Weekend Economists Light the Candles December 19-21, 2014

[Demeter]

5. Oil, Ruble and Ideology YVES SMITH, NAKED CAPITALISM

http://www.nakedcapitalism.com/2014/12/oil-ruble-ideology.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Since the financial media is covering the continuing meltdown of the ruble intensely, we thought it would be helpful to add some information that seems to be missing from most reporting. This post by Jacques Sapir from the 14th (hat tip Michael Hudson) provides important detail on the importance of oil to the Russian economy (far less than typically depicted, although it is the biggest source of foreign exchange), the impact of the fall of the ruble and oil prices on the domestic budgets, and the odds of a Russian default. Note that Sapir is sanguine on the default front and does not see a rerun of 1998 in the offing, by virtue of of Russia having large foreign currency reserves. Note that Menzie Chinn of Econbrowser differs, and uses a chart from the Economist to make his point:

In addition, observers did not take into sufficient account the fact that much of Russian forex reserves are to varying degrees illiquid…



In other words, reserves useful for defending the currency against speculative attacks are more like $200 billion than $400 billion.

And it’s telling to see what a difference a few days makes. This article was penned before the failed Russian emergency rate hike to 17%.

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