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Thursday, October 25, 2007

EDITORIAL: Is Russia's Economy Collapsing?


Is Russia's Economy Collapsing?

The Russian economy has been showing a shaky, creaking vulnerability of late that is surprising even to the jaundiced, cynical observers here at La Russophobe. Despite the fact that the price of oil has soared to stratospheric new highs in recent weeks, approaching $100 per barrel, when the American stock market took a 500-point, 2.5% hit to the Dow Jones Industrial Average last week, famously oil-rich Russia immediately felt a worse ripple effect, with its key average dropping 3.5%. It must send waves of panic through Russian traders to imagine what might have happened to their market if America's had plunged while oil was at a record low. And the recent announcement that Russia is on the cusp of a major liquidity crisis can't help them sleep any better, either.

And there was more horrifying bad news that left no room for Russophile rationalization: Dictator Vladimir Putin announced a wave of Soviet-style price fixing. It's been announced that Russia is facing double-digit consumer price inflation for 2007, and prices may be rising at double that rate on the small basket of foodstuffs and other items that are readily affordable to the mass population, which works for an average wage of less than $4 per hour. It's quite shocking to think that G-8 member Russia needs to resort to the tactics of Zimbabwe strongman Robert Mugabe in order to stave off short-term panic, simply making price rises illegal -- as if that was a way to solve inflation that the other G-8 members never thought of.

And Putin has gone further, implying he believes the price fixing moves won't be enough to guarantee his party's success in upcoming parliamentary elections. He's blocking the arrival of Western monitors to oversee the fairness of the polls, and he's banning outright the participation of key opponents. It's an important election, since it's the means by which Putin proposes to stay in power, taking the lion's share of parliamentary seats and assuming the role of prime minister.

It almost makes it seem that Russian's much ballyhooed oil resources are not all they're cracked up to be. In fact, that's precisely the case.

RIA Novosti reports that Russian Industry and Energy Minister Viktor Khristenko has predicted Russia's oil output for 2007 will be 3.6 billion barrels. This is somewhat more than the U.S., at about 2.8 billion barrels, produces, but real issue in terms of U.S. supply is that the gigantic, dynamic U.S. economy consumes nearly 21 million barrels each day, whereas Russia consumes only about a relatively puny 2.5 million barrels per day - at ten times less, a pretty good reflection of the difference in GDP between the two countries, currently in a ratio of about 12:1.

Russia will consume about 0.9 billion barrels of oil in 2007, so it will have about 2.7 billion barrels available to sell to the world. If it sold all those barrels at the market price (it actually can't do this), and if the market price were $100 per barrel (it hasn't reached that level yet), then Russia would have a gross income of just over $200 billion from its spare oil. Let's say it has only 10% production costs (given Russian corruption levels, that's probably very conservative) -- this would leave about $180 billion for the Kremlin to do as it likes with.

Let's say the Kremlin wanted to divide up that money equally among the people of Russia, for them to better their lives with. Of course, it has no such intention, and will spend the vast majority of this money supporting instability in the Middle East to keep the price of oil high and building up Russia's military so as to prop up the dictatorship. But let's just say.

Russia has 140 million people. So if that $180 billion were divided equally among them, they would each get about $1,200. That would mean each Russian person would have an extra $3.50 per day -- one hour's average wages for a Russian -- to spend on bettering his life. As the common man is concerned, roughly 20% of that figure would be eaten up by inflation, so the Russian would be left with about $2.80 each day to live it up with.

And remember, that $2.80 is the very best case scenario for the Russian. In actual fact, virtually none of this oil "wealth" will be passed on to him by his government, which will instead send some of it to terrorist groups like Hamas and Hezbollah as well as rogue nations like Syria and Iran so they can continue their nefarious activities aimed at destabilizing the Middle East, thus keeping the price of oil high, and use the rest to start a renewed arms race with the United States -- an arms race which will bankrupt Russia just as the first one bankrupted the USSR -- and to maintain the Kremlin's oligarchs in the style to which they are accustomed (the same style enjoyed by the old Soviet politburo).

It hardly matters. That $2.80, after all, wouldn't be enough to solve any of the life-threatening social ills that prevent the average Russian man from living to see his 60th year and cause the Russian population, despite record levels of immigration, to suffer a net loss of up to 1 million people each and every year. Yet, Russia's entire economy hangs on the significance of this sum; without it, Russia is quite simply a third-world state with no conceivable argument for G-8 membership. Its capital markets, and undoubtedly its "president," are only too well aware of this fact, it seems.


Artfldgr said...

That was a wonderful and well reasoned piece. it even covers cui buono in the big picture.

the only thing that worries me is that some of the more extreme analysis may be right. though i am one to recognize that its possible, its not the outcome that i am most banking on, and there is no way to know enough to be able to say something other than, is possible because you cant figure out something that takes it off the table.

there is much talk that an arms race is not going to be a prolonged thing, nor does it have to be. the race couldnt start till they catch up. that is presuming that they havent taken advantage of the open society to create newer tech based on stolen tech.

[bet most dont know that the russians were the ones that wrote the papers on radar and such. it wasnt a paper that was stealth, but it was a paper that led to the technology. it was only that the engineer at the skunk works read through what few papers that were available then]

ultimately the big fear of the dirty bomb, or breifcase bomb scenarios is on a lot of minds.

nuclear winter is a hypothesis (like the hypothesis that was tested at trinity: that the bomb would ignite the atmosphere), and is not necessarily credible.

this is especially true since the wests belief in it was stated to be a goal as part of the effort to get things from the US. (use of it does not denote validity either way. if it works politically, valid or invalid doesnt matter. so you cant use the use of concept to determine that anyone knows the truth of it)

there is no real way to value whats going on there. its not a clear country like countries in the west. they could be pulling twice as much as they report they are. china would take and trade a lot for that under the table for mutual advantage over their mutual enemy. there would be no way to actually know.

if a state can torture its own, kill its own journalists, kill ex members in other states...

cooking the books is not a problem, in fact, its the pragmatic thing to do.

the puffing up of the military would be a logical preparation to create a sense of oppressive forces to heighten the load on the US in event of an 'event'. the political system, as demonstrated by the 9/11 event, is totally ripe for changing over to a socialist controlled state for its own good.

WWII was the last big mud wrestle.. now they play chess, and go. (i love go).

the US is prime for a out of whack wrong response. like a bee sting sensitizes, the next bee sting will cause anaphalactic shock.

this would be more so if its something nasty (in the form, not necessarily in the degree), and that there was no group or entity to pin it on.

like someone with a gun who gets hit by something while sitting in a full bleachers.

they know the general direction, they are furious, but they are not able to respond. the energy to be directed outwards gets pent up and gets directed inwards. that inwards has to change to be safe because they dont know whats outward, so if they seal up the inside...

Russia has some serious problems and i have no idea how they can move forward at all in a meaningful way in which they can overcome huge issues. companies dont trust doing business there. workers are not necessarily good. since the ideology really didnt change thre is little trust for capitalism.

as far as the leadership is concerned, any pain suffered to make the end situation as desired is a good (end justifies the means, anything moving towards the end is the only good). so the pain the people are suffering now is not an issue at all, thats not pragmatic, it would be repressive and therefore would limit options, and so create weakness that could be exploited. this weakness not taken up then becomes a strength because other states will be caught up by the weakness. this would change their thoughts to be wrong and so they would be at a disadvantage. their limitiations would only be the imagined limitations for the other. they believe they cant hurt their own, and so they believe the other cant, and if they can they can do things and not be blamed. they can also pretend not to be guilty or have a reason for their lack of guilt. it had to be done, you cant make an omelette without breaking a few eggs.

Anonymous said...

another way to look at this is this: if a family of five is to get $1200 each then they can buy a refrigerator, a plasma tv, a microwave, a dishwasher, a coffeemaker and have money leftover for home improvments

La Russophobe said...


You mean they wouldn't spend it on better healthcare so the father could live past 60? Gosh, that's pretty selfish.

And where will you find this "family of five" in a nation that leads the world in divorce and hates to have even one child, so that parents have to be bribed by the regime?

But we hope you'll tell the people of Russia all about this possibility, so they'll rise up and demand their money from the Kremlin. We doubt however that you, much less they, have got the guts to do it.

Anonymous said...

you are disgusting and so is your reply. i personally know a lot of families of five

La Russophobe said...

We personally know a lot of people who think Vladimir Putin and Mikhail Khodorkovsky should switch places. Yet it's not the status quo, and we can admit that. Apparently, you think your own personal opinions and observations are the same as Holy Fact. That's pretty scary.