Alexander starts by explaining why he thinks the dollar got stronger following Trump's election: Aside from his talk of tariffs, etc., what's probably been happening is a massive outflow of funds from Europe into the US. This is because there's a political crisis in Germany with one brewing in France as the Germans have been talking about doing away with their debt brake. Germany has been the anchor for the euro so this likely has bond markets and financial investors worried about Germany's long-term financial position; by contrast, the US looks to have a more solid economy and the influx of these investments pushed the value of the dollar up relative to other currencies.

We have this discussion about the ruble every year around this time because it always weakens in late autumn and early winter; this is a structural issue. First because we're moving toward a new year and the holidays and this is the biggest shopping season in Russia as in most countries. As a result, there's usually a rush of imports into Russia that have to be paid for with foreign currencies and that causes the ruble to decline. Russians have experienced lots of wage growth so they have a lot of money to spend.

Another and more important reason is that Russian corporates tend to pay off their loans toward the end of the year. So if they've borrowed in foreign currencies, as some still do, they have to convert rubles into those foreign currencies to pay off the loan. The ruble historically strengthens in January when Russian corporates pay their first tranche of corporate taxes to the Russian government, meaning they convert any foreign currency they have to rubles.

I think the fall we've seen over the last few days is due to the sanctions put on Gazprombank because it was the only Russian bank that was still allowed to operate within the SWIFT system. It was through Gazprombank that Western buyers of Russian oil and gas products, including Turkey, settled their payments. So with Gazprombank now out of the Western financial system, there's less ability for Westerners to buy Russian oil and gas, which has put further downward pressure on the ruble. Erdogan is complaining about this, asking for an exemption.

The important thing to remember is that it doesn't matter. Russia is running a strong trade surplus: because of the fall in the price of the ruble, Russian exports have become even more competitive. Their growing trade surplus looks like it will translate into a budget surplus. Just a few weeks ago the finance minister was talking about a budget deficit of around 1% of GDP which is quite low but it looks like that might turn into a surplus.

There's very little external debt so we're not looking at this bleeding through into the banking system as we've seen with previous ruble crises like the famous one in 1998; in 1998 Russian banks had lots of liabilities in Western currencies that they couldn't meet because the ruble fell, which caused a general collapse of the banking system. There's nothing like that now, the Russian banking system is very healthy.

This is not going to have a big effect on Russia's external trade. 82% of their exports and 78% of their imports are paid in currencies other than the dollar like RMB, the ruble, etc. So it's not going to have a significant effect on the Russian economy overall; it will cause inflation to be a little higher which does concern the central bank.

As we've discussed in previous programs, Russia does have a problem of their economy overheating. The central bank has raised rates to counter this but data shows it's still growing faster than they would like because it leads to inflation. Right now their inflation rate is 8-9% of GDP which is not that high historically, but if it starts inching into the double digits the central bank and the government as a whole will take more radical action.

Russian inflation figures are very accurate - even the Financial Times admitted in years past that they're the most advanced collectors of inflation statistics in the world. You can't say the same about the West. Here it's widely acknowledged even among mainstream economists and commentators that inflation is being consistently understated.

The Gazprombank sanctions in the short-term will provide a talking point for the Biden administration but in the medium- to long-term it's going to cause increasing problems in the West.

Gazprombank was previously exempted from the sanctions and allowed to continue in the SWIFT system because the US wanted a mechanism of control over the international energy markets, something that was very important to the Biden administration before the election. Now that Trump has won, it will be his problem.

The sanctions also make it difficult for Europe to continue buying Russian LNG; they've been buying more LNG from Russia than from the US because it's cheaper so this will add to the rising prices that Europe is paying for energy. Eventually Russian LNG will probably start displacing LNG from the US and Qatar, etc. in places like China and India. The market will find some kind of stability but at higher cost because every sanction of this kind increases the complexity of the general trade in energy and leaves the price of energy structurally higher than it would otherwise be.

The ones getting crushed by all this are the Europeans and you're not hearing a squeak from their leaders.