I just love all these headlines saying putin is surprised about this or that, bit off more than he can chew, yada yada yada. NONE of it is true. Putin’s operation proceeds as expected. He’s putin, not biden. He’s smart and thoughtful, not senile and woke. Putin is conservative, not liberal.
Go look on youtube, several young russian families are posting video of shopping trips to stores with full shelves. Yes prices are up, but really no more than in the US. So I guess we sanctioned OURSELVES. Bunch of morons running around trying to say putin is crazy or stupid. He is neither. He’s WINNING.
Sure, everything is wonderful in Russia. And all those people diving for bags of sugar is fake video, yes? And the 200k+ migration out of Russia of the young and smartest is fake also.
I watched a Russian spokeswoman on TV Friday stare straight into the camera and claim only 20 Russians had been killed in this war so far!
The West cannot sanction Euro/dollar balances at the Russ CB and cannot sanction the Russ CB. They will have to deal with it.
So four big plusses.
1. Europe breaks own sanctions on Russia
2. Russia still gets paid
3. NATO loses face
4. Europe can’t confiscate the balances
Jojo
2 years ago
Like him or hat ehim, Krugman has an opinion on the subject:
=========
Wonking Out: The Curious Case of the Recovering Ruble
April 1, 2022, 12:40 p.m. ET
Paul Krugman | Opinion Columnist
It has now been 37 days since Vladimir Putin’s forces reportedly thought they could capture Kyiv within 48 to 72 hours. Many news reports describe the Russian invasion as “stalled,” but as I read the detailed analyses, that isn’t quite right: Ukrainian forces are counterattacking, and in many places Russia appears to be losing ground.
One thing Russia has managed to defend quite effectively, however, is the value of its currency. The ruble plunged in the days after the Ukraine invasion, but it has since recovered almost all of its losses:
“Maybe” we’re being lied to? Liberals lie. It’s ALL they do. And it’s no wonder given their boss is the Prince of Lies.
Tony Bennett
2 years ago
“The Russia Central Bank gets euros. Exactly as before. The entire thing is essentially a mirage.”
…
Exactly.
The reason for ruble regaining strength due to swiss cheese sanctions (don’t work) and price of energy.
Last I checked Russia had around $650 billion in foreign reserves. Higher price for energy will allow Russia to accumulate more … which it can use to defend Ruble (sell them to buy ruble in fx markets) if needed. I don’t see the West freezing assets (again) or risk Putin turning off the spigot.
RonJ
2 years ago
“European sanctions have so many holes they are mostly useless in practice.”
That makes them a great virtue signalling device.
Bohm-Bawerk
2 years ago
looks like the 2/10 inversion will stick today.
Mish, any idea what a 2/30 inversion would signal???
thimk
2 years ago
Excellent content , thanks for the explanation
FromBrussels
2 years ago
Russia is not our enemy, never was, the arm twisting and blackmailing US of A is !
France is Belgium’s enemy having invaded it several times. Germany has too. So has Holland, Spain and England. Come to think of it Russia is probably one of the few that has not invaded Belgium but Belgium’s first King Leopold I did become a colonel in the Russian Imperial Guard at just 8 years of age and a general at 12. Either that kid was really smart or the Russian Imperial Guard was really dumb or maybe it was because his grandmother was Catherine the Great. Who knows?
Leopold was probably a cousin to half a dozen other emperors. That’s how interbred the royal families were. Couldn’t marry below rank, some duke or gasp… baron. If it went on for a few more centuries, they would have ended up as clubfoot, hemophiliac imbeciles.
There is a difference between the original contract. Previously Gazprom would get euros, which they could do whatever they wanted with. They could convert them to rubles, but they don’t have to. Maybe by law they had to convert 80%. Not sure. But now 100% will be converted to rubles. So this will increase demand for rubles, which will drive up the value.
Doug78
2 years ago
Let me
understand this. Putin insists that Europe pays for its gas in rubles. Europe
says no, we will pay in Euros and Dollars as it is stipulated in the contract.
Europeans then send Dollars and Euros to Gazprom’s bank in payment for the gas.
Gazprom’s bank takes the Dollars and Euros and converts them to rubles. Since
the Europeans didn’t pay in rubles and the Russians accepted the Euros and
Dollars somehow that is a “win” for Putin? From my point of view the only
difference is that Gazprom took the hard currency and exchanged it for rubles
after the transaction took place. Where is the “win”?
Europe is
still buying oil and gas because they are building up their reserves and not
because Putin is winning anything. If Putin were “winning” then Europe would
not be sending huge quantities of sophisticated arms and ammunition to Ukraine which
will be used to kill Russian soldiers equally in large quantities. When the reserves
are full then there will be no reason to buy from Russia ever again. By now the
reserves are high enough to last through next winter even if Putin turns off
the tap today. Germany upped the number of LNG terminals to three from two.
They are planning for doing without Russian gas.
The blanket
statement “sanctions never work” is not true. If constructed and implemented correctly
sanctions work very well if as in Russia’s case their aim is to hurt the
country’s ability to make war. We can see the effects already. That is the aim.
The aim is not to provoke regime change and although it would be welcome nobody
really expects that to happen.
“Why does Russia need dollars to buy military supplies?”
You misunderstand the question. If you can shrink an enemy’s economy you reduce its ability to build weapons and train its forces. Economics 101
“Why are the CEO’s of German petrochemical multinationals complaining they will have to shut down without gas?”
They are the same people who lobbied for making Germany dependent of Russia in the first place. They are are no longer listened to.
“Which sophisticated arms and ammunitions are you talking about? Name the weapons systems.”
Stingers, Javelins, Starstreaks, Switchblades 300 and 600 to name a few. Additionally helicopters and airplanes made by the former CCCP and still in service in some ex-Warsaw Pact countries. Also lots of S-300s and Buks from those same countries. Not to mention food and medical supplies. Lots of secure communication equipment. Artillery and counter-artillery batteries. Oh I almost forgot. Lots of money to support the running of the Ukraine government and economy. There is more and new items are added daily.
“How can these arms get to the Ukrainian military? Do they have any intact supply routes?”
Do you look at a map?? Since Ukraine borders four NATO countries you just drive them over the border.
Russia does not need dollars to put people, capital, and resources at work.
The CEO’s will be listened to when jobs and product start to evaporate.
Javelins & Stingers are having no effect … not a single documented case where they brought anything down; the infantry are just ditching the unwieldy things… Planes and S-300s cannot get anywhere without being shot down before they become useful. The communications & radar networks were the first things the Russians blew up, Ukraine forces have no mobility or command & control anymore.
Getting stuff across the border isn’t the problem, it is shipping it across the Dnieper without being blown up! The Russians own the sky!
Felix_Mish
2 years ago
I’d be curious to know in what form are these rubles and euros. Are we talking physical paper money or numbers in a computer or what?
Reactions to Russia saying gas buyers must pay in roubles
March 31 (Reuters) – Following are reactions to Russian President Vladimir Putin saying foreign buyers of Russian gas must pay in roubles from April 1, and that contracts would be halted if these payments were not made.
GERMAN ECONOMY MINISTER ROBERT HABECK
“With regard to the threat, demand or consideration – one doesn’t know how to call it any more – to be made to pay in rouble, it is crucial for us that the contracts are respected.”
“It is important for us not to give a signal that we will be blackmailed by Putin.”
When you unilaterally confiscate others property, you can not blather about sacrosanct contracts and paying with money that you have just stolen. If you mug somebody, you demand their money before you take their wallet, not afterwards!
Russia can’t let anyone stop taking their oil for TWO reasons, regardless o whether they pay in rubles or not:
1. They need the revenue for their war machine although the question is WHO is selling them the parts and raw materials their factories need (which would violate sanctions) and why would the sellers be willing to accept roubles in payment? The ruble may have bounced now but it will surely go back down shortly.
2. Sales of oil are already declining or are unable to be delivered and they are running out of storage.
Russia’s Transneft caps oil pipeline intake on brimming storage
Reuters
March 29, 2022
Russia’s Transneft, operator of the world’s largest oil pipeline network, has set caps on oil received by it as storage filled up amid weak demand for Russian fuel, hit by Western sanctions, five sources familiar with the matter said on Tuesday.
Russian oil exports are still flowing as sanctions imposed over the invasion of Ukraine, which Moscow calls a “special military operation”, do not directly target the energy trade.
However, difficulties with payments, insurance and shipping as well as curbs on dealing with several Russian oil suppliers forced many regular buyers to shun the market, leaving barrels unsold.
I’m certain there are at least some. Chips, for instance.
Dominic69
2 years ago
I do not get how Russia is protected in this way. First of all, Gazprombank is not sanctioned..yet…it does not mean it could not get sanctioned in the future.
Second, the euros or dollars get converted in Rubles…by who?? Either someone in Russia swap euros/dollars for rubles or the Central Bank creates them taking the euros/dollars ..so, someone inside Russia ends up with euros or dollar reserves which can be frozen…I do not get it….Mish??
The Russia Central Bank gets euros. Exactly as I outlined yesterday. The entire thing is essentially a mirage. It really makes no fundamental difference if the euro for ruble switch happens by Germany, somewhere in the middle, or at the back end by the Russia central bank. This is always the case and a point most simply fail to understand in all this oil for euros nonsense. Hopefully now people can see it.
Whether by the EU, some middleman, or later on the back end by Russia, the Russia central bank gets euros. Gazprombank gets rubles from the Russian central bank in exchange for euros. One slight difference is the Russia central bank gets 100% of the euros instead of 80% of them. This benefits Putin but he could always demanded that. It now happens immediately instead of perhaps later.
However, Putin extracted a mechanism and thus an implied promise from Scholz to not sanction Gazprombank. And he gets bragging rights that Scholz agreed to a maneuver that gets rubles to Gazprombank.
The threat is if the EU sanctions Gazprombank, then Putin shuts down the gas. Yet, this was really the case all along. So actually, other than getting an agreement from Scholz, there is no difference. But with Gazprombank now on the cannot sanction list, Putin can likely play some games there with euros even though they are technically central bank euros.
Putin can trade those euros to China for sanctioned US parts through Gazprombank.
Bottom line is there is no real change technically. But Putin gets to brag he honors his contracts and he has a commitment from Scholz for the EU to do the same. And he likely escapes more sanctions. From that point of view this was a victory of sorts for Putin.
So what you are saying is that with the implicit promise not to sanction Gazprombank, the euros/dollars will be hold in the bank (Russia Central Bank is under sanctions but it can create rubles, as liabilities, holding euros at a Gazprombank account on its asset column instead of holding euros/dollar reserves directly at the ECB or the Fed) and can be routed elsewhere.
It shows to me, Europe doesn’t really want to battle Russia. They’re just going along with the US. At some point, Europe will realize it’s far better off joining into a Eurasian union with Russia and China than being part of an Atlantic union.
I disagree. German business confidence has plummeted, prices have soared and rising, the biggest recession for years is on the cards, most Germans will know this is much worse than it would’ve been before the war. Additionally they’ve got to spend much more re-arming and developing new sources of energy. German people and other Europeans want nothing to do with Russia and this’ll be the case for years to come.
It’s because the Russians trusted the US/NATO, but since then have come to realize there’s no point talking with them about anything, since they do not listen and keep repeating lies, about ABM systems in Poland to intercept Iranian and N Korean ICBMs, and how surreptitious NATO bases in Ukraine are purely defensive and don’t signal that the US has now moved its sphere of influence to within kilometers of Moscow. No. Not all. Read our lips. Just believe it. We are good. Think of Libya and Serbia. See. That’s how well intentioned we are. Camp Bondsteel is to preserve the perpetual Kosovo borders and sovereignty as they have been since time immemorial, and certainly does not signal American military infrastructure moving in anywhere at all. Just think of how circumspect we have been of Iraqi & Syrian sovereignty, and how much we respect the sovereignty of Honduras or Iran! And how much value we attach to democratic constitutional change by way of elections in Ukraine!
“First of all, Gazprombank is not sanctioned..yet…it does not mean it could not get sanctioned in the future.”
If Gazprombank gets sanctioned, Europeans will have to find someone else to buy all those Rubles for with their Euros…. Which pretty much requires a Russian bank who can get Rubles from the Russian central bank, considering the amounts involved.
Maximus_Minimus
2 years ago
It’s hard to think that anybody could be the winner, especially not the refugees, the families of dead and tortured.
The only winner are the US neocons bent on world domination, who have a special hankering for Russia.
The real challenger to USA if there is one is China, on a strictly voluntary basis.
If anything, Russia is the last bastion of conservative Western values, and orthodox monetary policies. The central bank doesn’t shy away to exert real pain if inflation gets out of control.
The European vassals deserve what they get until they learn to look after their own interests.
“This workaround highlights the silliness of the debate that one needs dollars to buy oil or gas despite dollars being the pricing unit.
In this case, Russia demands rubles and get them via immediate conversion from euros or in some cases US dollars, depending on the contract.”
Russia demands rubles because their dollars are being stolen from them. Otherwise, they would have demanded dollars.
If Russia wanted dollars instead, that would mean the buyer has to have dollars to buy the oil/gas. Of course, they can use their local currency and buy dollars at the time of paying for the oil/gas, but they would also have to risk getting fewer dollars per unit of their currency at that time.
BINGO. putin wisely did this because USD was stolen from him. like US did to many other “enemies” post 9.11
shamrock
2 years ago
Where do the rubles come from? I mean who outside Russia has any? And if they are coming from Russia then Russia is essentially moving rubles and euros from one pocket to the other.
Gazprombbank will get most of its gas-trade Rubles from the Russian central bank, considering the amounts. But they don’t strictly have to. “Anyone else” can sell them Rubles as well. With the exchange rate now (somewhat) credibly pegged to the Euro, on account of the massive, publicly visible and verifiable, gas trade.
Every currency traded on forex is held by people all over the world. Some are speculators. Some make regular purchases from Russia and don’t want to risk their costs going up because of currency fluctuations.
“Some make regular purchases from Russia and don’t want to risk their costs going up because of currency fluctuations.”
This is also the reason why countries that make regular purchases of oil/gas hold dollars. They don’t want to risk their costs going up because of currency fluctuations.
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Let me
understand this. Putin insists that Europe pays for its gas in rubles. Europe
says no, we will pay in Euros and Dollars as it is stipulated in the contract.
Europeans then send Dollars and Euros to Gazprom’s bank in payment for the gas.
Gazprom’s bank takes the Dollars and Euros and converts them to rubles. Since
the Europeans didn’t pay in rubles and the Russians accepted the Euros and
Dollars somehow that is a “win” for Putin? From my point of view the only
difference is that Gazprom took the hard currency and exchanged it for rubles
after the transaction took place. Where is the “win”?
Europe is
still buying oil and gas because they are building up their reserves and not
because Putin is winning anything. If Putin were “winning” then Europe would
not be sending huge quantities of sophisticated arms and ammunition to Ukraine which
will be used to kill Russian soldiers equally in large quantities. When the reserves
are full then there will be no reason to buy from Russia ever again. By now the
reserves are high enough to last through next winter even if Putin turns off
the tap today. Germany upped the number of LNG terminals to three from two.
They are planning for doing without Russian gas.
The blanket
statement “sanctions never work” is not true. If constructed and implemented correctly
sanctions work very well if as in Russia’s case their aim is to hurt the
country’s ability to make war. We can see the effects already. That is the aim.
The aim is not to provoke regime change and although it would be welcome nobody
really expects that to happen.
Planes and S-300s cannot get anywhere without being shot down before they become useful.
The communications & radar networks were the first things the Russians blew up, Ukraine forces have no mobility or command & control anymore.
The Russians own the sky!
If Russia wanted dollars instead, that would mean the buyer has to have dollars to buy the oil/gas. Of course, they can use their local currency and buy dollars at the time of paying for the oil/gas, but they would also have to risk getting fewer dollars per unit of their currency at that time.