An Excuse for Russian Bellicosity from Oil Cartel Collapse

Vladimir Putin is thinking.  His country is on the cusp of economic turmoil. 

The Russians, in an attempt to support their currency, have raised their interest rates to 17%.  The Russian money tree, oil-exporting, is dying.  The price of crude has dropped over 45%.  With it goes the Russian economy.

The ruble has since made a new low versus the U.S. dollar.  Banking agreements fall apart.  Collateral in the form of oil revenues disappears.  Germany in the 1930s comes to mind.

History will suggest that national figures such as Putin will point blame and take action, not necessarily economic action.  He now has an excuse to react.  Sanctions and international forces have been stacked against Mother Russia, he will likely suggest.  Economic war may beget other conflict.

Putin’s antics in the Ukraine and Crimea were just the first inning of Vladimir’s grand plan.  But now it may be advertised that the West has made economic war on Russia.

The world will not be safe with a Russia that is extremely unhappy.

But there is a larger lesson here.  OPEC propped up prices against normal market forces.

Those higher prices finally brought into play new forms of energy and new sources of traditional energy.  Those higher prices also encouraged mileage efficiencies and less travel. 

The market would have adjusted to all these factors in milder waves of reaction.  But when a supported price, a managed affair such as oil by OPEC, dissolves, there is price violence.

Managed affairs, cartels, and central planning all create their own demise.  Market forces will carry out, eventually.  If prices are too high, supply is encouraged.  And for Janet Yellen, if rates are too low, debt is encouraged.  Too much debt prompted by an over-managed central planning entity such as the Federal Reserve may unravel, much like the price of oil, managed by OPEC.

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