Furious Russia, Downgraded To Just Above Junk By S&P, Proposes FULL-BLOWN ‘SCORCHED EARTH’ Retaliation Against NATO Countries

Furious Russia, Downgraded To Just Above Junk By S&P, Proposes “Scorched Earth” Retaliation Against NATO Countries (ZeroHedge, April 25, 2014):

Cyprus and Russia – what’s the difference (aside from the fact that the former was a money laundering offshore center of the latter until last year of course)?

If you said one is a lackey to statist, selfish banker interests, and after having its economy thoroughly destroyed by the great doomed European sociopolitical (and pathological) experiment, came crawling back to its Eurozone masters, while the other couldn’t care one bit about Pax Petrodollariana and the global central bank cabal, you are right. In which case it will also be clear why a few hours ago that joke of a rating agency, Standard & Poor’s, which also earlier announced it was “affirming” France at an AA rating making it very clear it will no longer accept being sued for telling the truth and downgrading sovereigns or otherwise have its offices abroad raided, not only upgraded Cyprus from B- to B (please deposits your funds in Cyprus banks now: they are safe, S&P promises), but – far more importantly – delivered a political message to the Kremlin, and downgraded Russia from BBB to BBB-, one short notch away from junk status. This was the first downgrade of Russia by S&P since December 2008.

WSJ reports:

“In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P wrote in its report.

Moscow’s MICEX stock index fell by 1.5% after the move. The ruble weakened 0.6% against the dollar to 35.977.

A further cut to junk status would be a big move, given Russia’s relatively modest level of debt, according to Tim Ash, an economist at Standard Bank.

“But if the crisis in Ukraine deteriorates further, and we see sustained capital flight and pressure on the ruble and Russian markets further, then it is possible,” he said.

Russia’s response was prompt.

First, in retaliation to the downgrade, Russian economy minister Alexei Ulyukaev said S&P’s downgrade of Russia’s rating was expected by investors, won’t significantly change their behavior, adding the obvious that the decision to cut Russia’s rating was partly political, partly based on economic situation. In other words, entirely symbolic – it is not as if Russia has access to bond markets anyway, plus as we wrote earlier this week in “Why Putin Is Smiling At The Bond Market’s Blockade Of Russia“, it is not as if it needs them.

But far more importantly, and ahead of yet another round of western sanctions which appears imminent unless Obama is to look even more powerless than he currently is (granted, a difficult achievement), Russian presidential adviser Sergei Glazyev proposed plan of 15 measures to protect country’s economy if sanctions applied, Vedomosti newspaper reports, citing Glazyev’s letter to Finance Ministry. According to Vedomosti as Bloomberg reported, Glazyev proposed:

  • Russia should withdraw all assets, accounts in dollars, euros from NATO countries to neutral ones
  • Russia should start selling NATO member sovereign bonds before Russia’s foreign-currency accounts are frozen
  • Central bank should reduce dollar assets, sell sovereign bonds of countries that support sanctions
  • Russia should limit commercial banks’ FX assets to prevent speculation on ruble, capital outflows
  • Central bank should increase money supply so that state cos., banks may refinance foreign loans
  • Russia should use national currencies in trade with customs Union members, other non-dollar, non-euro partners

In other words, a full-blown scorched earth campaign by Russia.

Granted, Russian holdings of US Treasurys are not that substantial (and could be monetized entirely in three months of POMO by the Fed), and western financial linkages to Russia, aside from trade routes, are not life-threatening, but if Russia were to take the baton, and other BRIC countries, already furious by the recent US decision to not boost their IMF status, follow suit, then Obama’s life is about to become a living nightmare. Especially, if that most important BRIC member – China – does any of the many things it can do to indicate if, in this brand new Cold War, it is with or against the US…

Finally, those curious what are the linkages between the west and Russia are, review our recent post on the matter: All You Need To Know About Russia, In Charts.

3 thoughts on “Furious Russia, Downgraded To Just Above Junk By S&P, Proposes FULL-BLOWN ‘SCORCHED EARTH’ Retaliation Against NATO Countries

  1. This article must have been written for US media. It is very far from the truth. Fact is that since the US has been employing heavy handed threats and sanctions against Russia, all the Russians living abroad, fearing for the safety of their fortunes, are moving their money home in droves. Putin just raised interest rates to 7.5%, making it far more attractive to them………he is no fool.
    The west can say what they want, but this is so far from the truth, I am surprised. Zerohedge usually is more truthful. Last week, Putin allowed the Russian central bank to collapse instead of printing money with nothing behind it to save it. That was a wise move, and I wish the US had done the same in 2007, we would not be a bankrupt nation now.
    Putin is making some hard choices to stabilize and grow Russia, and he will succeed. Pity our leaders no longer serve the US, we might have a chance.
    The west, especially the US, is close to bankrupt. Less than half the world uses the US dollar, and more nations are following suit as the bullying US loses more friends every month.
    The US stock market is down to 15% in real investors, and we don’t know how many of them are playing on margin. 85% are high frequency skim and sell, happening faster than the blink of an eye. The US market is nearly empty. So are the banks, which have nothing but paper debt.
    The west is no source to downgrade anyone, but they can try. Russia doesn’t care. They have a smart leader who is serving the best interests of Russia. Pity we don’t have the same.
    Our leaders serve the greedy guts who have plundered this nation into bankruptcy.
    Today, I saw on CNBC website the current mortgage rates. ARM on Jumbos is a shave off of 6%, the others are well over 5%, and this is for those without a single miss on their credit. For those who have any misses, or late marks, the rates are higher.
    We have an entire group of Americans who until now thought they were okay. In the low millions, riding on big mortgages with low interest rates…..and lots of credit card debt. Now, their payments are going through the roof. People used to 1.5% mortgage rates are now facing close to 6%…..and it will be 6% and higher very quickly.
    The greedy guts are going after them now, and we are going to see another increase in foreclosures and debt that will destroy another layer of the economy. They will hit the pavement next. Another entire part of the economy will be destroyed. Every percentage point addition add 13% to the payments. You do the math.
    Russia isn’t the weak one here, the US is.
    The US is the last place to be pointing fingers at junk level debt or bonds……..just look at us.

  2. Definitely Payback time.
    Unfortunately the poor will suffer, as always. But in Russia discomfort is the ‘norm’ the people are hardened to.
    I’ve just taken my Grandkids to a UK ThemePark, and stayed at a Hotel.
    The Head Waitress was from Romania, a former USSR State ‘led’ by a ‘puppet’ called Coucescu who was assassinated by the people.
    I asked her how things are now that they are in EU?
    “It was better before” was the instant reply….from someone who left to live in UK.
    Her family still based there, concur.
    Seems the worst we hear about EU/IMF/World Bank Bankster indebtedness is totally TRUE, and we either capitulate or draw the line and retaliate.
    WE NEED THE HOME ADDRESSES

  3. I agree with Squodgy again. We need the home addresses……..
    But, seriously, Russia has the grimmest history in modern history. Their people are used to hardships and suffering, there is little joy anywhere in their history. They are tough hombres, and the softies from the west haven’t a prayer against them.
    A friend told me the US is upset because it is obvious Russia will be a world power very quickly, and the US doesn’t want that. Too damn bad, the US has had too much bad management, they cannot stop it.
    It won’t be China, they followed the worst examples of the US, printing money nonstop, their national debt is 5-12X their GDP, depending on what you read. Since they lie about everything, it is difficult to say…..but they are in deep trouble because they depended on exports. Now, the entire world is in a depression, and exports from China are a trickle of what they used to be. In times of trouble, the EU has great experience in cutting back, as do those in England, and the US is relearning. We used to know, but in the wild days of the 1980s and 1990s, we forgot.
    People like me, who use furniture that belonged to my grandmother and great-grandmother are rare in America, more like Europeans…….I have used the same furniture all my life, it is fine quality, and I have seen nothing anywhere that is any better. Quality lives for centuries, and my English relatives would probably concur.
    Most Americans buy new furniture every few years. That is about to change as funds become more scarce. It has already started. The next level, the wannabe greedy guts, are getting hit hard with rising interest rates. Almost all mortgages are ARMs……..and they are losing their credit card purchased shirts……….they are going after the next layer. It will wipe out the remaining shoppers, and more retail stores will close.
    I have been predicting this for some time, and now it is happening. Foreclosures and bankruptcies are going to rock and roll……but they cannot get free of their credit card or student loan debt, that follows them through life.
    Americans will have to toughen up to compete with the Russians.

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