Koos Jansen
BullionStar Blogs
Koos Jansen
Posted on 17 Dec 2014 by

Guest Post: We Are Headed For A Major Dis-location And It Revolves Around The Dollar

The United States declared economic war on Russia. It is hard to pinpoint the why of the matter but in this author’s opinion it always comes back to US dollar dominance. Russia has made no secret of its disdain for the global pricing mechanism of oil. The chart below shows what matters in the pricing of oil and it has zero to do with shale miracles or over supply.

It is the dollar and only the dollar that matters in the pricing of oil with an exception being an act of nature.

1

Much like the gold market, supply and demand fundamentals are completely ignored as the pricing of gold revolves around the dollar. Countries such as Russia understand fully that this dynamic of dollar dominance leaves them very vulnerable to shocks. The same is true of all resource rich countries. While some of them see the US as an ally and go along with this, Saudi being the obvious one, the Russian’s have made it clear they want change. Make no mistake about it the Russian’s will get the change they desire.

The chart below shows the dollar against the Ruble. That chart is an act of economic war as the West has attacked the currency of a sovereign nation for UNECONOMIC reasons.

2

Let me explain the previous sentence. Russian debt to GDP is roughly 14%. Their debt to GDP is pristine. Japan’s is 227%, Greece 175%, Italy 132%, and the US 105%. Now can someone kindly explain why a currency would implode like the Ruble when their financial condition relative to the West and Japan looks like a Ferrari among a bunch of Ford Pintos? You could argue that they are highly dependent on oil. True, but so are other nations and are you certain oil will remain this low for an extended period?

The next chart is the dollar against the Kuwati Dinar, a nation wholly dependent on hydrocarbons. Certainly the dollar has rallied against it but that chart is not even a faint resemblance to the Ruble.

3

Now, how is the US able to pull this off without a hitch? Ladies and Gentlemen may I show you why the Saudis are NEVER spoken ill of in the US no matter what they do. The Saudi Riyal is PEGGED to the dollar at 3.75 to 1. This occurred in 1986. Why is this crucial? Simply compare the chart below to that of the Ruble and you have your answer.

4

Isn’t it odd that you don’t hear anyone talking or writing about challenging this currency peg?

And finally in March of this year, Louis Woodhill began a column for Forbes with the following:

“How should the U.S. deal with Vladimir Putin’s invasion of the Ukraine?  We should do to Russia what Ronald Reagan did to its predecessor, the old Soviet Union.  We should drive them into bankruptcy by stabilizing the U.S. dollar.”

Simple question…who is we?

Written by: It’s a Mystery

Koos Jansen
E-mail Koos Jansen on:

  • Artiom

    1. You can’t attack a strong currency and make it weaker.
    To my opinion the ruble per se is quite weak, because it has been
    operated as a currency board (sort of). The ruble is backed by USD and
    EUR, that implies it is extremely dependent upon USD and EUR
    inflow/outflow. The sanctions restricted the “hard” currencies inflow
    into Russia, thus putting already the ruble in trouble. The further oil
    price decrease weakened another source of “hard” currency inflow.

    2.
    I am struggling to understand the author’s point when he says that it
    was an attack on Russia – he proves it saying that no other major oil
    exporting countries suffered such a drastic devaluation. At the same
    time he suggests that the attack goes through strengthening the USD. How
    one in this case can avoid effect on other currencies?

    3. How an “attack” is possible if a
    currency is managed by an independent (from US) central bank? Don’t we confuse here the
    cause with the consequence? If a currency is mismanaged and artificially
    overpriced an attack is possible. But if it is managed and priced
    properly the attacking side will just lose.

    4. Also, if I am
    reading that post correctly, oil price decrease goes hand in hand with
    the dollar strengthening. But what about banking and US oil companies?
    What about US government debt? Stronger dollar means lower oil companies
    margins, potential default on oil derivatives and higher interest rates
    for the US government. From what I am seeing we just see the opposite
    happening. Is the hill worth climbing? So much damage to US just to
    attack Russian ruble?

    • Sabre Sbr

      Interesting but banks in the US already have derivatives that remain unmarked and the US has made it clear that we bail out banks and corporations.

      Also, I think it is fairly clear in the timing of this. The United States overthrew the government in Ukraine. Russia clearly retaliated.

      It is all about the flow of that gas to Europe. Does it continue to come from Russia or does Qatar get to build the pipeline.

      No matter what the US has its hands all over this crisis and we don’t even hide it, what with the VP’s son on the bard of a Ukranian gas company? What, there wasn’t one in the US that wanted him?

      • philipat

        That’s what Syria is all about but without “Boots on the ground” that’s a tall order.
        Conversely, the Chinese may force the Saudi’s to start billing them for oil in RMB. What your largest customer wants, it normally gets?

  • philipat

    Additionally, there is no reason for a Ruble “Currency crisis” because Russia is running a trade SURPLUS. This is clearly orchestrated by a “Not-for-profit” trader who just wants to attack Russia. I would also point out that NatGas prices have remained relatively stable because Europe has no alternative.
    Russia will coordinate strategy with China, because their interests versus the Dollar are similar. And, whilst it would be premature for Russia to back RUB with Gold (Because Gold would also then be even more crushed on Comex using Paper contracts) it probably will fix a Petroruble rate against Gold and then insist that all European customers pay for Gas in either Gold or in Rubles. This will restore the value of RUB very quickly.
    And if Russia gets really sick of The US, the next time the same “Not-for-profit” seller dumps 40 Tonnes of naked paper shorts at 3AM EST, Russia could buy them all then stand for delivery.

  • Troy Ounce

    Interesting view from Russia on destabilisation efforts from the West:
    https://m.youtube.com/watch?v=VT085isnyB0

    • SLK_R

      This guy says Russian Central bank works for the rest. Can this be true?
      That woman at the head of the bank, was Putin’s personal economic advisor before !

  • SLK_R

    This video is striking. Russia central bank is controlled by the West … so hard to believe. And the CB head hasn’t been seen for a while, the legal director already quit, as he realised which way the wind is blowing, he says.

    • DameEdnasPossum

      ‘Russian central bank is controlled by the West’

      Really?

      Can you evidence your assertion?

      • SLK_R

        That is what is claimed in the video. I don’t think this is right, as the cb governor was personal economic aid to Putin before, Sth like this. The video also says it is because of western influence that the cb had not allowed credit to flow for longer term investment purposes, only the form of short term credit has been there.

  • sbark

    Was George Soro’s able to get a position on the ruble prior to this…as he has been able to do on other currencies? There might be the answer as to who is we?

  • Roacheforque

    http://roacheforque.blogspot.com/2014/12/bis-reports-reuters-ratifies.html

    Close, but not quite. True, FOA’s perspective has aged a bit. The trick is to separate what remains from what changes. Oil is fading in importance, natural gas is gaining. Yes, Mystery Man, it is the current dollar-centric FX regime that must be preserved at all costs. The great extended priviledge today is truly “relative stability with local currencies of dollar holders”. The Sino-Russian alliance challenges the current exchange regime … of course I could be wrong–I do not know the future. But we shall see.

  • ReginaldTwardy

    You said:

    “Russian debt to GDP is roughly 14%. Their debt to GDP is pristine. Japan’s is 227%, Greece 175%, Italy 132%, and the US 105%.
    Now can someone kindly explain why a currency would implode like the
    Ruble when their financial condition relative to the West and Japan
    looks like a Ferrari among a bunch of Ford Pintos? You could argue that
    they are highly dependent on oil. True, but so are other nations and
    are you certain oil will remain this low for an extended period?”

    I
    have to take exception to this over-simplification; specifically, that
    Russia’s credit history is so pristine that it “looks like a Ferrari
    among a bunch of Ford Pintos.” Russia doesn’t have a low level of
    sovereign debt because it’s a careful, conservative nation that’s a good
    credit risk. It has a low level of
    sovereign debt because it can’t borrow, except at punitive rates of
    interest exceeding 10%. It’s a mediocre credit risk at best, having
    defaulted relatively recently.

    In
    August 1998 the Russian government: (a) devalued the ruble,
    (b) defaulted on all domestic debt, and (c) declared a moratorium on
    paying foreign debt. In other words, Russia has a relatively recent
    history of default, which understandably makes creditors nervous
    and drives up the risk premium for prospective loans to Russia.
    Moreover, Russia (and before it, the Soviet Union) defaulted no less
    than five (5) times during the last 100 years: in 1918, 1947, 1957,
    1991 and 1998. I was in Russia in 1998 during the most recent
    devaluation and can attest to the impact it had.

    The
    implication that there is some sort of ‘conspiracy’ to shut Russia out
    of credit markets is completely unfounded. Russia is primarily a
    commodity economy, and when that commodity goes down in price in world
    markets, it’s logical to assume that’s going to have an impact on the
    economy and the government’s finances. In Russia’s case, roughly 50% of
    its revenues are energy/oil related.

    • DameEdnasPossum

      “The implication that there is some sort of ‘conspiracy’ to shut Russia out of credit markets is completely unfounded.”

      I have to take exception with this absolute nonsense statement.

      Simply because some of what you have said is historical fact does not make such blantant instances of misinformation as the above quote the truth also.

      A lie does not become less of a lie merely because it is sat beside several truths.

      Ther is no implication that Russia is being shut-out of credit markets…it is an explicitly obvious conspiracy. No denying.

      Ever heard of sanctions?

      So…one is left with the obvious question: what is your agenda sat behind your misinformation?

      • ReginaldTwardy

        Bob, as you pointed out, there is no secret conspiracy in the west to cut off Russian access from US banks. Western sanctions have explicitly made things very difficult. I assumed you knew this.

        However, western banks are hardly the only holders of dollars, and others that possess them are quite able to lend them to Russia if they so wish.

        But they don’t want to. Why? For all the reasons I pointed out, and none being the least conspiratorial. Quite bluntly, Russia is a poor credit risk. It has defaulted relatively recently (in the late nineties) and often (5 times in the past century alone), and lenders would rather not lend except at punitive rates of interest that fairly compensate them for the elevated risk they’re taking. That means rates in excess of 10%.

        Russia has a low debt-to-GDP because it can’t stomach much debt at the elevated yields the market demands – either before the sanctions or now.

        Bob, the ruble isn’t a ‘Ferrari’ among currencies. It’s a Yugo. And that’s precisely what the market action of the past several months has borne out.

        • DameEdnasPossum

          You seem to have lots to say, but unfortunately you say nothing much.

          Your anti-Russian agenda is palpable and, just like so many mainstream media presstitutes these days – sources of information that are wholly without merit.

          Reggie – yet another shill from Trolls-R-Us.

          • ReginaldTwardy

            Bob, I presented facts and analysis that demonstrates there’s a good reason for both Russia’s low debt-to-GDP and poor credit.

            Presented with those facts, you simply choose to make ad hominem attacks because you’re unable to dispute the facts I cite nor the conclusions that logically flow from them.

            That’s okay – folks understand this.

          • DameEdnasPossum

            Folks also understand that there is little point debating shill trolls with little to offer other than conjecture, innuendo and non-sequitur arguments.

            Nobody doubts that Russia is way beyond perfect, but the low level of debt in Russia is largely due to a consistent trade surplus and the Putin’s avoidance of deficit spending and indebited servitute to a privately owned central banking system while also ensuring sound economic fundamentals…behaviours bound to draw fire from the western banking slave masters – as the ruble may currently testify to.

            Living within one’s means; it’s not too complex to understand and adhere to…for some of us anyway.

          • ReginaldTwardy

            Bob, I have facts and analysis.

            You’ve got ad hominem attacks.

            See the difference?

          • DameEdnasPossum

            What I see are ramblings full of contradiction…and smugness…lots of smugness.

          • ReginaldTwardy

            I’ve spelled out exactly why Russia is having difficulty with its finances, Bob. If you’re unable to follow along, perhaps you need help with reading comprehension.

            Don’t be afraid to ask for it.

Copyright Information: BullionStar permits you to copy and publicize blog posts or quotes and charts from blog posts provided that a link to the blog post's URL or to https://www.bullionstar.com is included in your introduction of the blog post together with the name BullionStar. The link must be target="_blank" without rel="nofollow". All other rights are reserved. BullionStar reserves the right to withdraw the permission to copy content for any or all websites at any time.