The world is currently engaged in a financial war and the ruble collapse is just one battle

Make no mistake the world is currently engaged in a financial war and the ruble collapse is just one battle. The 2008 Great Financial Crisis ushered in a new currency war that has morphed into a financial market war, with oil as the weapon of choice.

I am not trying to be a fear monger, I am simply pointing out what is occurring in the financial markets. In the beginning, a financial war seems like a no-brainer, i.e., use financial might to damage your enemy’s economy. The flaw in this logic is it assumes no impact on the economy of the attacker. In the age of open economies investors are correct to be concerned about the collateral damage.

he latest battle in this financial war is the engineered drop in oil and subsequent collapse of the Russian ruble. Now that this battle has been waged investors need to know what/where the next battlefield may be.

order to answer this question we need to understand what has transpired over the last few days. Many have been shocked by the lack of intervention by the Central Bank of Russia (CBR) in the days leading up to the currency collapse. Implicitly or explicitly, it appears Russian President Vladimir Putin has allowed a raid on the central bank currency reserves to benefit the oligarchs and state owned corporations. These corporations have issued debt in rubles and either immediately converted into US dollars or have used the debt as collateral at the CBR. The CBR had a choice to defend the ruble and give its foreign currency reserves to speculators or give those reserves to the state owned corporations. The lack of serious currency intervention suggests the CBR has chosen the latter.

The economic impact of this decision is likely to be felt by Russian citizens as they encounter double-digit inflation. If Putin does not handle the internal situation correctly then Russia could face social unrest which may threaten Putin’s leadership. Therefore, Putin’s next move will define the next battle in the global financial war. The leading battlefield candidates are the wheat market, U.S. Treasurys and Gold.

The currency collapse could accelerate Russian aggression in Ukraine. In my view, the purpose of the invasion has always been to control the port cities along the Black Sea. Since roughly 30 percent of the global wheat supply moves through these ports, control gives Putin a formidable economic weapon. Since further aggression risks more economic sanctions it is unclear if this is the most probable move.

Read  more here  :

Related Posts

  • 62
    (Source ) The UK isn’t in deflation yet. While central bankers know what to do about stopping inflation, they don’t know what to do about halting deflation. The Swiss National Bank last week abandoned its attempt to defend a currency floor, which caused a sharp appreciation in its currency, which…
    Tags: economy, bank, central
  • 61
    The plunge of the lira has already exposed the Turkish economy’s dependence on short-term foreign investment. Most foreign capital is invested in Turkish stocks and bonds rather than longer-term projects. All it takes is a phone call or a few clicks of a mouse for short-term investors to move their…
    Tags: investors, russia, move, economy, currency
  • 58
    Press conference following the meeting of the Governing Council of the European Central Bank on 4 September 2014 at its premises in Frankfurt am Main, Germany, starting at 2:30 p.m. CET: Introductory statement by Mario Draghi, President of the ECB. Question and answer session. Registered journalists pose questions to Mario Draghi, President…
    Tags: central, bank
  • 57
    The Swiss National Bank's foreign exchange reserves inched higher in August, data showed on Friday. The SNB held 453.799 billion Swiss francs in foreign currency at the end of August, compared with 453.353 in July, revised from an originally reported 453.391 billion, preliminary data calculated according to the standards of…
    Tags: reserves, currency, bank, central
  • 55
    5 REASONS FOR INVESTORS TO CARE ABOUT RUSSIA’S MARKET TURMOIL It might be tempting to think in realpolitik terms about Russia’s financial woes right now — the idea that a weakened Russia has less weight to throw around in conflicts such as the Ukraine and Syria. But the reality is…
    Tags: russia, market, financial, economy, investors, global, ruble, oil, currency, debt