Russia rating is officially junk

While western Europe dithers and the US ignores Vladimir Putin's aggressive moves Moody's Investor Services bravely goes where they wouldn't dare.  After the markets closed Friday afternoon Moody's downgraded Russia's sovereign debt rating to junk.

Moody's downgrade of Russia's government bond rating to Ba1 is driven by the following factors: (1) The continuing crisis in Ukraine and the recent oil price and exchange rate shocks will further undermine Russia's economic strength and medium-term growth prospects, despite the fiscal and monetary policy responses;

(2) The government's financial strength will diminish materially as a result of fiscal pressures and the continued erosion of Russia's foreign exchange (FX) reserves in light of ongoing capital outflows and restricted access to international capital markets;

And for a final kick

(3) The risk is rising, although still very low, that the international response to the military conflict in Ukraine triggers a decision by the Russian authorities that directly or indirectly undermines timely payments on external debt service. (snip)

The assignment of the negative outlook reflects the potential for more severe political or economic shocks to emerge, related either to the military conflict in Ukraine or a renewed decline in oil prices, which would further impair Russia's public and external finances.

But  wait...there is more.

In a related decision, Moody's has lowered Russia's country ceilings for foreign currency debt to Ba1/NP from Baa3/P-3; its country ceilings for local currency debt and deposits to Baa3 from Baa2; and its country ceiling for foreign currency bank deposits to Ba2/NP from Ba1/NP. A country ceiling generally indicates the highest rating level that any issuer domiciled in that country can attain for instruments of that type and currency denomination.  (snip)

The first driver for the downgrade of Russia's government bond rating to Ba1 relates to the effects of the ongoing crisis in Ukraine, as well as the fall in oil prices and of the ruble exchange rate on the country's economic strength and financial stability.

In Moody's view, the existing and potential future international sanctions, the erosion of the country's foreign exchange buffers and persistently lower oil prices plus high and rising inflation will take a negative toll on incomes as well as business and consumer confidence. As a result, Russia is expected to experience a deep recession in 2015 and a continued contraction in 2016. The decline in confidence is likely to constrain domestic demand and exacerbate the Russian economy's already chronic underinvestment.

"International sanctions?"  Not quite yet.

But "fall in oil prices"?  Now how did that happen when global warming is bringing record breaking snow and cold to the eastern third of the US necessitating increased use of oil and gas for heating?  Perhaps it is fracking in the US that has reduced reliance on foreign oil and provided jobs for many. 

However New York State Governor Andrew Cuomo (D) has banned this job creating, energy cost lowering practice.  In an effort to avoid living in a state that Moody's might have to downgrade with the same negativity as Russia's, some towns along the New York State border are talking about seceding and joining Pennsylvania, which allows it.  However the chances of success are low.

For all of Putin's bluster, the people of Russia have no such option; no such hope.