Serious Economic Crisis Looms In Russia, China May Help

jones_supa writes: Russia is facing a "full-blown economic crisis," a former finance minister has warned, as the country is forced to take emergency financial measures. The economy has been battered by a wave of sanctions (set by other countries as a result of tensions over Ukraine), geopolitical uncertainty, and falling oil prices. Analysts have warned that the Russian economy will not improve in the long run until the aforementioned conditions have also improved. The Central Bank of Russia said that a plan to loan Trust bank an amount of up to 30bn rubles ($54m) had been approved. Trust bank has run a series of advertisements featuring actor Bruce Willis in Russia, along with the ironic quote: "When I need money, I just take it." Anna Stupnytska, an economist at Fidelity Solutions, said that "the risk of a sovereign default is low, it's the corporate sector where the main vulnerabilities lie, and banking in particular. Due to sanctions, companies cannot refinance their debt as access to international markets has been essentially cut off." Reader hackingbear adds: Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the plummeting ruble without depleting foreign-exchange reserves. Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of the yuan for bilateral trade would have the greatest impact in aiding Russia. Western governments and experts have been criticizing China for restricting exchange and suppressing the value of its currency, even though anyone who lived in China during the 1990's knew that the value of the yuan was cut to align with the (vibrant) black market. But as grandma has warned us, we should be careful of what we wish for. China has greatly sped up the relaxation of currency exchange and is promoting the yuan as an alternative to the dollar for global trade and finance. They've signed currency-swap agreements with 28 other central banks to encourage this. Once accomplished, and backed by China's growing military might, Renminbi would be a formidable competitor to U.S. Dollar, which would hamper the U.S's ability to borrow almost freely with banks around the world.

Comments

And all the meantime, we are so worried about...

[davydagger]

And the whole time we are super worried about North Korea, and Russia....

I never have understood

[msobkow]

I never have understood the world's fetish with the US dollar. Every nation has a currency. The US economy is just as prone to stagnation, deficit, over, and under valuing as any other currency.

I'd like nothing better than to see the Rothschild's hold on international markets broken. If it takes China to do that, then all power to China in the endeavour.

Re:I never have understood

[Anonymous Coward]

Why not call it the Tip O'Neill era? He was the Speaker of the Democrat controlled house of Representatives -- that's where spending bills originate.

Re:I never have understood

[Cyberax]

That's not to say the dollar can't be destroyed if the Fed tries hard enough. But over the past downturn they were actually quite clever: while they were printing ~$2 T in no money via QE, they were removing ~$2T in money supply via bank reserves (while we continue with a 0 reserve banking system, the Fed paid attractive-enough interest that banks voluntarily increased their reserves to unprecedented levels).

That's not true. While Fed pays some interest on the reserves it also asks to pay interest on the loans. They are pretty much the same.

So no, the other shoe won't drop. The accumulation of reserves is caused by a liquidity trap and in this case monetary base can be expanded pretty much indefinitely. If you want proof then look at Japan - its central bank does not pay interest on the reserves and yet almost 5x increase in the monetary base failed to increase inflation even to 2%.

There are other examples - Switzerland increased its monetary supply by three times also doesn't pay interest on the reserves. And now it actually wants to institute a _negative_ interest rate (i.e. force banks to pay the central bank for holding the reserves). Yet Swiss Frank is still rock-solid.

Re:I never have understood

[CrimsonAvenger]

Alas, we weren't tied up in silly alliances with people we detested like most of the European nations in both WW1 and WW2.

It should be noted, though, that the USA provided material and military assistance to the UK & USSR well before Japan attacked us, and in violation of US laws at the time (FDR was many things, including a tyrant who ignored the laws and Constitution when it suited him).

Google Reuben James sometime. Trust me, US Navy ships escorting convoys of war material to a belligerent isn't business as usual. Or wasn't then.

Note also that just because you're at war doesn't actually obligate other people to help you.

Note finally that we remained untouched by the war not because we entered late, but because we had thousands of miles of ocean between us and Japan/Germany - they couldn't REACH us to do much damage, even if they'd wanted to.

Re:I never have understood

[MrBigInThePants]

You Americans just crack me up. Always arguing whether the demcratic party (i.e: The big business party) is better than the republicans (i.e. the big business party)

Its like arguing whether Stalin or Hitler were more evil...

Morons should read some economic history

[mveloso]

Actually, you really don't get it.

The financial system is fundamentally held together by one thing: trust. The US Dollar isn't the key currency because the US was the largest economy, or because we have the most weapons - although those things factor into it. The US Dollar is where it is because the US has the political will and ability to support the world financial system when things go bad, even though those actions may cause severe short-term problems in its own economy.

Do you trust China to manage your currency? Even the Chinese don't trust their government when it comes to money. Russia? The EU?

Good luck with that.

Re:Except that they have no debts

[jeffmflanagan]

>then Obama gave in to Castro, basically ending another "cold war" but this time with USA's political defeat,

That's absurd propaganda from the ignorant conservatives. They hate all progress, and are learning-disabled due to preferring dogma over evidence, so it's best to ignore them.

Re:As Russian

[Fire_Wraith]

Based on my understanding of history, I don't think China will ever wipe out Russia. Russia (and Russians) are simply too tough and stubborn. You've survived and fought off all comers for centuries - Mongols, French, Germans, etc. (Though China will probably try and buy up the rights to much of the material resources, much as they do in Africa and elsewhere)

That said, I do think it would be better for everyone involved if Russia was better integrated with Europe/USA. I think Russian Culture/Russians are pretty cool, and it saddens me the way things have gone recently. I wish humanity would realize that we have better things to do than kill each other over land and nationality.

Petrostates

[Tailhook]

China is going to prop up Venezuela. China is going to prop up Russia. Will China also prop up Iran when the price of oil pulls the rug out from under that bunch of fundies?

I know China is all productive and stuff, not fighting self-inflicted headwinds of OSHA NLRA EPA etc., and having been fully exempted from any concern for carbon emissions for another three decades by Obama, but they can't actually afford to fully float all these fucked up petrostate kleptocracies. And what support they do offer will be highly conditional and hard to accept by these client states.

Russia had a chance. Western money was pouring into Russia; places like Magnitogorsk have had huge investments from Europe and the US to build out decrepit steel works into some of the best specialty metal sites in the world. They could have seen 5% GDP growth for the next two decades.

But they couldn't help themselves; Putin took off his shirt, said nasty things about 'Murica and the the Russian people made him dictator for life. So now, rather than emerging from a century of self-inflicted fail, they're making themselves into a European pariah state.

Enjoy, Russia. You deserve it. Be nice to the Chinese I guess.