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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.
Yes, you read it correctly. It's now China's time. to shine.
As we debate the real meaning of these numbers, let's remember that our economy is mostly financed by debt. We're indebted to those nations we despise.
Sadly, the ordinary American just doesn't get it.
China has to buy US bonds. They mangage/manipulate their currency so that there is effectively a huge discount to all products and services in China. This discount on *everything* is what really drives relocating manufacturing to China not so much wages.
To force the exchange rate to a level that provides this effective discount they need to control the US dollars in their economy. So all the merchants/suppliers being paid is US dollars need to sell those dollars to the gov't and then the gov't needs to remove these dollars from the economy. Buying US bonds does this through the magic of international accounting.
Yes, this is an accounting trick but this is how the calculation of exchange rates work. At least that's how our macro econ professor explained things a few years ago. China can't stop buying US Bonds because then it would lose control of the exchange rate and lose its primary competitive advantage.
If you do not understand the world's fetish with the U.S. dollar, you do not understand the state of the world after WWII. The wealth of the U.S. compared to the rest of the world at that time was staggering. Most of the developed world was in ruins. Only the U.S. remained relatively untouched by the war. The U.S. started mortgaging its future during the Reagan era, but it was the two Bush presidencies that did the most damage. Our deficit spending is now coming home to roost.
Too bad we're not big importers of Borscht.
Its interesting how "economic sanctions" are no match for an OPEC decision to increase production. Even at lower prices with increased U.S. production and fracking, they did not waiver at market price. This will eventually hurt everyone who invested in shale, back when the market was twice the price. The middle east continues to be able to pull oil from the ground for about one half the cost...maybe even less. Of course, nothing lasts forever, but it seems the oil has been the biggest stick there is when it comes to economic pressures. It sure is a lot easier to shoot down air traffic over the Ukraine when oil is pegged at $120 a barrel. Now Putin is gonna be happy just sipping the borscht and saving the warfare for summertime, perhaps.
The dollar is much like capitalism and democracy: it's the worst imaginable choice, except for everything else that's ever been tried. That's really it: the US government is just less effective at ruining the dollar than every other central bank for a major currency. Much of the current value of the euro is simply it's position as "second lest awful currency", a hedge against a reckless Fed.
When the dollar looked rough a few years back, interest in gold perked up, and interest in the Swiss franc bloomed, but the Swiss were apparently uncomfortable with the idea of becoming a reserve currency, and committed explicitly to falling with the euro. Odd choice, but there it was.
If the EU ever finishes collapsing, all the sovereign debt in the region blows up taking the Euro with it (it's only a question of when), and then finally recovers and regains financial credibility, then finally the dollar might be displaced, Or if China has it's inevitable revolution, and happens to emerge as a capitalist democracy, or when India or Brazil finally reach first-world status nation-wide. we might also have other credible currencies. But for now, the dollar is pretty much it.
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). And the Fed did actually wind down QE. I'm still waiting for the other shoe to drop, when that ~$2T in "Excess reserves" comes back into the money supply and turbo-charges inflation, but hopefully that will just be Carter-like, and not a currency collapse.
Socialism: a lie told by totalitarians and believed by fools.
Wait until China's property bubble bursts. It's happening and it ain't gonna be pretty for anyone (us included).
This economic crisis can be comparable to the fever that occurred after annexing significant piece of land in a prime location. If Russia will survive it, they will be stronger, meaner, richer, better diversified. Russia for more than a decade have been preparing for this scenario.
Occupied Crimea and Donbass represent an area of approximately 42 thousand square meters and had a population of approximately 6 million people (actual number will be lower due to the war). The area is larger than Switzerland and population is comparable to Austria. The Crimea is a prime sub-tropic location, a desirable trophy to Russia who has abundance of land in cold climate. Crimean peninsula is surrounded by sea and has significant untapped oil and gas reserves. To summarized, this is an incredibly valuable piece of land and Russia will not give it up at any cost even if they need to wage a nuclear war.
For Russia adding Switzerland size country economic crisis is an incredibly low price to pay. Russians have stashed away significant foreign currency reserves and have been waiting for this precise reaction from the west.
It is time for the west to impose a reverse Iron curtain on Russia so that Russians could enjoy and continue their relationship with China and North Korea.
West lost the moment Russia wiped their arse with 1994 Budapest memorandum which had to guarantee territorial integrity of Ukraine.
See, you used two words in that sentence. One of them is economy, the other is currency. They're related, but they're not the same. The thing that matters to most US residents is the economy -- specifically that it will be growing enough that it's possible to find a job in it which will secure a certain amount of output to secure one's well-being. (Residents saving for retirement benefit from both). The thing that matters to someone who borrow or lend or hold dollars isn't the economy per se, it's the fact that he can use that dollar in the future to buy a predictable amount of goods and services: price stability. (Stability is better than an increase in value of those dollars, because borrowing and lending need to balance each other out... besides, if you really wanted returns you'd find a real investment, not cash.)
The US has flirted with price stability issues in the past (look at the 1970s and early 1980s), but not to the extent that Russia is experiencing right now. Russia has issued additional rubles through the state-backed Rosneft bond offering (a bailout averting a bankruptcy for one of Putin's top cronies) which was the proximate cause of the ruble free-fall, and because of sanctions, falling oil prices, and general economic decline outside of the oil sector, the ability of a ruble to purchase valuable goods and services (like oil) in the future is in question. China, meanwhile, has its own set of currency controls (hence a thriving black market in RMB-USD) and central-bank interventions of a scope and magnitude which make QE and QE2 look small.
So what else are you going to use? Euros? No way, I thought you were worried about stagnation and deficits and stuff. Gold? Oh, yeah, obviously it's been an absolute MODEL of price stability lately, hahahahahahahahahaha... Bitcoin? Makes gold look good. Pounds sterling? Mmmaybe, in a pinch. Then most of the other currencies are on the small side, so it's harder to use them in high volumes.
The World Wide Web is dying. Soon, we shall have only the Internet.
China's in this thing with Russia for precisely one thing: China. They're taking advantage of a weakened Russia to strike deals that they never would have gotten before. A good example is the "Power of Siberia" gas pipeline deal that they signed for a few years back. China's been trying for years to get Russia to bite at bargain-basement prices that leave almost no profit for Gazprom (perhaps even a slight negative that would have to be somewhat subsidized by the government's gas royalties), and Russia had been refusing. Then they sign the exact same deal they'd been refusing a few months ago and herald it as a great victory.
China has Russia in an excellent position and is going to squeeze every drop of potential profit out of their bad situation that they can. And Russia will herald it as a glorious blow to the west all the way down.
That said - even China's GDP doesn't compare to the sanction imposers (US + Europe + Japan + misc), all the leverage multipliers of global banking and fiat currency that the sanction imposers have aside. Even if China's goal was to break sanctions - which it's not - it's just not big enough, it's a third their size. And Russia a trivial fraction of that. And the multipliers of controlling the banking system and a fiat currency are very real. Throw trade into the picture, forget it - Moscow is closer to Newfoundland and Liberia than it is to Beijing. There's a giant barren wasteland between the two. They have a border but it's more of a barrier than a facilitator for trade.
As the very article linked by Slashdot put it:
I am a proud traitor to my species in alliance with my mother the Earth in opposition to those who would destroy her.
If it comes down to military force stopping loss of assets for failure to pay debt, then you're saying "stop all international trade with me this instant".
Russia imports nearly 40% of its food. So, say hello to the largest famine of this century.
I am a proud traitor to my species in alliance with my mother the Earth in opposition to those who would destroy her.
Actually, it has been a good month for the US, other than the DPRK fiasco:
1: Cuba opening up (assuming Congress lifts the trade embargo) is only going to improve the economy of both places. The Cold War-era foreign policies that were in place in the US past had to get tossed. This isn't a defeat... it is a move forward. Calling it a "defeat" would be calling the fact that a good number of nukes were removed from service as part of a treaty, a "defeat".
2: The CIA torture reports were a festering boil, and it had to be lanced sooner or later, and now was probably one of the better times. The fact that it was made public and made known that this is not how the US handles itself these days is quite important. It only goes up from here. The days of torture are behind now.
As for Russia, they are down, but definitely not out. If push came to shove and China didn't lend money, the US would. The reason is that Putin is nowhere near a saint, but a power vacuum in the largest country in the world is the stuff of nightmares. If Russia collapsed, every single country in the world would either be going for a part of that carcass or jumping in the fray to keep their enemies from doing that.
Overall, Russia will emerge stronger. The low oil/gas prices are quite temporary. The profit may be less this quarter... but give it six months to a year, plus one incident in the Middle East... and oil will be back up to $150 a barrel and stay there for good. People know this, and nobody here in the US is going out and buying SUVs due to these temporary low prices. Solar might have slowed down slightly, but it is still progressing, mainly because virtually everyone knows that high gas prices will be back eventually.
I wish I knew a good one! Most places are as crazy as ZeroHedge, in one direction or another. I read MarketWatch, but more to keep abreast of market fashion than reality (never read a stock market site for economic news).
The most useful stuff I've ever read on economics was the old-school stuff: on the business cycle, not just boom-bust but which sectors recover in which order - what leads recovery, and what's big when the end of the boom is near, and what survives best during the bust. The history of different kinds of currencies and the problems the had. The various big name economists from the first half of the 20th century, now that we can see the actual economic growth in various countries that seem to follow on or another of them. Everything old is new again.
Socialism: a lie told by totalitarians and believed by fools.
More accurately those at the top whose power is tied to the US dollar continue to manipulate global capitalism in favour of their choice through global media and government propaganda. Capital is imaginary it's only real value it tied to countries primary resources and how it's currency equates with the value of those primary resources. The US with it currency is largely parasitical falsely tied to many other countries resources which the US forced through with economic and military warfare. The attack on the rouble is already failing which is exactly why corporate media is now hyping up potential collapse, it is simply not real.
You have a group of multi-national corporations who are orchestrating the attack via their puppet the US government. Problem is they are loyal to no one and most certainly not each other. Basically when the opportunity comes to profit by betting the other way, the rouble over the dollar they will break ranks because the know the Russian rouble is backed by primary resources and the US dollar is only backed by propaganda.
Circular reasoning, paying of debt generated by creating more imaginary US dollars where they debt was created by creating imaginary US dollars makes no sense at all outside the sleazy world of the US Federal Reserve. Pointing to the US being the last military superpower as defining the value of it's currency, is a really, really, bad thing. You might as well say, I have a gun and it is pointed at your head, this piece of printed paper can buy your resources because if you do not agree I will kill you and take those resources anyhow. That same gun pointed at your head also applies to paying off debt with more funny money, accept it or die. US exceptionalism always blind to it's own evil actions. A global anti-US coalition is growing and it is as a direct result of US exceptionlism being paraded across the internet and some of the truly awful things some idiotic US politicians say in public that the rest of the world can hear. That 'BRICs' association http://en.wikipedia.org/wiki/B... is going to generate an huge amount of money out of the failing attack on the Russian rouble, it is not like it wasn't expected.
Chaos - everything, everywhere, everywhen
Read up on Henry Kissinger. His conspiracy with the Saudi's created the situation, which really amounted to theft on a global scale by the US.
The war in Iraq happened mostly because they were going to start selling oil for Euro's.
In a nutshell, the reason the world has a fetish for the US dollar is that every time someone offers to sell energy for anything else, the US bomb the shit out of them.
You think we like accepting your funny money in exchange for real world goods, knowing that it will never be redeemed for real world good from the US, but will instead be passed around like a cheque that never gets cashed?
We don't.
-1 Uncomfortable Truth
There's a reason why Eastern territories of Russia are sparsely populated. The chief reason is that it simply makes no sense to live there. Just look at Canada - it has huge tracts of land, yet almost nobody lives north of Edmonton.
It seems people don't get this, so let's spell it out:
Inflation requires both demand and supply of money. You can't cause inflation simply by increasing the money supply, unless you go totally crazy with it - however, if that supply is there when the economy heats up and demand appears, look out.
Hpwever, 5-10% inflation during a good economy isn't per se a problem: high inflation is a symptom of a bubble economy but may be there without the bubble. And it's the malinvestment associated with a bubble that hurts everyone - "medium" inflation only really hurts people who made the wrong bet on the future value of the dollar.
As long as you don't actually crater the currency, inflation is merely a warning sign of the real problem, and the real problem is people working on things no one wants: from bubbles to government make-work, the stuff we have is just the stuff we make, and if we're not working to make stuff we want or need, we'll all suffer for it.
Socialism: a lie told by totalitarians and believed by fools.
China invasion is a popular scarecrow in Russia, but it will not happen. Thinking anyone is envy of big Russian territories boosts the Russian self-esteem, but it is a lie. Rarely anyone thinks what will China actually do after it had sucessfully invaded Siberia.
The Siberian lands are hostile. Both Tsarist Russia and USSR managed to set up cities there only by propaganda and forced relocation. It's better to set up a puppet government and suck out all resources than to actually invade a country. Which is what is happening right now.
The only thing that might happen is that some China leaders will try to gain a small territory in order to earn political points at home. But that can happen only after Taiwan has been be conquered, which is still a big problem for them.
The future of Siberia is grim, it will probably continue to collapse into a No man's land, scarcely populated territory without any laws, ruled by local mafia leaders. Something like Libya is today. And no one will really care about it, other than buying oil from whoever sells it. Again, like Libya.
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.
Oil...no matter where you buy it on the planet, or from whom...is priced in dollars. In no market is the price of a barrel of crude listed in euros, pounds sterling, or any other currency for that matter.
Why does this matter in this case? Because Russia is basically an entire economy propped up solely on oil revenues. If the ruble devalues against the dollar, then essentially they are subjected to a brutal form of arbitrage where oil is cheaper from Russia than other places. So they get less money than the other oil producers do. If they boost production, it drives the cost of oil down even further. If they restrict production, they get less money that way too. Either way, they're fucked.
And you know what? GOOD. Fuck them.
For your security, this post has been encrypted with ROT-13, twice.
This guy is not Russian. First of all, he is using the propaganda points that US is spreading in Russia, the fear that China will take part of their territory. It is one of the talking points. Second, he is making homophone mistakes (doubt -> dough) that only native speakers make or sometimes people who use english for 10-20 years or so and he is not making any of the grammar and preposition mistakes common for foreign speakers. It is sad to see our discussion here on slashdot tainted by spooks.
If programs would be read like poetry, most programmers would be Vogons.
I agree with you about trust but don't about the reasons why.
The US dollar has several important advantages.
1. Trust as you said, but encompasses several factors. The first is that the US's separation of powers provides a guarantee that no matter what is politically expedient or the people want without concurrence by all three branches it won't happen. Two the independence of the US court system is very powerful and the laws and case law that governs financial transactions is highly defined and well understood. This results in a system where foreigners are treated the same in financial transaction as US citizens and corporations. This is emboldened by the restraint congress shows towards the financial system, and the unwillingness of our politicians to slaughter the golden goose under any circumstance. The final component of the trust lies with the much maligned US federal reserve system. The US has basically put the private banking system in charge of the economy and they are chartered to maintain inflation between 1 and 2%. They have demonstrated this several times by slaughtering the late 1970's economy to halt inflation that was higher than 3%, even against the complaints and maneuvering of president Carter and again under the second Regan administration and most recently with QE1, 2 and 3.
2. The trust in the system builds in another important factor and that is the transparency of our system. Almost everything is done in the open, the Fed doesn't make a move without warning about it for weeks or more frequently months and years. There are only one or two other systems which even have this.
3. Trust combined with Transparency yields Stability. Behind the Fed's primary mandate on inflation their second most important objective is stability. They've demonstrated absolute devotion that they will do whatever it takes to maintain stability in the system. This was demonstrated most recently with the QE's. The Fed basically created more than 4 trillion dollars out of thin air and gave it to the banks to do with whatever they wanted. This injected massive liquidity into the system at its most broken point and restarted lending because the banks were handed all that money and weren't charged any interest for it. Many people (particularly Edrogan of Turkey) don't realize the boom in the BRICS group was a direct result of all this free money. The banks took those trillions and invested it in systems that offered the highest possible return and this made massive dollars available in those markets propelling their economies forward. But the end of QE means the end of free money and a return of the slow growth to these nations along with all those trillions being pulled bank into the US system. Stability is one of the Dollars most important attributes. It's why it's the currency of choice in dozens of nations around the world, from countries like Zimbabwe that have no local currency to countries like Venezuela that are seeing hyper inflation to Argentina who has a love affair with the stability of the dollar.
4. Is the most complicated attribute, it ties two concepts together and that is the US governments willingness to run massive trade deficits to allow enough dollars to flow outward to satisfy demand and the Feds willingness to flood the market with dollars if they are needed to maintain that inflation mandate. This allows the dollar to have trillions of dollars floating all around the world completely out of US control.
The UK is the only nation I'm aware of that met conditions 1-3. The pound would likely still be a major player but for two reasons. The first is that at the end of the war the UK government was leveraged (indebted) to 250% of GDP (the Tea Party was created out of the idea of 100% of GDP). They were also severely economically damaged during the war. London had massive infrastructure (capital) damage and the UK had lost billions of pounds. Not the least of which was the several billion pounds (2014 pound) of equipment lost during the Dunkirk evacuation. But most importa