EDITORIAL: Economic Storm Clouds Over Russia
Economic Storm Clouds Over Russia
In an article for Forbes magazine Dr. Vladimir Kvint, the president of the International Academy of Emerging Markets, a U.S. Fulbright Scholar and the chair of the Department of Financial Strategy at the Moscow School of Economics, points to the menacing economic storm clouds that hover above Russia these days. First, he notes "the steady rise in prices of consumer goods and food, a very dangerous development." He writes:
The consumer price index surged 12%, but the price of certain foods has risen at a much faster pace--vegetable oil increasing by 150%, butter by 40%, milk by 30%, and grains and bread by 25%. This is not the result of a worldwide increase in food prices--Russian food prices are growing faster than world prices, even faster than in neighboring emerging market economies like China and India.Some have claimed that Russia is only being victimized by a worldwide trend, which would be bad enough since Russia is ill-equipped to absorb it, but Kvint dispels that illusion. In fact, the problem is worse in Russia than it is in other countries, and getting worse all time. The Kremlin has been forced to set up a special emergency commission to deal with the crisis; Reuters reports that "the consumer price index rose 1.8 percent in the first three weeks of January, against an expectation of 1.8 percent for the whole month and compared to 1.7 percent in January last year."
Then there's the stock market. Kvint's article came out on January 8th, just a bit too early to catch Russia's market take a nosedive. Stock market analyst James Beadle wrote on January 24th: "The benchmark RTS index has dropped 16 percent since peaking at 2339.79 on Jan. 14. This sudden loss of around $160 billion in market value stands in sharp contrast to consensus expectations, which predicted around a 25 percent upside and decisive decoupling from the slowing U.S. economy this year."
Kvint continues, observing the the purchasing power of the ruble has plummeted:
The rise in consumer prices is a result of increases in salaries, pensions, stipends and other social spending at a pace much higher than what economic growth allowed. This puts more rubles in the hands of Russians, but decreases the purchasing power of the currency. During the last 11 months of 2007, the ruble supply increased by 30%. As a result, taking into consideration the high speed with which money circulates in Russia, the purchasing power of the ruble fell by 20% to 25%, according to my calculations.The expanding money supply will mean particularly drastic jumps in gas prices, he says:
Indeed, the increase of rubles in circulation has grown four times faster than the growth rate of the national economy. This trend also resulted in an increase in gas prices. The government implemented many limitations to slow the consumer cost compared with the cost of production. This means that this compressed "price spring" will expand in 2008, resulting in a sharp increase in gas prices for consumers, as well as prices of first necessity goods.Turning to the trade balance, Kvint finds more horror:
Despite growing prices for natural resources and raw materials, Russia's positive trade balance has shrunk, because imports are increasing faster than exports--which may be a dangerous trend, and likely to continue in this year. It seems that Russia is incapable of substantially increasing the production, and consequently, the volume, of exports of natural resources.And he notes that Russia is willfully driving resources away from the service of the population's needs and towards cold war expenditures, just as was the case in Soviet times:
Another trend in 2007 that is likely to continue this year is the visible rate of growth of military expenses, which is pushing Russia toward a militarized economy, though it is still too early to judge the scope of this trend.Turning to yet another area of potential disaster, Kvint recognizes Russia's looming credit crunch:
There has been fast growth in the amount of debt accumulated by Russian consumers. It is interesting that ruble debt has grown twice as fast as debt in foreign currency, which has not been the case in previous years. Taking into consideration Russians' general lack of experience with credit obligations, the possibility exists for a wave of bankruptcies in 2008.Finally, Kvint offers a laundry list of other disasters:
- The diversification of natural gas supplies to Europe, which is mostly a result of the new role of Turkmenistan. This will have a direct impact on Russian influence in certain European countries.
- The failure of Russia to become a member of the World Trade Organization, despite expectations to the contrary
- The failure of Russia's amnesty of capital program, which was not surprising--it was, in fact, practically inevitable. Russia was the only country in the world to make tax collections the focus of its amnesty of capital program. Most of these programs seek to repatriate capital to create new jobs. The tax rate on repatriated capital is typically between zero and 5%, but Russia's program taxed repatriated capital at 13%. In Italy, 61 billion euros worth of capital was repatriated in only six months of 2002. Russia's program was not economic amnesty, it was bookkeeping amnesty, and was a total failure.
Looking for bright spots in the Putin economy actually proves quite difficult. Kvint notes that "cumulative foreign direct investment increased by 55%" but then he points out that "the outflow of foreign direct investment has decreased, this trend began to reverse over the last six months. This is a direct response to the economic policies of Putin's government beginning to worry investors."
He states that "foreign investment surged by a factor of 2.5 in 2007. None of the world's 15 leading national economies can compete with this achievement. Some $100 billion was invested in Russia from abroad over the last 12 months." But here he makes a serious error. Perhaps other nations cannot match the percentage increase Russia generated in 2007, but the dollar amount of foreign investment in Russia is puny compared to that of America, which in 2007 was over $400 billion. It's a common mistake to neglect Russia's tiny economic base when considering its growth levels, and he makes this mistake again when he notes that economic stability "has resulted in job creation and stimulated economic growth, which is now approaching 8%." Russia's economic base is 1/12 the size of America's, which means its rate of economic growth has to be divided by 12 before being compared to America's. Doing so produces a rate of growth of just 0.7% in Russia compared to over 3% for America. In other words, the dollar value of Russian economic growth in 2007 was more than four times less than that in America. That's not very impressive, is it? And though Kvint speaks of "job creation," it notable that he makes no effort whatsoever to quantify his statement -- a good indication that he is only speculating. And, in the end, Russia's problem is not unemployment but lack of quality employment, with an average wage of less than $4/ hour and an average male lifespan of less than 60 (not in the world's top 100 countries).
We report below on analysis that shows Vladimir Putin's plans to make Russia an energy superpower have backfired in classic Russian style. Instead of using the country's good fortune on the oil markets to improve the lives of its citizens, Putin has chosen instead to spend Russia's income just the way the USSR did, in a profligate attempt to do political battle with the West. As Russian ruler have always done, he grinds the nation to dust under his feet so he will have something soft to tread upon.
If you can believe it, the shameless idiotic propagandists at Russia Blog actually republished Kvint's article, because they thought it reported good news for Russia. They were probably misled by the headline "Russia's Surging Economy" that Forbes put on the piece, failing to have sufficiently developed thought capability to realize that this might be a teaser. It's clear that they only read the first couple of paragraphs, where Kvint tries to find some hope for Russia before laying waste to it, and that they didn't think at all about his positive comments. This is the laughable style of the Soviet propagandist, and would indeed be very funny if so many people's lives did not hang in the balance. It's exactly this kind of "thinking" and "analysis" that brought the USSR to its knees, and Russians first and foremost should be outraged by it. As we've said before, Russia Blog needs to be put down. Anybody who reads it uncritically is being played for a sucker. It's an embarrassment to the blogosphere.
6 comments:
Russia's real issue is its abandonment of structural support for the middle class. By 2050, nations that have developed or sustained a cohort of self-confident, assertive middle class families will prevail. Russia promotes xenophobia, derides the work of civil society, and ignores the nightmare of health and social demographics. Russia's future is as bright as a candle's, burning at both ends.
An excellent point! And in fact, one can easily argue that this neglect is intentional, since a vital middle class would constitute a clear pocket of possible resistance to the Kremlin's re-sovietization plans.
Anonymous, a stupendously astute and incredibly great point. Everyone probably wishes I could be that short in making a point!! (ok, let the tomatoes fly)
the middle class is the difference between a feudal state of some sort, and a classless state in which no one really has an ability to stay in one place forever (technically - though with corporatism running rampant and real capitalist values not always shining through, we get the best we can do).
It's the single truth that makes the United States the number one country to immigrate to, and has held this post since when?
Its not that our laws are perfect, or that we give out candy, or that it’s easy here. In truth at the bottom, its only one reason (if they are here for real reasons not subversive or parasitical).
Mobility
With a middle class there is no chasm between groups. A person can inch up the ladder directly proportional to how they work and how they position what they can do for others. Technically it’s a society where everyone is trying to make someone else happy so that they part with their money for that reason. In a bizarre way (though not the way people look at it), we respect a person with a lot of money because that’s usually a testament to how happy they have made others!!
Americans don’t actually like power for power, but they do respect the judicial use of power and then its relinquishment once the task is done. They value plurality, freedom, individualism. When they are true to their old selves, they tend to be generous and big hearted lugs. Not always the brightest crayon in the box, their hearts are almost always in the right place.
But they make their money making other people happy. You want to talk to your mom? That makes you happy, we got the phone. Too far? We have radio? Don’t like radio, satellite phone. You can go on and on and the one way to surely make honest money in the US is to make em happy. Sometimes this backfires when we think the wrong things will make us happy, but we are still feeling our way in a world in which everyone is making everyone else’s dreams come true. Most of us just tool around our lives quite oblivious to the rest of the world.
Immigrants are used to working a whole lot harder for a whole lot less. So they succeed and within a decade they move up. They save, work hard, have community where they still pitch together (longer Native Americans are more isolated). They will pitch together to start a business, they are not afraid of such. Most are honest people. They enjoy that there are things to do here, that no one bothers them, that their mail isn’t opened and that their homes are safe, and that the cop doesn’t take a kickback, and more. (Those are the things that make people happy, and so someone will provide them for a fee. That’s technically how we pay for police, and roads, and so forth too).
I recommend a read through a finance book called: The Millionaire Next Door . Basically two lawyers were hired to find out what makes the rich happy so that they could sell to them. the whole book is a encapsulated journey of their education out of all the myths, false beliefs, and more that they held. What comes out of it is a fairly good explanation, totally without politics, of why the US works as a nation.
One of the more interesting parts was how they show and blow away the myth that those who are wealthy remain wealthy and those who aren’t stay that way. The whole book blows these myths. One that they blow in the chapter “you or your ancestors”, they lay out different immigrant groups and how the immigrants fare.
I for one would say that in that table, is clear evidence that there is no genetic problem with Russian people as far as capitalism is concerned, and while Russia has helped fellow travelers and much more. its not enough to skew the numbers for the whole national group.
At the time of the publishing of the book, Russians were in the “top ten ancestry groups of American millionaires” table, and made up 1.1 percent of all households in the US. 219,437 of these households were millionaire homes, representing 6.4 percent of all millionaires. Definitely not a weak showing. They ranked 5th in percent of millionaire households in the nation. (English, German, Irish, and Scottish came ahead. This top ten list has Native Americans 9th and Hungarians 10th ). To cap the line in the table off, percent of ancestry group that are millionaire households 22%, their rank in this rating – number 1.
That’s pretty impressive. So its clear that in order to get the abysmal performance that Russia gets out of their own people, one has to be a real expert at holding people back and deprivation.
There is another table in the book that is just as interesting. “the top fifteen economically productive small population ancestry groups”.
These are from smaller countries, the list is in this order rank from 1 – 15 – these are groups for which there are fewer than 100,000 households in the US. (Most are not considered minorities).
Israeli, Latvian, Australian, Egyptian, Estonian, Turkish, Icelander, Syrian, Iranian, Slavic, Luxembourgian, Yugoslavian, Palestinian, Slovene, Serbian
Most of these groups are low on socialist needs from the state, highly productive. Isreali’s have 2.63 times the the proportion of high income earners in the US, Latvians 2.46 times.
Obviously if the US was like other countries, these people would not be this successful. They are successful because they work hard, don’t take from the public till, have stable lives and families (how many Yugoslavian immigrants or any like that have you ever seen on jerry Springer? I rest my case).
The book points out that most millionaires here are self made, not heirs to money. they work in boring jobs, like metal welding, construction, laboratories, etc. they do not live in the expensive neighborhoods (the book says most who do that don’t have wealth, their credit minus ownership is not far from zero, while the people I am talking about have more than 1 million in assets). Most earn it and make it by saving and investing. They have a low divorce rate, drive American car, and have only one or two credit cards.
They started from poor means and worked their way up. And the middle class is a smooth transition from the bottom to the top.
An interesting movie recently came out here. “Persuit of happiness”, it’s a true story. The interesting thing to note is that the man who the story is about, also produced the movie. Whats missing from his movie are marx’s fat cats, and racist bosses holding a black man down, and all manner of other things (not quite unreal enough to call myths, but not as common as we are led to think).
In this movie, he has hit bottom, and he asks a wealthy young guy, how did he make his money. the guy said brokerage, and this man then set his sites and got hired in one of their constantly hiring pools (you can look in the newspaper and see them always hiring, no experience necessary, but VERY few have the drive to turn the opportunity into something). He has a quintessential bad decade, and ends up at this interview in rags. Interviewing in front of two white brokers. He sells himself, and they hire him (this is why he produced the film. He wanted to show the rest of the people that nothing is stopping them but themselves. at least here in America).
Well to make my long story shorter (is that applause?), he basically succeeds, keeps his kid, and eventually opened his OWN brokerage firm.
Number of millionaires hits record
http://money.cnn.com/2005/05/25/pf/record_millionaires/
The ranks of Americans worth $1 million grew 21% in 2004; the $5 million club grew even faster.
In this sentence is the truth about American wealth.
Spectrem counted Americans with net assets of $1 million or more, excluding primary residences but including second homes and other real estate holdings. There were 6 million millionaires in 2001, when the bursting of the tech-stock bubble pruned more than a million Americans from this status.
6 million wealthy would represent 2% of our population. But look at the number that stopped being millionaires. 1 million.
So in the US no one stays in one place.
The survey found that more than 35 percent of the affluent are retired and 36 percent are business owners. The overwhelming majority – 86 percent – are married, and the mean age is just under 56.
So most of these people are at the end of their lives. This is the result of a lifetime of honest work. not a quick dishonest buck.
Its like a cycle or an engine… with the poor, the middle class, and the wealthy, the system has convection. Poor rise as there is no where else to go. They get to the middle, and they rise up. The wealthy die off, the state gets their money, or its divided up among kids – or in some cases left to charities, and even their pets.
This is why so many super wealthy side with oppressive things. They want to take out the middle, and stop this flow. Then the poor stay poor, but cant climb past the empty no mans zone, and the wealthy stay wealthy… when they fall they disappear. There is little chance to move up as anyone on top can just pluck anything you do for them. without ownership of property, and access to means, one cant climb.
So anonymous, your so right in so many ways.
Middle class in the US has not gained an inch of ground or even a 1 percent increase in its real income since 2000. In fact it hasn't gained even a 0.1 percent increase since that time, but it is basically "running in place." (as if on a treadmill) while the richest layers of American society, the top 1% and the top 1/10 of 1% (the millionaires and billionaires) first doubled their wealth and then doubled it again in the same timespan. The working class, by contrast, the largest section of American society, has actually seen its real income fall rather dramatically since 2000.
source BBC
(Things have gotten worse in the US in the 16 months since that BBC story appeared, much worse.)
This is your recipe for long-term social stability in the US? Good luck with it! It's more like the "New Deal" only in REVERSE!
So much for your American "middle class." If there's an "economic expansion" they would never know it, as they are being decimated by the ruling club in the USA. And now that there's a major recession looming you can guess who will take the brunt of the pain.
yes misha, you are close enough to right that its not worth commenting.
other than to say that the truth is that the people bubble up and they bubble down, not the marxist concept of climbint to the top, and never falling again.
we often look to the hyperwealthy as the wealthy, which they are not. (there is only about 150 or so of them, and millions of others who are wealthy but not hyperwealthy).
a lot of the way that this gets looked at they play games with you since the agenda is to sell that capitalism is bad.
however, when you mix capitalism and socialism, you get coporatism, and fascism...
and corporatism is fascism, not capitalism with the mask off.
so again, your argument is too complex for me to get into, and oen of those half truth half false things in which there are tons of lies of omission, which everyone conveniently forgets.
i could go into it, but why bother. the only outcome would be that you would not believe in the churning of the wealthy here.
for example..
in 20 years the proportions will be VERY different as right now the largest group of old people are retiring... in the US that means that this is the largest group of wealthy people as their age is above the average age of the millionairs, which is 56.
if one just counts the absolute things, and doesnt adjust for the largest group of people of an age group in history... AND The largest influx of poor immigrants ever in history..
one might think that this spread is actually evidence of the point your trying to make.
but 24 million illegal immigrants, have not been here long enough to climb up (they have another 30 years to go if they entered a decade ago), and so they have ballooned the bottom section..
so what you have is the liftime positions of baby boomers at one end... and the greatest mass of starters at anotehr end.
if you compare students who just enter college with those who have worked for 20 years, you will be able to make the same assertion as to wealth.
the only fix that wouldnt have this spread is to hand a lifetime stippend of adjustment to each illegal alien as they entered.
or you can forbit the poor to come in and change their station..
you wont get to drain the wealthy any more than the russian people will get putins 40 billion without someones help.
oh... russias spread between the top guys and the bottom half is EVEN more disparate and unfair..
the middle class there is pretty none existent comparitively, and they have NO explanation in boomers and immigrants!!!
the more socialist the US becomes, the more stagnated it becomes.
Sweden hasnt had a new large company since the 50s.
wanting productivity in socialism is like wanting one sided coin..
oh.. and misha, americas poor live a lot better than poor in other places... so POOR is not a valid term since your not measuring a place on the total spectrum, but cutting a slice out of it arbitrarily.
if you look at the entire spectrum from the dirt eating poor of africa, to the wealthiest people in the world, the poor of america will actually be higher than the wealthy of many countries!!!
Last year, the Census Bureau released its annual report on poverty in the United States declaring that there were 37 million poor persons living in this country in 2005, roughly the same number as in the preceding years.
remember, we get a huge influx of poor... and so if the number remains steady, that means that the ones that came in before have risen and the new ones have taken their place.
According to the Census report, 12.6 percent of Americans were poor in 2005; this number has varied from 11.3 percent to 15.1 percent of the population over the past 20 years
so actually this view that seems stagnated has been going for a long time.
To understand poverty in America, it is important to look behind these numbers—to look at the actual living conditions of the individuals the government deems to be poor. For most Americans, the word "poverty" suggests destitution: an inability to provide a family with nutritious food, clothing, and reasonable shelter. But only a small number of the 37 million persons classified as "poor" by the Census Bureau fit that description. While real material hardship certainly does occur, it is limited in scope and severity. Most of America's "poor" live in material conditions that would be judged as comfortable or well-off just a few generations ago.
as i said its playing with words, and i cant say that your playing since there are many sources that play and give you fodder for such arguments, but they are false!
Let me know if you would define those who have these things as 'poor'.
The following are facts about persons defined as "poor" by the Census Bureau, taken from various government reports:
Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.
would you regard a person with their own house and property with three bedrooms, one and a half baths, a garage, patio, air conditioning, more than two rooms per person, two cars, color television, a vcr or dvd player with cable, microwave oven, sterom, and a dishwasher.
i earn near six figurs and i dont have that!
would you regard such a person as poor?
NOW you know why people WANT to be poor in america.
that is not to say we dont have real poor by most definitions, but many of them have mental problems and such... those that done tend to climb out and become middle class within 5-10 years of coming here broke.
here is some more.. you can get the link at the end
The average consumption of protein, vitamins, and minerals is virtually the same for poor and middle-class children and, in most cases, is well above recommended norms.
Poor children actually consume more meat than do higher-income children and have average protein intakes 100 percent above recommended levels.
ost poor children today are, in fact, supernourished and grow up to be, on average, one inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.
89 percent of the poor report their families have "enough" food to eat, while only 2 percent say they "often" do not have enough to eat.
to here the author describe it.
Overall, the typical American defined as poor by the government has a car, air conditioning, a refrigerator, a stove, a clothes washer and dryer, and a microwave. He has two color televisions, cable or satellite TV reception, a VCR or DVD player, and a stereo. He is able to obtain medical care. His home is in good repair and is not overcrowded. By his own report, his family is not hungry and he had sufficient funds in the past year to meet his family's essential needs. While this individual's life is not opulent, it is equally far from the popular images of dire poverty conveyed by the press, liberal activists, and politicians.
is it any wonder why the poor and even moderatly comfortable in other countries will kill to get here and risk their lives?
by the way, the poor have cell phones (i can take a picture of HOMLESS people with them begging!!!). they can go to the movies, see free concerts in the park, participate in programs for their kids to travel..
and guess what?
EVERYONE here can get a guaranteed loan to attend school and can continue to get these lones, not pay them back, till they finish school and have a higehr paying job.
by the way, all these programs are currently open to you whether your a legal or illegal alien..
we dont have debtors prisons (excdept for fathers in the neo soviet family courts), and we have tons of programs to help people, including programs to give loans and tax breaks for first home buyers.
the small business administration will help ANYONE that walks in develope a business plan, locate a place, get supplies and help secure a loan that is also partly guranteed... all this is free to them. the thinking in this is NOT socialism (other than restricting white males from all of it), as the person who does this, ends up paying for it all by the larger taxs they pay as a professional or buysiness owner rather than a new immigrant.
i can go on and on this way...
a lot of poor in this country dont avail themselves of ANY of this.. you ask them and they will stare at you and not do anything. you offer them work, they woudl rather work the dole... and such. so the REALLY poor are also dominated by those who wont work, commit crimes, are here for other reasons and such...
In good economic times or bad, the typical poor family with children is supported by only 800 hours of work during a year: That amounts to 16 hours of work per week. If work in each family were raised to 2,000 hours per year—the equivalent of one adult working 40 hours per week throughout the year— nearly 75 percent of poor children would be lifted out of official poverty.
and as i showed, official poverty is a relative term, and nothing like real poverty.
and the neo soviet divorce laws copied from russias first years in lenin has visited on us the same misery.
Father absence is another major cause of child poverty. Nearly two-thirds of poor children reside in single-parent homes; each year, an additional 1.5 million children are born out of wedlock. If poor mothers married the fathers of their children, almost three-quarters would immediately be lifted out of poverty.
so yes.. i can show that a lot of what you say is trikery...
but i believe that if you knew more, that wouldnt have been your comment... and i blame the leftists in our own open press who are free to write lies all tehy want.
freedom of speech after all is also freedom to lie, and so they are free to do this... and so a person cant just read and accept, they ahve to read, dig, check, and not trust power sources.
americas founding fathers said, you cant trust government EVER, not even your own. and THATS why americans have so much, and why russians have nothing. russians trust people that bu nature should never be trusted..
and america is sliding down the more the people trust them too, and turn to them.
parasites when they rule kill the body that supports them since they are contemptuous of it. then they slowly die themselves, as they have nothign to feed off of.
america has been in that process for 40+ years... russia has been in that process for mroe than 100... and the body is like a comotose patient being milked for blood by vampires.
oh... heres a source - http://www.heritage.org/Research/Welfare/bg2064.cfm
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