Russia - General Discussion.

[Karl Franz]

In some similarities, US and Russia administration responsible to each nation inflation rate due to artificially increase money supply. Both to keep prepping up consumer spending to combat crisis effect. US mostly to covid crisis and Russia to war crisis.

Eventough the scope is hugely different, but the effects cause shown similarities. Even Fed need two year adjustment and even now Fed still not want to decrease interest as much as Trump demand. Russia with less price elasticity means the inflation get higher due to sudden influx of money supply, but Russia with 50%+ of GDP being reflect by consumer spending, has no other choices to bite down high interest rate and keep pumping money to maintain consumer spending. There's limit that Government project (including war related production) and commodities export can support growth, if the domestic consumption production is not also increase.

Seems this is why Russia also increasing their domestic consumption production as part of import substitution. They have to keep increase the production to level up with real income increase. Soft landing will not be gain if the level of production not reach parity with the money supply increase. It is game of chicken and egg. Any high inflation means the economy is overheating. Thus soft landing need to be achieved. That's what Fed's do (no matter what Trump demand) and that's what Russia need to achieve.

Agreed, both sides have similar problems stemming from money oversupply.

Increasing domestic production is generally a good thing and particularly in these circumstances. Russia still has some ways to go to match the goods and services on its market to the money supply, particularly important are imports of consumer goods from China primarily and other countries which serves as a cushion for inflation not allowing it to get in a runaway territory.

Russia does have some breathing room due to its extremely low debt which will allow it to borrow and then pump money into the economy for a longer time than a typical European country would be able to, however I don't believe they will go overboard with this and will instead focus on trimming inflation along the lines of Russia's central bank's position which is really hawkish when dealing with the inflation.

 

[Karl Franz]

They don't have the right to use this thematic when parading in Russia. If they want to parade with war criminals, it's their right. But they shouldn't tell us about "victory over nazism" because it's disgusting.
Yes, exactly as you put it. On top of other considerations.
LOL
According to the ideology at the Kremlin, Ukraine should be part of it. Indeed.
Thanks for pointing that out.
The most idiot idea is to think that they had a minute of silence for those who fell fighting the Nazi.

I think you are trolling here so not really interested in responding.

Estimation in USD have no meaning whatsoever. Actually, the Russian economy is disconnected from the dollar. As KipPotapych said, The Russian National Wealth Fund consists of two parts: liquid and “not so liquid”. Only 32% of it liquid. Almost all the liquidities are in Rubble, a little part in Yuans and an very small part in other currencies. And everything is calculated in Rubble.
Of the non-liquid assets, only gold has tangible, convertible value. And, as KipPotapych, again, was right to point out, it contributed to the fund revenues and to the overall economical sustainability. The rest of the non-liquid assets is valued abstractively as it has no market equivalent. It goes without saying that it's much much less than reported. The international exchange rate for the Rubble is also completely artificial.

When we talk about economic growth in Russia, it's growth in Rubble. The Russian government is spending the money in Rubble to pay for the war in Ukraine and defence spending. The money is spent in activities which are wasting the money with no economic return. They spend money to make bombs. The bombs explode, and nothing is left out of if. They spent money on salaries for soldiers to stay somewhere in Ukraine, then they return home without having made any productive activity. In other words, it's like paying people to do nothing. Such economic model is not sustainable.

So much to unpack here, actually never mind it would take too long so i will divide the response in two categories, the first concerning you ruble problem and the second concerning your growth problem.

Your claim that estimations in USD have no meaning is, well, meaningless. I seriously don't understand what you mean by that. Russian government calculates its budget in rubles because it is currency of the land just as the Indian government calculates in rupees and so on with different countries. The exchange rate then allows us to calculate it in US dollars, your claim that that the exchange rate is artificial is again meaningless because every exchange rate is artificial as each government monetary policy affects its currency exchange rate. Just to add, I don't know if you know this, but you can get on the plane in, for example, Istanbul, and land in Moscow with your USD or EUR and then exchange them in an exchange office for rubles using the exchange rate.

As far as Russia's economic growth is concerned people have already written here that it is multi factorial of which defense related expenditures are only a part but even that part is not wasted, as you would call it, and I will explain it to you using your bomb analogy. Depending on what type of "bomb" we are talking about, to produce it you would need an alloy of which the bomb is made. As Russia is reaching alloys it would be domestically sourced which means its mining industry is working and its refining industry is working refining the mined alloy into the usable one. Next the explosive factory producing the explosive is working as well as depending on the type of the bomb various electronics are either produced or imported, again contributing to an overall economy. All of these factories and mines are paying salaries, paying taxes, and acquiring profits due to high demand of their products in defense industry. Even the bomb factory itself while making a final product and delivering it to the Russian military, along with paying all their taxes and salaries and suppliers, is using that profit to either expand its production, thus making more profit or investing in RND to make better (more efficient) bombs.

Once the war is over there will inevitably be a reduction in necessary defense products, however this can be alleviated to a point by foreign exports, but on a flip side Russia gets a robust defense industry capable of successfully competing in the worlds arms market.

 

[Fredled]

your claim that that the exchange rate is artificial is again meaningless because every exchange rate is artificial as each government monetary policy affects its currency exchange rate.

No, that's not true. Hard currencies are fluctuating freely with the exchange market. They are not limited by the amount in which these currencies can be sold.

If you use the exchange rate at an Istambul exchange counter to estimate the value of the Russian Sovereign Fund or of the Russian Central Bank Reserve, you will be off by quite a large margin. LOL.

Depending on what type of "bomb" we are talking about, to produce it you would need an alloy of which the bomb is made. As Russia is reaching alloys it would be domestically sourced which means its mining industry is working and its refining industry is working refining the mined alloy into the usable one...

Exactly. And instead of using these precious resources for something useful, they are using them for something, not only useless, but that draws sanction on their country.

They produce expensive bombs or expensive missiles which will not only be destroyed a few days later, but will destroy something in another country, making Russia liable for damage and war crime.
By doing this, Russia has already accumulated a debt of over one trillion dollars toward Ukraine.
Sorry, but there is no more stupid use of resource.

I think you are trolling here so not really interested in responding.

Saying that you are not interested in a certain topic is fine. But as I'm not saying that you are trolling, I expect the same from you.

 

[Ananda]

Russia does have some breathing room due to its extremely low debt which will allow it to borrow and then pump money into the economy for a longer time than a typical European country would be able to, however I don't believe they will go overboard with this and will instead focus on trimming inflation along the lines of Russia's central bank's position which is really hawkish when dealing with the inflation.

Those economies who has lesser access and depth financial market attractiveness will always have to maintain lower level of financial debt. Nation who maintain good global financial market depth access, can maintain debt ratio close to their GDP level and some even more than their GDP. How depth their financial market shown how big debt ratio can be maintain.

The level of Sovereign fund and asset will act as backed to market possition. However it is also means their Sovereign assets has to be liquid to the market. The more government assets availability in financial market and sound Investment practice by government Investment arm, the more Investor assurance to buy your debt instruments.

Singapore as example has more than 170% debt to GDP, but government of Singapore already have many Investment on global market through their Investment arm Temasek. Temasek asset value in the market is around two third of Singapore GDP. That's also with Temasek sound Investment results, provide assurance in the Global market on Singapore financial market depth.

Russia still have more assets to back their debt, however at this moment their access to Global Financial market limited to mostly China, India, and Gulf market. Thus raising more debt in that condition means their Financial market consider to be thin, thus not provide good debt elasticity pricing. That's not providing much leverage for Russia Central Bank on raising more money in Global Financial market.

So yes, Russia Central Bank will then have to continue accumulate reserve to finance their imports and rebalancing domestic productivity after the sanctions. So far they are doing in line on that. Russia switching market to Global South, more precise Asian Global South. That's where Russia rebalancing their trade, thus external income. But they have to use their own reserve and not relied on Debt as their financial market attractiveness still thin. As long as they can maintain their domestic consumption and productivity plus accumulate enough reserve to support their trade, they still in stable condition despite Western sanctions.

 

[Ananda]

But they shouldn't tell us about "victory over nazism" because it's disgusting.

Some will say parading those who glorified Stepan Bandera which fights under Nazi cause, in Euro victory day, also disgusting to spirit of those who fight Nazi. Seems you are conveniently avoid that.

History is clear that USSR main factor to defeat Nazi and Eastren Front is significant cause on Nazi demise. Russia is main Republic and basically USSR main strength. Your emotional despise to Russia is your own right, but can not change the fact they are big part of Nazi demise. Russian have more rights to have VE day then those who still glorified Stepan Bandera.

So don't talk Russia doing in VE day is disgusting, while EU doing that. It is hypocrite saying only one side has the right for VE day.

 

[Fredled]

Good try! But, no: Bandera is not an excuse for the war crimes committed by the Putin regime. I'm not going to fall in that trap.
This May 9 parade was a insult to the Russians who gave their live fighting against the Nazi. And an insult to the living Russians too, Totally disgusting.

 

[swerve]

Russia does have some breathing room due to its extremely low debt which will allow it to borrow and then pump money into the economy for a longer time than a typical European country would be able to,

But the potential for external borrowing is small, unless China is willing to lend Russia money. International money markets aren't open to it, & I doubt India, Brazil or other relatively friendly countries are in a position to lend to it.

Increasing internal debt would mean squeezing consumption or increasing the money supply, & the latter doesn't look as if it would be a good idea, given that the published inflation rate is already high.

 

[swerve]

History is clear that USSR main factor to defeat Nazi

For most of the war, more of Germany's industrial output was devoted to fighting the western allies than the USSR, & the USSR had massive aid from the west. The Red Army's westward advance in 1943-45 was supplied by hundreds of thousands of US & Canadian-built trucks, for example. The u-boat fleet took about as much high-quality steel as all of Germany's tank production, & the air defence of the Reich took a million AA artillerymen, radar crews, & the like, with more hardware in proportion to their numbers than the German soldiers on the eastern front.

You don't get the full picture by counting bodies, whether alive or dead.

 

[Karl Franz]

Those economies who has lesser access and depth financial market attractiveness will always have to maintain lower level of financial debt. Nation who maintain good global financial market depth access, can maintain debt ratio close to their GDP level and some even more than their GDP. How depth their financial market shown how big debt ratio can be maintain.

The level of Sovereign fund and asset will act as backed to market possition. However it is also means their Sovereign assets has to be liquid to the market. The more government assets availability in financial market and sound Investment practice by government Investment arm, the more Investor assurance to buy your debt instruments.

Singapore as example has more than 170% debt to GDP, but government of Singapore already have many Investment on global market through their Investment arm Temasek. Temasek asset value in the market is around two third of Singapore GDP. That's also with Temasek sound Investment results, provide assurance in the Global market on Singapore financial market depth.

Russia still have more assets to back their debt, however at this moment their access to Global Financial market limited to mostly China, India, and Gulf market. Thus raising more debt in that condition means their Financial market consider to be thin, thus not provide good debt elasticity pricing. That's not providing much leverage for Russia Central Bank on raising more money in Global Financial market.

So yes, Russia Central Bank will then have to continue accumulate reserve to finance their imports and rebalancing domestic productivity after the sanctions. So far they are doing in line on that. Russia switching market to Global South, more precise Asian Global South. That's where Russia rebalancing their trade, thus external income. But they have to use their own reserve and not relied on Debt as their financial market attractiveness still thin. As long as they can maintain their domestic consumption and productivity plus accumulate enough reserve to support their trade, they still in stable condition despite Western sanctions.

But the potential for external borrowing is small, unless China is willing to lend Russia money. International money markets aren't open to it, & I doubt India, Brazil or other relatively friendly countries are in a position to lend to it.

Increasing internal debt would mean squeezing consumption or increasing the money supply, & the latter doesn't look as if it would be a good idea, given that the published inflation rate is already high.

I agree that Russia's borrowing opportunities are limited and that their rates will probably be higher, however Russia's debt to GDP ratio is around 15 percent, which is in today's world almost debt free. I see no reason why they cannot get it up to around 25 percent. That is around 200 billion extra if Russia finds itself in a position that it needs money and still be one of the least indebted countries.

As far as printing more money I think that is definitely a bad idea (but that is a bad idea in general). The interesting part for me is internal debt that if done properly would actually not be a bad idea. Allowing ordinary Russian citizens to invest in Russia's debt while giving them an acceptable rate could actually kill two birds with one stone. This way you decrease discretionary funds of people decreasing demand thus easing the pressure on prices and so reducing inflation while at the same time the funds collected can be targeted in investments such as infrastructure or energy projects which will not directly affect consumer good prices while still contributing to GDP, and may even be profitable down the line. This of course doesn't solve all the problems such as labor shortages (thus increasing salaries) and helicopter money (the best way to describe bonuses for military personnel and defense industry employees in economical terms) which will still be a factor for pushing up inflation.

Russia's economy is overheated, it needs to slow down so it can get its inflation under control. It would be preferable to have a modest growth of 1 percent with falling inflation than high growth of 4 percent or higher while inflation remains high as there will come a point where economy will simply not be able to cope with it and with all the external factors pressing down we could get a much worse scenario than simple high inflation.

 

[Ananda]

don't get the full picture by counting bodies, whether alive or dead.

I wrote that line between Job, so perhaps not really complete. What should be; USSR is one of main factor on defeating Nazi. Yes US provide main Industrial output, but USSR provide human wave and industrial output wave to bleed Hitler in Eastern Front. Yes US land lease give support to USSR, as much as to UK. However USSR own industrial output also substantial factor. If Hitler win Eastern front in 42, the story will be different.

In the end Russia deserve to be included and have their own VE day. Moscow VE day is for Russian people, and those global leaders that come also support Russian people right for their own VE days.

This May 9 parade was a insult to the Russians who gave their live fighting against the Nazi. And an insult to the living Russians too, Totally disgusting.

Thus it is not insult to Russian people, as this is celebration for Russian. By you are saying that simply shown, deep down insult you have to Russian people. Again you can have your right to despise Putin and Russia. However that Moscow VE day celebration is for Russian people no matter how you or some in Euroland try to twist it. Those countries who came are celebrating and honouring Russian and Soviet people. Putin off course take advantage of VE day, but it is not diminish intention VE day for Russia and Soviet.

 

[Ananda]

I see no reason why they cannot get it up to around 25 percent.

In normal time I agree with your assesment, however in present Russian financial market situation, at preseng time of shallow market condition for Russia, I'm not sure they can add more debt ratio. Especially if the source is external.

The interesting part for me is internal debt that if done properly would actually not be a bad idea. Allowing ordinary Russian citizens to invest in Russia's debt while giving them an acceptable rate could actually kill two birds with one stone.

If they can get more debt from internal domestic sources, then I agree it is different calculation. However is Russian domestic source investors are ready and liquid enough ? I must acknowledge I have doubt on Russian domestic public saving rate, perhaps I make wrong calculation on that. Still Russian business and Oligrachs are supposedly having enough global sources to be return and finance additional 5-10% government debt. Whether they will do it or not, is another issue.

 

[Karl Franz]

No, that's not true. Hard currencies are fluctuating freely with the exchange market. They are not limited by the amount in which these currencies can be sold.

Every time the government changes its interest rates it is directly impacting the exchange rate of its currency, every time the government goes in currency market itself selling or buying currencies its affecting the exchange rate, and so on. So, yes, every government is affecting the value and so the exchange rate of its currency.

If you use the exchange rate at an Istambul exchange counter to estimate the value of the Russian Sovereign Fund or of the Russian Central Bank Reserve, you will be off by quite a large margin. LOL.

I don't know what you mean by this, it seems to me you are suggesting that Turks are overvaluing the ruble which would be particularly strange as Turkey imports significant amount of energy and other goods from Russia which they would have to pay more if the ruble is overvalued, doesn't make much sense, does it?

Exactly. And instead of using these precious resources for something useful, they are using them for something, not only useless, but that draws sanction on their country.

They produce expensive bombs or expensive missiles which will not only be destroyed a few days later, but will destroy something in another country, making Russia liable for damage and war crime.
By doing this, Russia has already accumulated a debt of over one trillion dollars toward Ukraine.
Sorry, but there is no more stupid use of resource.

I have already explained to you how an arms industry is beneficial to general economy of the state. Not only is it contributing to the GDP of the country but it is also developing various technologies that can be used in civilian sector and it is also beneficial to all the industries that are supplying the defense industry, not to mention all of the political capital it gives the country on the world stage.

As for the debt accumulated by the bombing I think you should write to US congress informing them that their debt is not 36 trillions, it is closer to 70 trillion, considering all the bombing US has done. At which point the US would default on its debt and the entire worlds economy would collapse. I would short some stocks if i were you.

Saying that you are not interested in a certain topic is fine. But as I'm not saying that you are trolling, I expect the same from you.

I have no problem with the subject however you said that country is a failed state because it doesn't support Ukraine in its war and that having a moment of silence for those who died fighting fascism is an idiotic idea. How else but trolling was I suppose to take that?

 

[Karl Franz]

In normal time I agree with your assesment, however in present Russian financial market situation, at preseng time of shallow market condition for Russia, I'm not sure they can add more debt ratio. Especially if the source is external.

Depending on what the money is used for would be a deciding factor in my advice on whether to do it. At 25 percent rate the debt would still be covered by foreign reserves and even if you want to go extra careful and borrow only the amount that is covered by the reserves that are not frozen by the Western countries you would still have a 100 billion to go. So in my opinion they still have a bit of a wiggle room to borrow.

If they can get more debt from internal domestic sources, then I agree it is different calculation. However is Russian domestic source investors are ready and liquid enough ? I must acknowledge I have doubt on Russian domestic public saving rate, perhaps I make wrong calculation on that. Still Russian business and Oligrachs are supposedly having enough global sources to be return and finance additional 5-10% government debt. Whether they will do it or not, is another issue.

Getting more debt from domestic sources would be a preferable option of course and I think there is quite a bit of capital there as we can see from gross savings which have probably increased (as a percentage) due to high salary increases. You would need a good marketing campaign of course to explain/convince people to invest in government debt, but all indications are that excess of money exists and that this could be a good way to channel it.