Feel sorry for the Russians, if not Russia. The Russian Ruble has collapsed as abruptly as it did just before the USSR collapsed. This time is different though. And it can only happen there. Or not. Personal finance can’t ignore global finance; but people can always control themselves by controlling how they live. It is our strength.
Fracking is a big issue. And yet, fracking is merely the fulcrum used by many for a variety of economic agendas. Fracking is worrisome to those near it because of the environmental hazards. The Russians are probably cursing it because fracking caused their crisis, at least partly.
Fracking isn’t something to do for the fun of it. It’s done to extract more oil and gas from wells that were losing their productivity. It’s like Red Bull for oil wells, but on a lot bigger scale. Neither is sustainable, but the short term rush is addictive. Fracking has produced so much oil in places like North Dakota that there’s an oil glut. Yay! say the fans of fracking who argue for American energy independence. Normally, OPEC, and particularly Saudi Arabia, would cut back on their production to keep the supply down and prices high. They like high prices. They don’t, however, like losing revenue.
Saudi Arabia decided to keep pumping oil. If they produced enough that the price dropped enough, then it might drive the frackers out of business. Yay! say the opponents of fracking. As long as Saudi Arabia has a lower cost of production, they’ll eventually win. In the meantime, the price of gasoline has dropped to mutli-year lows. Yay! say any cash-conscious American filling the tank – except maybe those whose jobs are at risk.
The battle may be between North Dakota et al and Saudi Arabia etc., but one of the casualties is Russia. Russia isn’t the only casualty. Every country that relies on oil revenue for a large part of its national revenue is hurt if their production costs are more than Saudi Arabia’s and North Dakota’s. That’s a lot of countries. Making a lot of money from something in demand is great, but not diversified. Russia, Venezuela, and Iran aren’t directly involved in the conflict, but they do rely on selling oil. Well, as long as they have stable economies they’ll be okay. Oops.
Russia is largely Putin. Just like oil, Russia has been relying on a singular strong central figure. The adventure into the Ukraine may have seemed like a good idea at the time, but the costs and sanctions that followed stifled Russia’s economy. Its reliance on a very few key figures meant Russia was a riskier investment. With the costs and sanctions, the expenses went up. With the oil war, the income went down. The Russian economy is now bad enough that the Russian Bank had to raise interest rates to 17% to convince Russians to keep their money in rubles. Yay! say people who have money to invest and who expect interest rates to exceed inflation. Maybe that will work. Maybe people will remember back about 100 years to another bond crisis in Russia.
In less than a year, the Russian Ruble has fallen to 50% of its value in US Dollars. People with foreign debt effectively owe twice as much money. That sounds like a rich person’s problem, but if you’re an auto mechanic in Moscow working on Jeeps your parts prices just doubled. Borrowing from your local bank will be tough when you have to pay high interest rates. If your income growth is greater than the interest rate, great! If not, as is true for many, then individuals ride a downward spiral.
Back when I was an aerospace engineer for Boeing I spent ten days in the Ukraine soon after the Wall fell. We were there trying to find commercial uses for Soviet military rockets. (Ah, my days on Sea Launch, a real bit of seemingly sci-fi few know about.)
The days were busy, but a few times I had a chance to walk through the neighborhood. One walk alone would be sufficient for a book. Every time though, I encountered the same thing: a long line of sidewalk stores. Don’t think Parisian. Every store was a cardboard box about one foot wide, long, and tall. All were tended by someone sitting behind it. The typical fare was simple: one fish, one root vegetable, one loaf of bread. The river was near. There must have been gardens. I wondered if there was a flour allotment. The government had so little cash that they had to turn out the eternal flame honoring their war dead. The people who had so little cash, did whatever they could. They were resourceful. I don’t know if they were successful.
Russians are stocking up, probably trading old stories for insights rather than entertainment, and adapting. Russians are used to hard times, for good or bad.
We assume that only happens over there, somewhere else, to someone who hasn’t “figured it out.” As part of compiling the daily news feed for Pretending Not To Panic I’ve come across enough data to confirm that, we in the US are in a bubble.
It may not be a financial bubble, though that’s possible too. The US Dollar seems steady, and it is, because no other currency is. The major currencies; the Euro, the Yen, the Yuan, all have uncertainties. The investment community doesn’t like uncertainties. The EU doesn’t seem stable, so why should their currency. The Yen has Japan’s aging demographic imbalance to worry about. The Yuan is tied to China’s impressive growth, but the growth may be ephemeral. The US looks good because everyone else looks far less good.
The US isn’t as reliant on one commodity, good, or service. Our debts are large, but so is our productivity. The fact that we have so many disparate voices also demonstrates that for any situation we have lots of potential solutions.
My worry is that too many Americans assume it can’t happen here. We assume the US Dollar will always be there, solid and sound. That is not normal. Personal finance is personal, and people respond differently to crisis. Even rocket scientists can find themselves sitting behind a foot-tall cardboard box selling a fish, a potato, and a biscuit. Some Russians may be doing the same thing in the Spring. It’s one reason I lived frugally before I had to, and will continue to do so after I no longer need to.
Our adaptability is our strength, especially when we watch what’s going on so we know how we might have to adapt.