Ep. 240 Why Putin’s Moves Won’t Strengthen Ruble
Bob argues that Putin’s moves to link the ruble to gold and to insist on ruble payments for natural gas won’t be very effective in strengthening the currency. He then critiques a recent listener comment who argued that one’s views on taxation are important for determining moral worth as a human.
Mentioned in the Episode and Other Links of Interest:
- An example of Ronan Manly’s ruble/gold analysis.
- Help support the Bob Murphy Show.
The audio production for this episode was provided by Podsworth Media.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
God had no problem drowning every human to death, except Noah and those on his ark — ie. the number of people who support evil is irrelevant to whether something is evil. However, I guess we should distinguish between those who merely SAY they support evil, and those who actually commit it (cops, soldiers, etc). That’s a grey area.
Imagine if Judge Forrest and Ross Ulbricht were alone in a courtroom, Ross is armed, and nobody will know what happened. Forrest insists on caging or killing Ross, even though he didn’t hurt anyone. Ross insists on being a good free person. Is he justified in shooting that evil b*tch?
Or imagine Peter’s dad, Irwin Schiff, suddenly finding himself alone in a remote unlocked cell with his low-level security guard captor, who’s “just doing his job”, and nobody else is around. The guard knows he’ll be fired if he doesn’t do his job, and feels like he can’t afford to lose his job, and won’t let Irwin escape. Irwin wants to be a good free person.
I think Larken Rose, Chris Cantwell, and plenty of others have made this obvious argument. It’s weird how you vacillate on it.
Great, just the episode I wanted. I even argued the same way (gas for rubles just means a different entity exchanges eur for rub but otherwise no change to demand or supply).
But then what DOES explain the ruble gaining over 100% since its lows and 20% even since prewar? Its
Bob, you say you don’t think the USD will be the global reserve currency in 15 years at most.
Can you explain what you think will happen? Do you think some other currency will take over? Which one? Or do you think there won’t be a reserve currency?
I just kind of don’t see it. The US is certainly doing a lot wrong, but almost everybody else is doing way worse. China’s fucked. Russia’s fucked. The EU’s fucked. There are a handful small countries that are doing OK, like Singapore maybe.. but I just don’t see any real competition to the US.
Or are you envisioning some kind of Snow Crash scenario where nation states stop mattering altogether in <15 years?
You know “Bob”, you probably expect him to answer you, but you still don’t bother showing the minimal respect and restrain in using clean language. When you know how he feels about it. I don’t get it.
On US, China etc.. Russia has the resources to make everything. China makes everything. The US makes social media software, woke movies, and bombs. I see the re-alignment as a real possibility.
Lol that hasn’t occured to me. Cursing is so natural to me that I don’t even notice it. I have perceived it as very rude of Bob not to answer the handful of questions in the comments here. If it’s due to my cursing, please let me know, Bob!
On topic:
The US is one of the top energy producers in the world. China has practically zero energy resources (oil, coal, gas). Russia has them, but has no economy. Both have crazy population bombs. China has the most inverted population pyramid in the history of mankind, and the largest population to boot. They are also coming off several generations of government misallocation of resources, and the last 10+ years under Xi have accelerated this trend. Plus, they’re starting wars with almost literally all of their neighbors. The US is food-independent, an exporter actually, and has 2 very benevolent neighbors, one of which is a perfect complement in terms of population age and economic skill set. China is importing lots of its food, and is importing a lot of food inputs like fertilizer. They just can’t be self-sufficient on any front. Plus, their economy is so export-oriented, as soon as the West stops buying (for whatever reason) their economy falls off a cliff. They aren’t rich enough to buy their own stuff. Remember, China’s GDP per capita is lower than Mexico’s.
I get most of my opinion on this from Peter Zeihan, look him up on Youtube. He’s a bit of an America fanboy, but honestly, a lot of his analysis makes sense to me. China has 1 functional aircraft carrier, and they bought it used from the Soviet Union. Russia can barely fight their way out of a wet paper bag, as we’re seeing. The Russians at least have fought several wars in the recent past, and thus have combat experience. Chechnya, Georgia, Afghanistan… the Chinese haven’t seen combat since Korea… against us. Their entire military prowess is hypothetical. We just spent the last… let’s be honest, the entire time since WW2 at war. Now I’m not saying that’s a good thing, but our military is way more experienced than theirs. Only the Israelis maybe are more experienced on a pound-for-pound basis.
I just don’t see it. If you believe freedom works and central planning is terrible in the economy and the military, how could you believe China is rising?
I’m a bit confused if you’re making a military argument for the continuing of US hegemony or an economic one.
Military: it’s been less than a year since one of the most humiliating debacles in military history. 20 years, 1 trillion, against guys in pyjamas and flip-flops and it took them a week to completely reverse it.
Secondly, make no mistake, Russia is winning. Ukraine is only winning on the front pages of Western media. Then a few weeks later it’s revealed that the Ukrainian offensive in Mariupol, Charkov, Cherson, Snake Island etc was just pure propaganda and then people fall for the next scam (eg Severodonetsk today – just give it a few weeks)
Anyway, despite the laughable debacles in almost every war since WW2 and despite the fact that the same gun costs Uncle Sam probably 10 times more than the Ruskies, the US might still prevail. Unless nukes were used. But so what? Are you saying they will attack Russia? Or will the threat be enough?
Economic: you have many valid points, but Russia and China (and India, and Brazil, and Africa, and Latin America and Middle East) don’t have to be roaring tigers run by Austrian economists to make the world at least a bi-polar place. Among them they have all they need.
“Russia has no economy” .. Well, you said he was an American fanboy. He’s materially wrong too. Again, they can make all they need and they can trade the rest as they are enemies with just 15% of the world population. Explain how come the sanctions have done almost nothing if they have no economy? That was supposed to have happened by now. Ruble was supposed to be rubble.
Yes, the West has about 50% of the world’s GDP but that GDP includes the aforementioned trillion dollars completely wasted in Afghanistan. It’s a monetary metric, even real GDP. Ask yourself : a huuuuuge chunk of the US consumption is made in enemy countries. They exchange it largely for paper. If China stops exporting, far from it being a problem, they get to enjoy it at home and they will just lose the paper that they can never sell dollar for dollar anyway.
Have you heard no Peter Schiff? Or Bob Murphy for that matter?
It was reported that the Russian Central Bank switched to purchasing gold at a negotiated price instead of 5000 roubles per gram on April 8 2022. On the surface, this supports a plan to revalue the rouble on a commodity and/or precious metals basis.
https://www.reuters.com/business/russias-central-bank-says-it-will-stop-buying-gold-fixed-price-2022-04-07/
While I think I agree with the overall prognosis, I’m not quite following the argument Dr. Murphy presented why requiring oil purchases in Rubles would NOT effect a price support for the Ruble.
If I understood correctly, Bob submitted, as a refutation, that the Russian government could alternatively force the Petrobas etc to buy up rubles using the euros or dollars tendered for the fuels and that this would stimulate demand for rubles. But just because one can show that an alternative Intervention-B DOES stimulate demand is not proof that the primary Intervention-A does NOT stimulate demand.
Additionally it seems to me Bob’s position contradicts the ‘petrodollar’ theory, whereby nations agreeing to purchase oil with USD is generally accepted to be a demand stimulus and thus a price support for the currency.
It would be almost a relief if I have misunderstood Dr. Murphy’s argument here, because I’m ill at ease contemplating this apparent blunder.
Wading in a few weeks late … but it might be fair to point out that the ruble has in fact gone up, relative to most other currencies. Possibly the RCB gold buying policy is intended to use Gold as an anchor (i.e. a boat anchor) to keep ruble prices from going up too quickly?
Don’t forget that Russia is a big producer of Gold, and normally would sell via London but under sanctions there must be large internal Gold flows that have nowhere to go. Makes sense that the RCB would buy in order to stabilize that market.
Exactly what it means is anyone’s guess … most of the wealthiest people on Earth are forbidden from trading rubles. What do you make of the “market price” on an item which cannot be bought and sold? I think Turkey, India, and a few others still allow business in rubles … China centrally manages all import/export anyhow, and the Europeans did make some trades in rubles under great protest, but Russia has switched off the gas in a few cases, and possibly will switch off more of them … the worst of Winter is over in Europe and no doubt they will get a bit cocky.
I’d be guessing that Gold keeps flowing out of Russia on the black market to buy foreign goods – running the blockade. There’s a heck of a big border out there and Gold is very difficult to trace. If there was a true shortage of Gold on international markets then the Gold price would be going up a lot, but it actually has come down a bit. That would at least be indicative that Russian Gold continues to supply the world, but not via London anymore … perhaps through Asia.
Disclaimer: I have investments in Australian Gold miners and I should make more money while the Russians are put out of action, but I haven’t been making a whole lot on those investments lately.
Following up on my own previous observations of the international Gold markets.
https://www.rt.com/business/557869-blinken-russia-gold-ban/
Looks like I was right … Russian Gold is leaking out past sanctions, and the Western powers are trying to stopper that right up. Quite likely the Russian central bank has been internally buying Gold specifically for the purpose of using it to handle external payments. A lot of the parties accepting Russian Gold on the international markets probably are keeping a bit of a low profile and not drawing attention to the fact … if you know what I mean. Take note that India, China, Turkey, Pakistan, etc are not making any loud announcements about Russian commodities.
If nation states are resorting to Gold as a settlement option, this would be a reversion towards historic Gold-money status … I doubt Secretary Blinken can do much to prevent this but I expect him to give it a good try.
Commenting again to note that Russia has officially declared a huge current account surplus, mostly because of energy exports. Problem is that many of their imports are embargoed and although they nominally have plenty of foreign exchange, they cannot spend it.
I still believe that unofficially they are using Gold to buy imports … and run the blockade … although perhaps there are limits as to what kind of items can be purchased in this manner. It’s an interesting question on the whole “free trade vs protectionism” argument. Russia is not some little island nation like Singapore which would be devastated by loss of international shipping … however although Russians have all the basic items they need (food, fuel, shelter) they are missing certain high tech electronic goods, and of course many of the luxury items that were previously available have been blocked (e.g. Netflix). Is the current account surplus even real when some of the transactions in Gold might be kept off the books?
https://tradingeconomics.com/russia/current-account
You can see that in most years it has a strong seasonal cycle, and tends to be mostly positive. In this year it is sitting at roughly double the normal peak. Data comes from the Central Bank of Russia … with all the normal caveats about trusting numbers from any central bank, especially “when it gets serious”, as the Junker quote goes.