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Thursday, June 15, 2006

Russian Stock Market Just an Illusion

The good news on the bottom dropping out of the Russian stock market, which has lost one-third of its value in six weeks, is that according to Roman Gref, as reported in RIA Novosti: "I don't think there will be any implications for the Russian economy."

How is it that a stock market crash can be meaningless for the Russian economy? There is only one answer: Because the Russian stock market is so tiny and so insular, with only a miniscule fraction of the population involved in it, that no matter what happens to it there are few "implications" for the broader public.

For the same reason, Russia can experience double-digit consumer price inflation without "implications": Since the population is so poor and can afford to buy so few consumer goods, what happens to the price of many goods is irrelevant to them

But Gref is missing the much bigger, more terrifying picture. Russia is a nation of 140 million people spanning 11 time zones, and it has zero economic prospects. It's virtually impossible for the country to get any smaller economically, and it is virtually impossible for it to grow in any meaningful way since it has utterly destroyed all its economic fundamentals.

In other words, Gref's statement means Russia is doomed.

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