran is not building nukes in order to extort. Iran is building nukes in order to use them and to sell them on to their client terrorist organizations who will use them.
Eric Hines
Oh, I think Iran will use them to extort from Saudi Arabia, for example. That may not be their only purpose, but it is clearly one that Saudi Arabia anticipates.
I’d generally agree with both statements, but would love to hear the specific past wars that you think are analogous. The first one that pops into my mind is the Falklands War.