Oy. Again.
Not a good day for any market, but an especially bad one for Russia. RTS index was down almost 10 percent. Micex was also down hard. Sberbank is down to around 40 cents again; Gazprom down to $12.50. The ruble, which had rallied last week, has given up almost all of those gains, losing more than 3 percent against the dollar today. The basket is now only 1.1 percent away from the 41 level, putting the central bank on the hook again, forced to choose between burning reserves or raising interest rates. Or maybe to impose capital controls.
Fundamentals are very weak. Brent crude fell over 6.5 percent today, and is hovering at about $40. The Russian government budget process is going painfully slowly, as every day’s news makes previous projections obsolete. Economic forecasts are getting progressively more grim, with the government now predicting a GDP drop of 2.2 percent in 2009, vice its earlier -.2 percent forecast, which in turn had replaced a +1.6 percent forecast (if memory serves). Given the crash in manufacturing, and other evidence that suggests that services are reeling too, I’d put my money on the 2.2 percent figure being revised downwards soon too. Especially if oil continues its drop. That is quite possible given the profound shakiness of European banks, which, in turn are shaky in large part because of their outsized exposures to E. European and Russian debt.
The world economy looks increasingly shaky, and Russia is (due to the oil price and credit channels) acutely vulnerable to further weakening. Rather than being an island of stability, it is a vortex of trouble.
And there are Russian-specific factors as well. I would wager that some of the drop in the ruble reflects increased nervousness over the security of Kudrin’s status, given rumors swirling around in the aftermath of Investigative Committee head Aleksandr Bastrykin’s statements about the criminality current and former Kudrin deputies. There is widespread concern that this shot was really aimed at Kudrin. People can see the dogs fighting under the carpet, but don’t know who is winning. Even if Kudrin survives, such distractions in the face of existential economic crisis hardly provide confidence in the quality of the decision making. That’s hardly a bullish factor for the currency.
Like I’ve said, it stinks to be us; it stinks worse to be European; but it especially stinks to be Russian right now.
The ruble set a new record today dropping down to 36.43 rubles to the dollar. Looks like the Central Bank will have to open their vaults once more. How much money do they have left to spend? Didn’t they cite $60 billion a week ago? [They have to keep the rest of the reserves to cover the massive deficit that the Russian state is incurring]. Didn’t we predict this a few months ago in our discussion as to how the reserves are not a magic talisman and that they will run out sooner rather than later?
Comment by Michel — February 18, 2009 @ 10:45 am
Good memory! Yup, they’re in an awkward position. They have myriad competing demands on the monies they’ve accumulated in the past years: plugging holes in the budget, aiding failing Russian companies, supporting the currency. Problem is, that some of these objectives are contradictory. If they support the currency, they exacerbate the problems many companies are facing. Moreover, and this is the point that is often lost, the country will not have the resources needed to address its fundamental structural needs–infrastructure (not just roads, but rails); health; education; and on and on.
And, the list just keeps on growing. The Moscow Times is reporting that they will have to spend $3.5 billion to help farmers get their crops in: “In an attempt to prevent spring sowing season from turning into spring default season for grain farmers, Agriculture Minister Alexei Gordeyev announced Tuesday that state-controlled banks would provide farmers with 120 billion rubles ($3.45 billion) in short-term loans for spring sowing. The amount is more than double what Gordeyev announced would be forthcoming after a meeting with Sberbank chief German Gref on Saturday, signaling growing concern about a looming crisis in agriculture, which employs about 10 percent of the population.” (http://www.moscowtimes.ru/article/600/42/374626.htm)
I would wager that the Russian state won’t have any money left to give to the farmers by the time their crops are ready to be harvested at this rate.
Comment by Michel — February 18, 2009 @ 11:57 am
I hope they spends $50 billion or more to defend the current ruble depreciation…
Once this reserve money evaporates , the end of the Kremlin will finally be in sight.
I hope is that the Europeans won’t come rescue them.
Some tension have been building between medvedev and Putin and i hope it grows and forces Dmitri to fire Putin…All hell would break loose if that happens.
Comment by Blaze — February 18, 2009 @ 12:44 pm
Yeah, Michel, as a former farm boy;-) you know the sow has only so many teats.
LOL! SWP, you know that I am speaking from experience. My parents and countless generations before them knew that even the biggest bumper crop is worthless until you actually harvest it, get it to market and have somebody willing to buy it 😉 The same off course applies to oil, gas, wood, computers, etc…. But, economics is your specialty not mine, so you know better the deal with this 🙂
Comment by Michel — February 18, 2009 @ 1:08 pm
And, the price of crude just keeps coming down. This form Vedomosti:
Баррель нефти Urals вчера подешевел на 6% и опуÑтилÑÑ Ð½Ð¸Ð¶Ðµ $40 — $39,2.
ПредÑтавители ОПЕК не раз говорили, что $40 — предел цены, которой нефтÑникам хватает Ð´Ð»Ñ Ð¸Ð½Ð²ÐµÑтиций в новые проекты. Ðто нижнÑÑ Ð¿Ð»Ð°Ð½ÐºÐ° Ð´Ð»Ñ Ð¸Ð½Ð²ÐµÑтиций, ÑоглаÑен аналитик «Солида» Ð”ÐµÐ½Ð¸Ñ Ð‘Ð¾Ñ€Ð¸Ñов.
Однако в нынешних уÑловиÑÑ… веÑьма вероÑтно, что цены на нефть упадут до $25 или даже до $20 за 1 барр., Ñчитает аналитик Ðльфа-банка Ширвани Ðбдуллаев, тогда бегÑтво из Ñ€ÑƒÐ±Ð»Ñ Ð¿Ñ€Ð¾Ð´Ð°Ð²Ð¸Ñ‚ ÐºÑƒÑ€Ñ Ð´Ð¾ 40-45 руб./$.
Source: http://www.vedomosti.ru/newspaper/article.shtml?2009/02/18/182327
The price of a barrel of Ural Crude Oil dropped to $39.20 and analysts expect it to go down to $25 or $20 a barrel. That certainly won’t help the Russian deficit, but will ensure that the Russian state burns through those remaining reserves that much faster.
Comment by Michel — February 18, 2009 @ 2:43 pm
Sorry to crash in on this circle jerk guys, but there’s a reason why economists make projections based on long-term trends rather than daily fluctuations. The market is up today, the rub has fallen back below $36, and their reserves are up by $3 billion to $386 billion, which is exactly where they were a month ago.
“Like I’ve said, it stinks to be us; it stinks worse to be European; but it especially stinks to be Russian right now.”
You have successfully boggled my mind once again. With California literally collapsing (people not even being able to collect their unemployment checks), with Chrysler and GM having a 70% chance of filing for bankruptcy and the impending mass layoffs regardless of whether or not they survive, with another new record set at 5 million Americans collecting unemployment and unemployment itself at a two decade high (the highest it’s been since they changed their calculation methods), with 9 million homes in danger of foreclosure (think about that. 9 million families on the verge of losing their homes who need government assistance totaling more money than what the average sized country’s entire economy is worth), with manufacturing and housing collapsing in January to the lowest rates since they started keeping records in the 50’s, with the market nearing bottoms it made back in November, with immigrants (illegal and not) returning home in droves, with the entire country in over 10 trillion dollars worth of debt which will probably rise by a few more trillion this year alone, and with no end in sight…
All this, and all you can talk about is how a commodity price and a depreciating ruble (which is good for exports mind you) is what makes Russia’s economy in so much worse shape. I know you want it to be true, really really badly, but it’s just not. I’m sorry (not really though because I don’t want any country to collapse). I’d probably rather be living in Ukraine, Latvia or Iceland than America right now. The more you deny it, the worse the shock will be when things finally do hit rock bottom in a year or three. I’m not even holding my breath as far as the Canadian economy goes. A depression in most advanced economies is inevitable, that is if it hasn’t already begun.
Comment by Bob from Canada — February 19, 2009 @ 10:09 am
Bob from Canada, what you aren’t getting in this global meltdown, and, yep, it sucks to be here, there and anywhere right now is that OMON won’t be in the streets of Detroit or Washington DC cracking the skulls of economic protestors. (We had protests in Denver and Mesa, AZ this week so far.) That’s most likely shaping up in Russia as Putin’s siloviki bunker in. There is more to Russia than it’s economic bad shape.
And, I don’t think there are anymore Americans in denial than any place else. Hey, at least we have a free media reporting on the economy. Russians don’t even have that.
“Sorry to crash in on this circle jerk guys”…..crude, Bob, crude. You can do better than that.
Comment by penny — February 19, 2009 @ 11:21 am
Bob:
Your ignorance is showing. Uhm, are you an economist? You assert “economists make projections based on long term trends.” You make this assertion with respect to oil prices. Just what long term trends are you thinking of? The one that was going to take oil from $140 to $200 to . . . the sky? That trend didn’t last long, did it?
There is no evidence–zero, zip, zilch, nada–for long term trends in commodity prices, oil prices included. Anyone, economist or no, who makes prognostications of such trends, or bases conditional predictions on the assumption of such trends, is being quite foolish. Oil prices, like most other commodity prices, are to a first approximation a random walk. Such series exhibit what are called “stochastic trends,” which is a geek speak way of saying that the series is highly persistent, thus giving the appearance of a trend, even though there is no real trend in the data because the “trends” that seem to exist to the eye change randomly. Lots of people have lost lots of money betting on “trends” that just ain’t there. Like the joke I tell my students: “Want to make a small fortune trading commodities? Start with a large one.”
Now, from a theoretical perspective, commodity prices should be “mean reverting,” rather than a true random walk, because equilibrating behavior (i.e., entry when prices are high, exit when prices are low) tends to bound prices (whereas a true random walk is unbounded). However, this force is so weak that it is very difficult to detect even in data series that are decades long. Thus, these predictable elements of price movements that arise from mean reversion are so swamped by the noise of daily/weekly/monthly volatility that they are useless for the purpose of prediction.
The point is, even to the extent that one would expect, over some time horizon, prices to mean revert, Russia’s problems are so pressing, and its vulnerability to low oil prices so acute, that it cannot take any solace from that. It’s not even an “in the long run we’re all dead” issue. Unless there is a rapid rebound in oil prices, the Russian economy won’t survive the short-medium term without a wrenching collapse. And, as Penny notes, the political ramifications of that are potentially quite dire.
And, I should note, that bloated inventories of oil will make any sharp rebound highly unlikely.
Thanks for the whataboutism Bob! I knew I could count on you.
It’s actually pretty basic. Russia has (a) far fewer policy degrees of freedom than the US; (b) an institutionally and structurally weaker economy; (c) a lower starting standard of living; and (d) a “beta>1” (i.e., strongly pro-cyclical) economy due to its dependence on raw materials, meaning that its economic fate is very sensitive to global economic conditions. That’s not a good hand to play. Period.
We’re in agreement on something. I’d rather you live in Ukraine, Iceland, etc., than the US too;-)
And apropos your vulgar characterization of the discussion on this site, all I can say that it’s a lot more sociable than playing with yourself. And you can take that any way you want.
I find it interesting that your entire post pretty much ignored the main point I was trying to get across, which is regarding the present state of things. What this says to me is that you’re still in denial about the US economy. You can go on about oil prices all you want, and how Russia’s economy is going to collapse soon despite things presently looking pretty average for a recession, but show me 9 million Russian families who are in danger of being kicked out of their homes due to unpaid, un-payable bills. I bet you couldn’t show me 9 thousand. Were there any Oblasts unable to hand out tax returns like Kansas? Unable to pay unemployment like Cali? (The 7th largest economy in the world, Cali is a big deal). Who is Russia’s GM/Chrysler, staples of the economy on the verge of bankruptcy? You want a good example of “whataboutism”, look no further than your comparison of the US to Europe and Russia. “Oh, well it’s bad here, but at least we’re doing better than them!” But you’re not…you’re fantasizing and making insane predictions like some sort of conspiracy theorist. You’re saying things that can’t be refuted any more than one could refute claims that the world is going to end in 2012, or in other words, all you’ve got in your arsenal is circumstantial evidence. Stop ignoring the facts. The visible, undeniable facts surrounding the present state of the economy.
re economist projections, you completely misunderstood what I was getting at. I feel somewhat let down because the bulk of your post was based on this misunderstanding! I was talking about past trends, not future. An economist bases his projections on short-medium term PAST trends (which includes everything from macroeconomic data, commodity prices, currency trends etc..) and they ignore daily fluctuations as best they can. If the market goes up for a week then loses half those gains the next day (same applies to commodities or currencies) that doesn’t make even the slightest bit of difference on your long term projection. My point was that you can’t be making new blog posts about the impending collapse of the economy every time oil prices fall $3 in one day, or the currency falls by a dollar, or the market plummets, because by the time anyone reads it, it’s likely they’ll already have started a rebound, as they have in this case. You’ll never hear an investor come out one day screaming “The DOW fell 500 points today, start stocking up on rice ASAP we’re all doomed!!” That’s just ridiculous, but it’s exactly what you’re doing.
“the Russian economy won’t survive the short-medium term without a wrenching collapse.”
Why is it that the only people who say this are unprofessional bloggers and forum goers who would love nothing more than it to be true? Why no credible economists without political motives or bias, professionals, IMF, World Bank etc..? You’d think Moody’s would downgrade Russia from investment class to junk, at the very least.
Comment by Bob from Canada — February 19, 2009 @ 1:49 pm
Bob from Canada, I would like you to show me 9 million families who even own their own homes in Russia.
Or maybe even 9 thousand. I’m not talking about Khrushchkovkas, or little hovels, or little apartment units that someone living in the US or Canada bought his Russian wife’s parents.
I’m talking about real homes.
Don’t count the oligarchs who stole everything, and who robbed Russia blind.
For that matter, show me a reliable Russian source for home ownership in Russia.
Comment by elmer — February 19, 2009 @ 2:06 pm
Bob, I didn’t call you a name. I used a couple of adjectives to describe you but assign you a specific and childish name? I did not.
Uhhh…if that was supposed to be a joke, the joke’s on you.
Ugh. You know a link would have sufficed. And how the heck does that article relate to a debate about economic health? If you keep changing the subject every time you can’t think of a direct response it doesn’t make you any less wrong. It just helps confirm my suspicions that you’re some sort of crazy, obsessed fanatic who can’t help but to lash out and spew verbal diarrhea all over the place at the though of your fantasies being, well, just fantasies.
But back on the topic of intellect, if you’re any indicator of the type of people who frequent this blog, which is becoming increasingly evident with the fact that each new comment displays examples of name calling, attempts at belittlement, rampant hostility and straw man arguments, you may be glad to learn that I probably won’t be sticking around much longer.
Comment by Bob from Canada — February 19, 2009 @ 3:06 pm
Bob, “But back on the topic of intellect” negated your own with your paragraph above it. You cherry pick data that like nailing jello to a tree isn’t working out for you. Stop while you are ahead.
Comment by penny — February 19, 2009 @ 3:26 pm
Cherry picking? Did I miss any important economic indicators? If so feel free to point them out.
Comment by Bob from Canada — February 19, 2009 @ 4:59 pm
Bob,
You write: “I find it interesting that your entire post pretty much ignored the main point I was trying to get across, which is regarding the present state of things. What this says to me is that you’re still in denial about the US economy. You can go on about oil prices all you want, and how Russia’s economy is going to collapse soon despite things presently looking pretty average for a recession, but show me 9 million Russian families who are in danger of being kicked out of their homes due to unpaid, un-payable bills. I bet you couldn’t show me 9 thousand.”
You must be kidding right? The fact of the matter is that many thousands of Russians risk losing their apartments. These are the mainly young families who borrowed money to buy apartments or rooms and risk losing their homes if they lose their jobs or if the bank forces them to pay much more because of a devalued ruble and/or higher interests rates. True, the proportion of Russians who have to pay for a mortgage is much lower in Russia as most people are still living in the apartments/rooms they inherited from the Soviet Era. These people will, however, be hit hard by inflation, lower wages and higher costs for utilities. They may have to choose between food and electricity and if they do not pay their utilities or “kommunalnie uslugi” they risk losing their homes as well.
Also, you must keep in mind that the greater the crisis in the United States, the worse the crisis will be in Russia. The rationale is quite simple: the worse things are in the United States with unemployment and a shrinking GDP, the less oil and gas that will be consumed, and the lower the price of oil will fall globally. Given the present state of the Russian economy, the lower the price of oil falls, the harder the hit on the Russian economy.
Comment by Michel — February 19, 2009 @ 6:48 pm
Michel, worse, in Russia a recent legislation has criminalized debtors. English Common Law ended that a long time ago. We don’t do jail time for debt or bankruptcy.
When you scratch Bob who uses cherry picked stats that are unsupportable in the big picture like Timothy and DR ambling through here before him he’s really defending the regime. Any moral thinking person would be cheering this event to maybe bring the collapse of the Putin regime.
Comment by penny — February 19, 2009 @ 7:59 pm
You are right, Penny, the legislation is in place. Also, if someone has debt, they also risk being denied exit from Russia. There are a growing number of cases where people were not allowed to leave Russia as they were stopped at passport control.
Comment by Michel — February 20, 2009 @ 8:52 am
DR, what’s up with you? I take it that it must be difficult to be a russophile these days. Now you are acknowledging the suffering of ordinary Russians in Russia and are willing to concede that Putin’s Russia is not quite the Utopia you sought to portray?
Comment by Michel — February 20, 2009 @ 11:29 am
Well, Da Russophile, Russia is moving towards a “Green Communism” of sorts. Let’s see:
1. You write: “the unsustainable impacts of economic growth on the global environment and natural resources.” Russia’s economy is now contracting (no economic growth) and they are not investing enough in production to ensure sustainable growth in natural resources production which is good for “Green Communism”;
2. The Oligarchs are getting poorer (one is even going to have to forfeit on his $500 million villa in southern France, so you will have an increasing proletarization of the population under the vanguard (Putin’s FSB, Nashi et al.);
3. Too many people is bad for “Green Communism” and with the decline in the economic prospects of Russia, fewer children will be born, thus leading to fewer consumers and a greener Russia;
4. At this rate, the state will soon everything as companies will go bankrupt, thus achieving another goal of Communism–state ownership of the means and modes of production;
5. Given that Russia’s much vaunted “Middle Class” will soon wither away, more Russians will be growing their own potatoes instead of importing them from Belgium, which will be one more boon for Green Communism;
Given all that is happening in Russia, soon you will be able to live the dream 😉 So, when will you return to Russia to to start a commune/collective farm/neo-peasant village to live by the principles of “Green Communism”? [Yes, I am being tongue in cheek and somewhat sarcastic here 🙂 ]
Comment by Michel — February 20, 2009 @ 2:37 pm
PS: Dear DR, you wrote: “@michel, Where to start? OK, please quote me where I portrayed Russia as a “utopiaâ€. I’ve made lots of posts here so must be quite easy, right??”
I didn’t have to search all your posts, just the first page of your website where you write:
“Our Antithesis: Russia is a normal country with a booming non-hydrocarbons economy underpinned by a well-educated and secular workforce. The Putin administration has affirmed democratic values, worked to improve human rights and pursued Russia’s national interests abroad.”
Your very description of Russia is Utopian. Who, besides you,Bob and Timothy, after having seen the facts and having visited the real Russia far from a handful of cities where the wealth is concentrated, actually believe that Russia is a normal country with a booming economy? For most Russians, achieving your description of Russia would already be Utopia 😉
Comment by Michel — February 20, 2009 @ 2:51 pm
rytb,
Where Gaddafi comes into this I think only you know.
michel,
Funny post. 🙂
Comment by Da Russophile — February 20, 2009 @ 2:52 pm
Re-utopia.
Since there’s just one dominant thesis in the Western information space (“the Western media tells us Russia is in a death spiral, its economy is one giant oil bubble, suffers from endemic corruption,
inequality and lawlessness and is presided over by a KGB kleptocrat dead-set on resurrecting the USSR and launching Cold War II”) there needs to be a contradiction to it, an ANTITHESIS, so as to allow the process of sublation, and transformation/synthesis to a higher level (of understanding Russia, in this case), to occur. By providing the antithesis I am contributing to furthering historical progress, at the occasional cost of abuse and invective. A bit like Jesus Christ, in fact.
Comment by Da Russophile — February 20, 2009 @ 3:03 pm
Hey, DR, your Communist buddies in China and Russia aren’t doing such a hot job in managing the environment are they. Communism and a protected environment just may be an oxymoron. You also sound like a moronic luddite. What kind of a ridiculous utopian Brave New World would restrict technology and private enterprise to surf shops and restaurants. But, at least you are more progessive than Fidel Castro. How’s the quality of life working out there? My son-in-law’s parents left Cuba with the shirts on their backs by boat decades ago. I guess the surf shop shortage got to them. Oh, and, there are Cubans that have risked their lives getting to Miami on rafts not much bigger than surf boards. We will never know how many perished.
You “can’t be bothered” to “troll” Google for supportive facts, but, you do have time to monitor comments here and respond. I would think “Green Communism”, even though I realize it’s only been a six month foray for you, requires a little more effort on your part. You can do better than that.
Comment by penny — February 20, 2009 @ 3:14 pm
1. My “communist buddies” in China and Russia (lol) focused on expansion of industrial output as key criteria of fulfilling the plan and left ecological effects out.
2. As late as the 1970’s in many Western countries the state owned the “commanding heights” of the economy (banking, steel, etc).
3. I’m working on a computer and there’s these real useful things called feed readers.
4. Remind me plz, where I expressed support for mass extermination?
5. Could not your callous indifference to the specter of a human die-off be classed as support for extermination.
6. I am planning to write a book, actually. I’ve got a plan and stuff. Over the summer if things work out. I’ll let you lot know, maybe even send a signed copy or two. 🙂
Comment by Da Russophile — February 20, 2009 @ 4:47 pm
DR–This is for you!
SWP, look, I understand your post about the economic fundamentals.
The comments seem to have veered away from it somewhat, to the point that I HATE YOU (just KIDDING).
You’re not going to believe this, but “Hotel California” was actually on the “approved” list during sovok times.
Everywhere you went in hotels (in the sovok union way back when), over and over and over and over again you heard – “Hotel California.” People on the street and everywhere else would ask about “Dook Ellingtooo” (also on the “approved” list) or “Michael Jeckson” (not on the “approved” list) and others.
I grew to HATE the song.
All because of the stupid sovok union!
I’m still waiting for Bob from Canada to come up with reliable home ownership figures for Russia.
There are more Russian oligarchs in Londongrad that own mansions than there are people in Russia who own actual homes.
Even the mayor of Maskva owns a mansion in Londongrad.
I can provide the link, if it’s necessary.
Comment by elmer — February 20, 2009 @ 11:53 pm
Elmer–
LOL. Don’t worry, I won’t take it personally. And I’ve learned that the comments go where the comments go–they take on a life of their own. For the most part I just sit back and watch in amazement.
I don’t know if you have followed closely enough to understand in the inside joke re Hotel California. DR kept threatening that he wouldn’t comment anymore, but then keeps coming back. So, I said this was the Hotel California of blogs; you can check out, but you can never leave.
Re the song itself, I never really liked it, and I didn’t have as good a reason as you;-)
I look forward to seeing stats too!
Hey, Penny! You said you are in clinical psych. Could you read comment #33 and give us a diagnosis? My guess would be narcissistic personality disorder/delusions of grandeur. LOL.
Bob:
A. Here’s your original statement: “economists make projections based on long-term trends.”
B. Here’s what you say you meant: “I was talking about past trends, not future. An economist bases his projections on short-medium term PAST trends (which includes everything from macroeconomic data, commodity prices, currency trends etc..) and they ignore daily fluctuations as best they can. If the market goes up for a week then loses half those gains the next day (same applies to commodities or currencies) that doesn’t make even the slightest bit of difference on your long term projection.”
There’s no way that one could reasonably infer that A really means B. You remind me of the Congressmen who revise the remarks that they deliver on the floor for publication in the Congressional Record.
And by the way, you persist in characterizing, in an extremely authoritative voice what economists do. And your basis for such presumptuousness is what exactly? I can say, with some authority, that your characterization is not universally true, by a long shot. At best, it describes the MO of “economic forecasters,” including those that use big econometric models to make forecasts. Big model econometrics had its day in the 60s-70s, and has been pretty much a backwater since. Economic forecasting is a marginal part of the profession at best. I had an interest in the subject when in grad school in the 80s, but soon realized that it was intellectually dubious, and practically useless, to be kind.
In fact, since financial prices embody information from millions of individuals, they tend to be much better predictive tools than the factors you mention. You give me the S&P 500 index, and I’ll do better at forecasting economic activity than you would if I gave you historical macro statistics out the wazoo.
The oil price, ruble rate, etc., are similarly better metrics for evaluating Russian economic prospects than the “forecasting” tools you advocate.
The short term oil price is critical to the near to medium term prospects of the Russian economy. As to bouncing back, again you miss the point. Due to the random walk nature of speculative prices, including the price for oil tend to be persistent.
Re “unprofessional.” What’s your profession?
Re denial about the US economy. Have you paid the slightest attention to my posts about the financial crisis, the stimulus, etc.? The US economy is a shambles, but if you think the Russian economy is better you’re nuts. Energy/natural resource intensive economies are inherently more intensely procyclical than the world economy. They tend to exhibit more volatility in economic performance. The ups and downs are more intense than those of the US/Europe. Period. Full stop. That’s Russia, son. What’s more, it has an extremely weak institutional foundation. Moreover, Russians have a lot fewer holes in their belt than Americans.
Lastly, I have to mock you for your invocation of Moody’s. I would be hardpressed to identify a more discredited (pun intended) source than the rating agencies. Buy any AAA rated CDO’s Bob? How are those working out for you?
The rating agencies are in many respects a regulatory creation. Their ratings are pretty much useless as a predictive tool.
In fact, rating agencies are pretty much like the crime scene unit guy who draws the chalk line around the dead body on the sidewalk. They usually just ratify/acknowledge what has already happened.
Mr. Market is a far better indicator. Here’s a link that shows that Russian sovereign debt is trading at huge spreads. It is essentially trading at junk. Yeah, it’s not Ukraine or Latvia, but it’s trading at a far greater spread than Moody’s or Fitch’s or S&P’s current rating would imply. It is also trading wide of other natural resource intensive economies (e.g., SA in this chart, but it is also way wide of Brazil, for instance.)
My mistake I quoted the wrong person. But, yes, of course it’s the people living in those homes who own them. 50% of the national housing stock was privatized in 1992 when the state duma passed the Federal Housing Privatization Law, legally passing ownership of the homes to their occupants. Nothing has changed since then, except the number has grown to 70%. Or wait, let me guess.. Putin and his KGB crew are the ones who really own them.
Comment by Bob from Canada — February 21, 2009 @ 6:22 pm
Professor, I did indeed get the inside joke – nice touch.
Bob from Canada, nice try, but your source points out exactly what I pointed out – no fair using apartment units, Khrushchovkas, or hovels.
Plus, your source is from 2007 – not 2009.
Now, I take your point – nationalizing the Bank of America is not something that is really in the American ethos, except for a few lefties. It remains to be seen how this plays out.
But in Russia, the largest companies, under Putin’s “managed democracy,” have been nationalized. Gazprom, for example, is owned slightly over 50% by the government. Hence, the use of Gazprom as a political tool.
And those companies are definitely not holding the Russian economy together.
In fact, the Russian government just tried to impose huge auto tariffs on imports from Japan, to “protect” the domestic auto industry.
That’s not Russian companies holding the Russian government together – that’s simply protectionism from the Russian government.
It led to demonstrations and riots in Vladivostok, and signs like “Pootler kaput.”
Comment by elmer — February 22, 2009 @ 12:26 am
For the record (lol), I do like the song. However, I did say that I’d make exceptions for when I’m specifically called out. Penny did it in #23 “When you scratch Bob who uses cherry picked stats that are unsupportable in the big picture like Timothy and DR ambling through here before him he’s really defending the regime”, hence I weighed in.
Also, the reason I stayed to flaunting my delusions of grandeur instead of properly responding to the call to providing stats on Russian home ownership was because I anticipated elmer’s exact response – “no fair using apartment units, Khrushchovkas, or hovels”. If you’re given such unfair conditions for defining home ownership then the entire exercise is pointless, since most of Russia’s housing stock is in one of those categories.
What he doesn’t seem to realize is that the US is pretty unique in having a vast suburban housing stock, which is made possible by such factors as it’s relatively low population density coupled with a nice climate; traditionally cheap fuel (which is now coming to an end); and a government committed to subsidizing this ostensibly idyllic but in reality somewhat artificial middle-class lifestyle. If you were to travel around Germany, France or Japan, one would realize that having lots of McMansions is not necessarily a hallmark of a developed country.
Secondly, I object to the derogatory tone in which elmers refers to Russian apartments. In reality as is usually the case with any accommodation, how palatable it is depends on the inhabitants. The apartments of alcoholics tend to be dirty and unpleasant. On the other hand it is fully possible to have very nice apartments fitted with modern appliances and artworks (which are much cheaper in Russia), with easy access to cheap and efficient mass commuter systems. And of course a lot of Russians have a second home (a dacha) in the countryside, some very nice, some indeed like hovels.
Then again his designation of “hovels” make me strongly doubt elmer has ever been to a real Third World country, where significant numbers of people DO live title-lessly in real urban slums
http://commons.wikimedia.org/wiki/File:Urban_population_living_in_slums.png
Comment by Da Russophile — February 22, 2009 @ 2:00 pm
I see. The “calling out exception.” Duly noted. Reminds me of the Monty Python argument sketch: “I could be arguing on my own time.”;-)
Come to think of it, my colloquy with Bob sort of reminds me of that sketch too.
But, ahem, nobody called you out on “Enron on the Moskva”, yet there you are. A brief comment, admittedly. But you just can’t keep away, can you? LOL.
Plenty of room at the Hotel California
Any time of year, you can find it here
Later. I’m sure of it.
SWP
Meh I only said it because the Russophobe cyber thugs (they know who they are) annoyed me too much that day. I like commenting here, the main problem is going off into long tangents which I will work to avoid from now.
Comment by Da Russophile — February 22, 2009 @ 5:57 pm
Not counting Khrushchovkas and such is indeed entirely reasonable, for the reason that that since people got them for “free,” and did not purchase them, there is no analogous situation.
To put it differently – If one purchases an actual home in the US, with a mortgage, and it has the average 3 bedrooms, 2 and 1/2 baths, with garage, and yard, how is that even remotely analogous to having received a little Khrushchovka for free?
It isn’t.
One needs to compare apples to apples, and oranges to oranges.
Not homes to hovels or Khrushchovkas, in order to reach some sort of false conclusion that living in a little Khrushchovka in Russia is preferable to going through a mortgage foreclosure in the US.
And using 2007 statistics from a non-government source that is trying to market its services is not quite germane either.
Comment by elmer — February 22, 2009 @ 6:03 pm
When it comes to Russian housing, one of the problems is that Russians are tied to the apartments that they do have, and the crisis will only make things work. If we look at the North American housing market prior to the subprime mortgage mess and housing bubble, one of the advantages was the relative ease with which Americans and Canadians could sell their house and move to another part of the country. True, some markets were more expensive, but not outrageously so. It is possible for a family to sell their house in Kansas and still buy something in New York. Yes, maybe it would be a bit smaller and a bit farther away from work, but most could make it work.
Let’s compare this to Russia. Let’s say you are living in a nice apartment in Russia, the kind that DR describes, but it is located in a small town in the Russian North or Far East. How much do you think you would get selling that apartment? What would that get you in Moscow? Well, odds are quite well that an apartment of comparable size and quality will likely be 10 or 100 times more expensive in Moscow.
This of course will discourage any kind of mobility within Russia. This, of course, distorts the Russian economy adding IMHO inefficiencies that hamper economic growth and maintain economic inequalities within Russia.
Comment by Michel — February 22, 2009 @ 10:00 pm