Before the Judge turned on the camera I told him that I was irritated with him because he interfered with my writing on Monday night. He reacted with surprise and asked, “What did I do?” I told him my son was texting me while I was writing insisting that I needed to watch the Judge’s live appearance on Newsmax TV and that was a distraction. This elicited a hearty belly laugh (which was my intent). Just to point out that the Judge, by virtue of his past legal career, was in much demand to provide commentary and analysis on the bogus indictment of Donald Trump.
Anyway, we met virtually today to discuss my latest article analyzing how the war in Ukraine is likely to end. The Judge, fresh off a live hit doing his expert pundit thing, switched roles a became the expert interviewer.
Alleged chaos in the Russian economy is the latest glimmer of hope by the West that Russia is on the brink of economic ruin. The New York Times reported today in an article, Drastic Economic Moves Highlight Russia’s Wartime Bind, that:
On Tuesday, the bank’s long-serving and widely respected chief, Elvira Nabiullina, moved assertively again, announcing the third-largest interest rate increase in a decade to shore up the national currency, the ruble, and dent rising inflation. Yet, this time, her aggressive moves had little immediate effect on the markets.
The central bank’s actions underlined the perilous moment facing Russian economic officials as they try to contain the seismic forces unleashed by President Vladimir V. Putin’s invasion of Ukraine. The war has left policymakers with a seemingly impossible set of tasks: maintaining economic stability while financing the war machine and coping with Western sanctions; taming inflation without pitching the economy into recession.
The bank raised the benchmark interest rate by 3.5 percentage points to 12 percent. High interest rates raise the cost of borrowing, inhibiting spending. That, in turn, slows economic growth and can curb inflation. But political considerations can push in the opposite direction, for low interest rates that stimulate spending and keep the economy moving.
The ruble recovered modestly after the announcement; after falling to 100 to the dollar on Monday, it reached 97 on Tuesday.
There is a questionable assumption built into the NY Time’s report — Russia’s economic health depends on being able to pay for the import of foreign goods. Yet, thanks to Western sanctions, Russia’s imports of foreign consumer/luxury goods has retreated without any noticeable decline in the Russian standard of living. In fact, Russia is now ranked as the fifth largest economy in the world by GDP in terms of purchasing power parity (aka PPP):
Russia’s’ performance has destroyed the meme that Russia’s economy was a gas station masquerading as a country. It has achieved this despite a 50% decline in trade with the countries of Europe.
Even before sanctions were imposed, China was Russia’s largest trading partner. Against the Yuan, the Russian Ruble declined almost 20% over the last six months. Yes, this has a potential inflationary impact on Russian consumers, but the cheaper Ruble provides a bit of economic help to China, whose economy is struggling. The fall in the value of the Ruble means that China can purchase much needed oil and gas while spending less money.
I am more sanguine than the New York Times about Russia’s economic prospects. The war has stimulated a vast acceleration in Russia’s production of all things military. This is going to heat up the economy. Because Russia is self-sufficient in food and energy — the critical expenses that can hurt a family — the negative consequences of inflation are likely to be muted when it comes to the Russian consumers.
I think the economic analysis proffered by the NY Times is based on the assumption that Russia remains vulnerable to Western economic pressures. That is no longer a valid benchmark. During the last 18 months Russia has been busy forging new economic ties with non-Western countries and establishing new trade dynamics.
At home, Russian workers have seen wages increase and Russian factories are struggling to keep up with demand. Instead of shuttering factories, Russia is building new ones and stepped up dramatically its production of tanks, combat aircraft, cruise missiles, hypersonic missiles, artillery ammunition and military vehicles. Russia enjoys one advantage the West does not — it is virtually self-sufficient in essential commodities, rare earth minerals and energy.