The Homa Files

Shades of Bush’s “Mission Accomplished”
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After imposing supposedly draconian sanctions, Biden claimed a quick victory when the the Russian ruble tanked in the financial markets.

Perhaps, a premature end zone dance by the “Big Man”.

True, immediately after the initial round of sanctions were announced, the ruble — which was trading around 80 rubles per dollar — devalued it to about 150 rubles per dollar.

Example: Before the sanctions, purchasing $100 of dollar-denominated goods would have cost a Russian 80 rubles … soon after the sanctions were announced, those same goods would cost 150 rubles.

Yep, started to look like rubble.

But, not so fast…

After about a month, the ruble is right back where it was pre-sanctions — trading at about 80 rubles per dollar.

How can that be?

Couple of reasons offered up by pundits:

• Many of the sanctions were announced but haven’t been activated
• Some large countries aren’t on the sanctions’ bandwagon … think China and India.
• Putin has gone big time on currency manipulation … e.g. boosting interest rates, restricting bank withdrawals, and…
• Requiring that oil and gas sales be transacted in rubles

The last point is particularly problematic since countries that are dependent on Russia for oil and gas … are still buying oil and gas from Russia at historically high rates.

A couple of teaching points:

> Until the U.S. re-ramps domestic oil & gas production — to satisfy domestic & foreign demand — the bad guys will continue to rake in the dollars (err, rubles)

> Putin may be crazy … is certainly evil and ruthless … but he’s not stupid … so he shouldn’t be under-estimated … on the battlefield and in the financial markets.

This entry was posted on April 15, 2022 at 7:37 am and is filed under Bidenomics, Currency manipulation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.