(This article was originally published on Real Money, Dec. 16 and updated for timeliness and clarity today.)
NEW YORK (TheStreet) -- The Russian ruble has to win the award for the most dramatic chart of the year. Take a look:
The Russian central bank raised rates to 17% from 10.5%, a hike that would make even Paul Volcker stand in awe. If you don't know how these things work, rate hikes deter speculators from shorting your currency, because that is the rate that you have to pay to borrow it. In a currency crisis like this, rate hikes are often successful at restoring order to the FX markets, but they do so at great cost: economic growth.
Must Read: It's Not the Ruble, It's Putin
You see, it is unlikely that Russia will manage positive growth next year with interest rates at 17%. It is very likely they will be in recession. That, combined with an almost 50% drop in the price of oil, means that 2015 will be a very bad year for Russia. Economist Tim Duy observed yesterday that the International Monetary Fund typically gets involved in situations like this, but perhaps not on behalf of countries who have a habit of invading their neighbors and redrawing the map.
And that is the thing the people are concerned about. There are a lot of parallels with Germany in the 1930s, including economic sanctions that are possibly counterproductive. As long as the narrative persists that Russia's travails are a result of Western interference, Vladimir Putin has the latitude to pretty much do whatever he wants. If he wants to steal blinds and annex more territory, I don't see the U.S. putting up much of a fight.