Venäjän ongelmista tulee tuskin globaaleja

Glaser: Let's first talk a little bit about the Russian currency. The ruble has very much been in focus this week with the precipitous decline. In the short term here, what's driving the currency to such lows against the dollar?

Johnson: I think the main thing is dramatically falling oil prices--and keep in mind, we're at about half of where we were on world markets in terms of the price for a barrel of oil. So, it's a pretty dramatic impact, and certainly the Russian economy is one that's very dependent on natural resources to drive the economy. And with [oil] being down, everybody is scared about it. They are afraid they may not be able to repay their debts. People are selling their rubles to get back into other currencies, and so that kind of feeds on itself. People say, "Oh, it's down more--I'm scared." Oil prices keep falling and [people wonder] where the bottom is. And so, all of that's driving the ruble lower; until oil stabilizes a little bit, people are very concerned.

Glaser: The Russian Central Bank attempted to stem this decline by raising interest rates dramatically from 10% to 17%. Why did they think this move would work and how effective has it been?

Johnson: It's a pretty standard prescription to raise interest rates when there is a run on your currency, and the thought pattern is that if you raise the rates, people will come in and buy your debt and say, "Well, there is a certain percentage of a chance it defaults, but I get this higher rate--I'm kind of being paid a little bit for it." So, the hope is that people flood in. They have to exchange, they have to buy rubles to put it in the Russian debt and that would help the currency rise. It's a fairly standard procedure to try to do that. The bad part of it is that it ruins the local economy badly, but I think they've said that their people can live with that. They're willing to take the chance. There was kind of a shock-and-awe strategy, hoping that it would stop the currency decline.

Glaser: But how effective was it, at least in the short term?

Johnson: In the short run, it wasn't very effective. I think people were saying, "Well, we can't put probabilities on this. We can't start buying this yet." If oil is $50, that's one thing; if it's $40, that's another thing; if it's $30, that's another. So, we've got these oil prices going down dramatically with no signs of stabilization. People [are asking,] "Is 17% the right rate? Maybe it needs to be 20% if there is a 20% chance they are going to default." So clearly, that's a very big issue. And until oil stabilizes, I think a lot of people are unwilling to take the bet.

Glaser: So, even though there has been some stabilization in the currency market, it's still dramatically lower. These higher interest rates could impact growth. This just seems like a pretty bad situation for Russia. Is this the first domino, though, for other emerging markets? Is this '98 over again, where problems in Russia are then going to spread to other emerging markets?

Johnson: I think we had a very unusual set of events in 1998. I don't want to rule it out and say it's impossible. But certainly this time around, many emerging-market economies are much better positioned. They saw [what happened] and learned their lessons from 1998. Countries like Mexico and some of the other countries that had issues at that time really have built up reserves so that they're not dependent on the day-to-day markets, where somebody pulls a few dollars out and they've got no backstop--they've got no reserves. This time, everybody's got reserves. So, they're feeling a lot safer, and I think people are hoping that the problems are a little bit more isolated this time and that it's one thing, oil, that's driving things, which actually helps some emerging-market economies.

Glaser: Do you see any systemic banking-system risk? Is there a lot of Russian debt held by financial institutions?

Johnson: Again, you can never, ever say never on anything like that. But that's the biggest risk of all of this. I'm not very worried, from an economic standpoint, about this at all because Russia isn't terribly big. On the other hand, I don't have a detailed understanding of which banks hold how much debt. But I don't think it's anything near the scale of, say, our subprime mortgages or some of the issues that we saw in 2008. And again, I think some of the laws we've put in place [mean that] people have more reserves against that type of thing. Does that mean there is some bank in Europe that has a big Russian loan that might hurt them? It might. And that's the big question.

Glaser: Your expectation, then, is that the United States shouldn't feel a major economic impact from what's happening in Russia?

Johnson: No. I think, overall, the U.S. is kind of in one of those situations where a lot of economies really hurt because of the low commodity prices, but we--as being a consumer nation, there's no country with a higher consumption number--we tend to benefit from the low commodity prices probably more than anybody. And again, in 1998 when everybody else was having problems, the U.S. economy--of course, there was the Internet boom, so it's hard to sort things out--but the U.S. economy was doing pretty well. So, I think that the lower commodity prices tend to outweigh things.

In the case of Europe, it might not quite be as benign. They'll benefit from the lower inflation absolutely, but they are going to have some other issues--namely, whatever they're exporting to Russia. Because obviously, with the kinds of rates [Russia has] in the internal economy, that's going to mean less demand for imports from the rest of Europe. So, it may have a little bit greater of an impact there than here.

Glaser: It seems like a mostly isolated incident. What signs should you be watching for that maybe it's getting out of control, that there is some contagion? What would be some warning signs?

Johnson: I think you'd start to see rates in other countries go up, and certainly if you hear people talking about their reserves going down or whatever, those are all things to keep in mind. But especially as the U.S. economy does well, which is a halfway decent engine for worldwide growth, I think we may come through it pretty well.

Glaser: Bob, I appreciate your take on this today.

Johnson: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.