Back To Basic Fundamentals - The Dollar Versus The Ruble

Tyler Durden's picture

Submitted by Simon Black via Sovereign Man blog,

Last night, the Russian central bank announced a shock decision to hike up its key interest rate from 10.5% to 17%, effective immediately. Incredible.

On Monday alone the ruble declined more than 9% against the dollar, and almost 50% in 2014. It looks like a massacre.

If you listen to conventional financial news, they’ll all tell you that you’d have to be insane to own anything in Russia right now—stocks, bonds, currency, etc.

They’ll tell you that the ruble is in freefall, and that the dollar is the place to be.

But if you have been a reader of this column for any length of time, you know that I am a very data-driven person.

So… just for kicks, I decided to dive into the numbers and make an objective comparison between the US dollar and the Russian ruble.

The results might surprise you.

First of all, I start off with the premise that ALL paper currencies are fundamentally flawed.

Our global monetary system is absurd—the idea of letting unelected central bankers conjure as much money as they want to out of thin air is simply insane.

But it is true that some fiat currencies have better fundamentals than others. And if you want to understand the health of a currency, it’s imperative to look at the ISSUER of that currency, i.e. the central bank.

As with any bank, one of the most important metrics in determining a central bank’s financial health is its level of solvency.

Specifically we look at the bank’s capital (i.e. net assets) as a percentage of its total balance sheet.

The US Federal Reserve only has a basic capital ratio of 1.26%. Talk about razor thin. (This is down from 4.5% just a few years ago)

That means if the value of the Fed’s assets declines by only 1.26%, the issuer of the world’s dominant reserve currency becomes insolvent.

Now, what happens to the liabilities of an insolvent entity? They decrease in value. Just like how Greek bonds (the liabilities of the Greek government) collapsed a few years ago.

What are the Fed’s liabilities? Open your wallet. Those green pieces of paper aren’t ‘dollars’. Just look. They have “Federal Reserve Note” (i.e. debt) printed on them.

So the Fed’s pitiful financial condition directly affects the value of the dollar over the long-term.

On the other hand, the Russian central bank’s ratio is 12.5%—literally almost TEN TIMES GREATER than the Fed.

Capital cushion is crucial because when the unsuspected happens, this is what can help keep you afloat.

Think about it: you might be able to keep going without savings, perhaps even accumulating debt, but only until something happens out of the blue.

Until your car breaks down, or you need to go to the hospital, for example. Then all of a sudden, your lack of capital can become a serious issue.

Another important metric is gold. As I mentioned, since all fiat currencies are fundamentally flawed, it’s important to see the amount of REAL ASSETS that a central bank holds in reserve.

To make an apples-to-apples comparison, we look at a central bank’s GOLD reserves as a percentage of the money supply, i.e. how much gold backs the money supply.

In Russia, it’s 6.2%. And rising. Last year it was 5.5%, and the central bank is continuing to heavily stockpile more.

How much gold backs the dollar?

Precisely zero point zero percent. Zilch. Nada.

The Fed doesn’t own gold. It loudly proclaims this on its own website: “The Federal Reserve does not own gold.”

It holds ‘certificates’ which are redeemable for US dollars. But there’s not a single ounce of gold backing the US dollar.

So… with no gold and pitifully razor thin solvency levels, it really wouldn’t take much of a shock to topple the dollar.

By comparison, the ruble is much better capitalized and actually has something backing it.

Now, I’m not necessarily advocating to buy the ruble, but hard, publicly available numbers clearly demonstrate the discrepancy between “sentiment” and objective data.

And at a time when the ruble and the whole Russian economy have been beaten down so much that Apple alone is now worth more than the whole Russian stock market, Russian assets certainly make for an interesting speculation.

The bottom line, however, is—if you wouldn’t own the ruble, then what are you doing holding 100% of your assets in the dollar?

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markmotive's picture

Those with the biggest guns wins. Has always been that way.

Oil is being used as a weapon to kill Russia. Once Putin is economically castrated, don't be surprised if it spikes back up.

Chad_the_short_seller's picture
Chad_the_short_seller (not verified) markmotive Dec 16, 2014 10:38 PM

There's no doubt in my mind that this was to destroy russia. The good ol usa traded in their shale companies to saudi to smash the fuck out of russia. This will not last forever and riches will be made on the way back up with oil. I might buy a ton of UCO leap calls after russia taps out. Going long an idividual oil company is risky because it could go BK or to zero, whereas UCO basically just moves with oil. SCO, the short oil etf, has gone from 22 to 77 during this oil collapse. UCO is near 11 right now and might end up going to $5-10. I'd like to ride that up when russia taps out. Why is russia just standing by and doing nothing? They know damn well these disgusting fucks who run the us are 100% behind this. How about send some missiles and bomb dc? I think 99% of america would probably go out and buy a russia/putin tshirt. I know I would.

zhandax's picture

Regardless of which side you are on, regardless of what you think of the family, Rule of Rothschild 101 is 'buy when there is blood running in the streets'.  Do you see any bargains in OECD equities now?  The only question is will the blood get deeper.  With an overnight jack of rates to levels the fed used to dead stop inflation in the late 70's, I think we may be close enough to start averaging in.

bwh1214's picture

It appears as if the writer is looking at the wrong fundamentals.  

gallistic's picture

Feel free to grace us with your own analysis and you know, actually provide a counterpoint, using the "right" fundamentals.

DeficitAlchemist's picture

Incorrect... Rule of rothschild is create the blood in the streets with other peoples kids and your ursury extraction earned on both sides... then play the trade you created to ensure utter ownership of industry.

HedgeAccordingly's picture

buy energy sector bonds with profits from RUble shorts to plug the hole from credit abilities?

RaceToTheBottom's picture

"needs a chart"

Preferably a chart with all other major currencies.  It would be interesting to see the same stats on all of them...


disabledvet's picture

So the whole meme of "generate inflation watch your market soar" is not even brought up here. 

Who cares about the ruble again?

And the answer of course is "because they're very sound financially" (400 billion in reserves!!!!) I do agree this is a total WTF moment.

Welcome to econ PhD poopie pie!

This stuff is the real deal and pretty much involves nothing BUT intangibles (networking, communication, algo's, quote stuffing, spoofing, the media, decision trees, game theory, Deal Book, Quant's, pyramid schemes, captured regulators, captured "mindware", another hundred other things) none of which involves a SINGLE material item.  In short once we're done just scratching the surface of perception of reality we still haven't pulled the trigger on a single trade!

Now we're gonna pull the trigger on 50,000 of them in 8 miliseconds!

I understand and agree with the totality of the gold meme..." But the T-2000 is superior in every way!"

There is no simpler way to explain the total dominance of the dollar than the saying "buy on the rumor, sell on the fact."

This is when the IDEA of something good "gets into the system" thus maniacly getting the bid pushed up and the price moved higher only to see...hold your breathe folks!...THE RUMOR IS TRUE AND THE STOCK GETS CLOBBERED!

So here's the skinny in my view:  bid up equities to nosebleed levels on the rumor of recovery...get actual good recovery news (which indeed the USA has had) "and then start selling."

Obviously this is a vast oversimplification....and yet with the use of all this tech the whole markets seems driven by cock and balls more than ever.  "Ripe for manipulation.". The actual " data" speaks to this quite well. The worst trade ever until the past few weeks has been to short the vapoware.

But once you have a real recovery folks start talking real money.  And while it sounds back asswards to save "the cheaper something new becomes the more it is held dear" (disinflation) this really does square with the facts.  The "moral hazard" of bailouts suddenly morphs into a battle over real copper pennies.

In short "as prices fall middling classes actually see the chance for advancement.". This is a powerful inducement for " labors" as suddenly new and better lifestyles are "in play."

War in Crimea? I just don't get it....

RaceToTheBottom's picture

I must need more coffee.  I got none of that

uistbhoy's picture

dollar is backed by US military

disabledvet's picture

Not useless if Russia collapses.

TungstenBars's picture

If Russia were to collapse in these times the US would be on the receiving end of a few thousand ballistic missiles. If there were any sane politicians left in Washington then they would realize that the US has recently sown such an outcome. 

Long term this can only end badly for the US.

Unfortunately the best case scenario for the US entails acceptance of no longer a unipolar world; and the hubris in Washington is just too much to allow for such a favourable result for the American people.  

kito's picture

a lovely imagination but you make no sense. a russian collapse means the end of their government not the end of their people. it means, perhaps, a default, nothing more. the people of russia, as always, will suck it up and grind their way through this, as they have always done. washington has actually done a fantastic job demonstating the concept of the alpha male. and i, as a citizen of the u.s. would much prefer this outcome than being overrun by mother russia. 

TungstenBars's picture

"a russian collapse means the end of their government"


I very much doubt after what has happened recently they will go out quietly. 


Also, who is going to force them out?

Their people? I don't think so..Russians know who the enemy is.

A foreign government? Refer to my previous post. 

TheReplacement's picture

Got nukes?

Seriously though, if the government fails and someone else takes over just to take the bailouts offered by the western banks this show is over.

old naughty's picture

Got nukes? is over.

It it's over, they win. They use nuclear as food.

If not and Putin led .gov falls, "peace" comes to Ukraine, they win.

Meantime, they thrive on our fear, food for them.


Craps! i know.




Seer's picture

" i, as a citizen of the u.s. would much prefer this outcome than being overrun by mother russia. "


It's YOUR fucking govt that's fucking things up, not Russia's.

Your comment fits in quite nicely with the MSM's propaganda storyline here.

TheFourthStooge-ing's picture


i, as a citizen of the u.s. would much prefer this outcome than being overrun by mother russia.

"They would be welcomed as liberators."

delivered's picture

Yes, the military and since WWII has the following track record.

- A tie in Korea (60+ years later, still not resolved).

- Vietnam, a clear loss (and embarassment).

- The US took the balance of the 70's and 80's off but just couldn't leave well enough alone so by the early 1990's, they were back at it.

- And the last 20+ years, a cluster fuck in the Middle East leaving in its wake ISIS and a soon to be vaccum in Afganistan. 

Beyond some small tactical victories (e.g., Grenada), not much of a track record I would really brag about. 

I'm not saying the US Military isn't a significant force that must be contended with but the continued arguments about it's strenghts need to be evaluated in relation to actual results which are mixed at best.

SHRAGS's picture

Its not about winning the miltary battle, its about controlling resources.  By that metric, the US has been stunningly successful thus far.

Cast Iron Skillet's picture

Can't disagree with you there.  The US military controls LOTS of resources - tax dollar resources, that is. Stunningly successful. 

manofthenorth's picture

Wait a minute...WE KICKED ASS IN PANAMA !!

fucking sad

Seer's picture

I thought that the real return to "power" was defeating Grenada.

TheReplacement's picture

It is really about not having a military battle.  Sadly, a lot of people don't see that.  I think the Russian do and that is why we are not yet fighting.

Freddie's picture

Well American troops and Americans are lower than illegal aliens according to Congress.   Congress and Obama do not listen to Americans.  So why would anyone fight and die for a country when you are treated lower than piss?

The troops are treated like shit in joke wars where they get blown up for nothing.  Their votes during elections are thrown in the garbage.  Any benefits are cut and if they are lucky they might get a dog for their blown off legs.

The most disgusting thing is the meaningless "Support the Troops" bullshit.  If you really supported the troops you would stand up to stop the midnless phony wars. 

Disc Jockey's picture

I agree that we need to stop these wars from occuring but you'll find little pity here in regards to our modern vets.

The troops are mercenaries that enter into a contractual agreement to fight for the oligarchy while being promised all sorts of goodies: super easy home loans, tax free sundries at any local base, and thousands in college money.  Why should I care if they get anything from the beast? I worked my ass off to get the pittance of income I scrape in daily and a good portion of which pays for their spoils.

Admittedly, a lot of the poor bastards didn't know any better when they signed up and for those I have litterally wept, but on the other hand I have very little pity for the ones that went in with open eyes or even just with the lust to kill and earn a few bucks. If we're talking Vietnam vets...totally different, but the boy in uniform today made a choice.

I especially will not have some vet come to my house and tell me that because "freedom isn't free" he needed to run off and kill lots of brown people in some far off land for my rights.

Fuck that guy. I am a sovereign man.  My rights ARE. They are not some gift presented from powers on earth and certainly not from some snotty brat what who wanted to go shoot people at the taxpayers expense.

When are they going to go after our domestic enemies as is required in their oath? If they start shooting bankers, the corrupt cops, and storm Mordor on the Potomac...well then we may have something, but I'm not holding my breath.

Let the red arrows come. I will wear them as a badge of honor.

TheReplacement's picture

That guy that had to run off and kill lots of brown people believed he was doing it to protect his and yours from more imminent attacks.  Just like the financial system, defense is a lie that is still believed by a good number of people.  Just today Fox was saying (I know, I was not the one to turn it on but I certainly let my disgust be known) something like 60-70% or more of Americans supported torturing people and thought the Dems were evil for exposing the evil that is the CIA and that the CIA is holier than a suicide bomber.

You know that scene from the Matrix were Morpheus teaches Neo that everyone is a potential enemy even though we are fighting to save them all?  That much is our lives on the big screen.

Disc Jockey's picture

It just so happened that NBC was on this evening (not my choice either) and I happened to overhear those stats of apporval for the use of torture.

51% Say the interrogation practices were acceptable.

45% Think they should be used in the future.

Seriously America. What the fuck? Have we fallen so far? I'm ashamed at what my beautiful country has come to represent. We've become a nation of cowards and for what?

I had a vet as a roommate that signed up the week after Sept. 11th back in 2001.  My opinions on the military "service," economics, and politics are largely based on the long drinking conversations we had in that crappy little apartment in Virginia.

He went to Afghanistan, saw his buddies get blown up, protected poppy fields, witnessed some terrible deaths of civilians, and pretty quickly gathered that they were doing absolutely nothing in the way of protecting his family or even improving the lives of the locals.

As soon as he could, he got the hell out and never looked back.

My heart went out to the poor guy...really fucked with his whole perspective on the world and turned him into a sad broken dude.  I picked him up from the bar quite a few nights and once I'd chaffuered him home he'd cling to my arm like a lost child as walked him to the couch so he could pass out. I had my eyes opened by him more than any one person and still to this day I owe him for imparting all that knowledge.

Everyday I see things and my eyes bug out when I realize that we'd talked about it 4 years back only I'd thought he was at least partially crazy.  He introduced me to ZH back then as well and I have been lurking until just recently.


Tall Tom's picture

If Americans knew that the soldiers raped and buttfucked children in front of their parents in order to extract confessions from their parents I do not believe that the Poll Numbers would reflect that support.


That is difficult to document but it can be done with extensive searches using Foreign Search Engines.


Americans do not know the details of the interrogation process...That is why the details of the Senate Report were withheld from the public.

noben's picture
noben (not verified) Freddie Dec 17, 2014 1:58 AM

"The troops are treated like shit in joke wars where they get blown up for nothing."

It pains me to say it (since they're well-intentioned if ignorant human beings, and probably with families who love them), but... GOOD!  I hope they keep treating them like sh*t, because...

What goes around, comes around. When the Cup is full, the Payback will be something to behold.

And only then might we see "Change we can believe in".

Seer's picture

Feel free to point out when this has ever really been any different.

It's about TPTB using others to die for their rule.  Always has been the case, always will be (as long as people continue to believe they need "leaders").

"The most disgusting thing is the meaningless "Support the Troops" bullshit.  If you really supported the troops you would stand up to stop the midnless phony wars. "

Amen! (I spent years out of my life fighting against this BS, only to constantly run across Party Pussies and "proud mother/father of a <fill in the fodder sector>", only to conclude that I have no desire to risk my life to save people such as this [I have no kids, so if they're stupid enough to sacrifice their gene pool then maybe it's the right thing.)

sun tzu's picture

We kicked the crap out of Panama and Granada. USA USA USA!!!

Oldwood's picture

We only win wars when it is profitable for our opponents to capitulate. If winning requires us to fight like the enemy fights, we lose. Osama said it twenty years ago stating that America lacked the political will to tolerate the losses and carnage winning requires. Besides, perpetual war is much more profitable for those serving our government.

silvermail's picture

Every war has its price. This price is always paid out of the pockets of ordinary people the United States.
But profit from any war, always get just the oligarchs USA.
Any war for the United States - is a way to collect money from ordinary people and give this money to the ownership of the US oligarchs.

armageddon addahere's picture

And Cuba, don't forget Cuba. And the Phillipines.

Ginsengbull's picture

The US military wins every engagement, but the military jerkoff lawyers, and douchebag politicians, and smelly protesting hippies back home consistently fuck things up by negotiating rules of engagement with enemies both foreign and domestic.


if we ever truly take the gloves off, look out.

Nexus789's picture

The other side will take their gloves off as well.....the US will just be beaten quicker.

Nexus789's picture

Won't be just Russia. Add China and Iran into the mix. 

Duc888's picture



or cowbell.

explosivo's picture

Fuck it, I'm moving to Russia...

RaceToTheBottom's picture

You should at least try before you buy....

HenryHall's picture

Fifteen percent Russian income tax on your foreign pension - and no deductions.

dirtscratcher's picture

Yes, but look at all the hotties on those Russian dating sites! 

Volkodav's picture

Its bait for your money..You must pay for 10 letters before you get actual contact info...

then find out the 50 letters you exchanged with 5 hotties might have been one guy...

there are some reputable sites, but Ladies all be so striking...

I could tell you which..

Siberian Ladies are best.