Posted on 10/29/2024 12:29:28 PM PDT by marcusmaximus
Vladimir Putin has admitted that sanctions on Russia and worker shortages have contributed to economic turbulence in the country.
The Russian president made the comments days after Russia's Central Bank raised its key interest rate to a record 21 percent—higher than the emergency 20 percent level introduced in the aftermath of Putin's full-scale invasion of Ukraine when facing Western sanctions and isolation from the global financial system.
-snip-
Russia's economic growth has been fueled by record levels of military spending but a lack of workers exacerbated by troop losses in Ukraine and a brain drain of those avoiding the draft, have fueled inflation which the Central Bank has tried to curb.
(Excerpt) Read more at newsweek.com ...
Do they have irony in Russia?
“Russia has its own Central Bank, just like the Fed. To date it has printed far less money than QE over 10 years accumulated.”
That is far from true. Russia expanded their money supply comparably to other major countries during COVID, but unlike The USA, EU, Japan and others, it continued printing even more aggressively since February of 2022, while the USA and other major economies actually contracted their money supply (M2) a few percentage points (3% in the USA).
Russia however, has been expanding its M2 money supply at rate between 15% to 25%, ever since the Feb 2022 invasion (17.9% annual rate in the month of September 2024, as of the Bank of Russia’s last published report). (https://cbr.ru/eng/statistics/macro_itm/dkfs/monetary_agg/ ) That is why inflation has moderated in the West, while it is accelerating in Russia.
That inflation is why the Bank of Russia hiked their base interest rate to a whopping 21% at their last meeting (200 basis points in one go), and their Central Bank Chief indicated another likely rise at their next. These are crisis levels for the benchmark rate. Retail consumer and business loans must be several points higher for banks to profit, and currency swap loans for businesses that need foreign currency to settle trade transactions, are now over 35%.
Inflation from excessive money printing is baked into the cake in Russia for at least the next year or two, even if they stopped printing today (which they can’t, due to war costs).
Russia has been buffering its need to print even more rubles by raising taxes (first on the oil and gas industries to near Nationalization rates, and now broadly on individual and business income). The flat tax system (a hallmark of Putin’s early economic reforms) has been scrapped for the coming year, replaced by higher progressive taxation rates.
They have also been buffering their need to print even more rubles by cashing out assets from the National Wealth Fund - but that option, like increasing taxes further on oil and gas revenues, is running its course. The most liquid assets in their Nation Wealth Fund are mostly already spent, and they are over halfway through their gold (according to their public reports, which likely understate how much they have sold, to keep their borrowing rates lower).
No one is buying Russian Government bonds anymore (not China, not India, not Russians - no group of consequence), so they can’t borrow their way out, even domestically. Investors don’t want to risk holding ruble-based assets, when that currency is overdue for a big drop in value, due to printing that has been done.
The market for Russian debt has crashed this Summer, and the majority (2/3rds) of the bonds they offered in June (even at very high rates) went unsold - the quantity offered was not greater than usual, demand for them has collapsed. The latest offering was recently withdrawn, with reportedly even lower demand.
Russia passed a budget for next year that increases their Military and Domestic Security spending even more than they have in the last few years. With their other means of buffering this spending having been significantly depleted, it is likely that ruble printing will have to accelerate fairly sharply in 2025 to maintain the pace of Military spending on the war. Hyperinflation and currency collapse are real and growing risks in Russia.
“Russia has its own Central Bank, just like the Fed. To date it has printed far less money than QE over 10 years accumulated.”
>>That is far from true. Russia expanded their money supply comparably to other major countries during COVID, but unlike The USA, EU, Japan and others, it continued printing even more aggressively since February of 2022, while the USA and other major economies actually contracted their money supply (M2) a few percentage points (3% in the USA).
>>
How can I say “over 10 years accumulated” and then you reply that it’s not true and start talking about an entirely different timeframe? It is true. I specified the timeframe. You can specify your own, but not when replying.
In fact, we can widen the timeframe to make it even more clear.
Go all the way to the 2007 worldwide financial crisis. Add up the newly invented QE. 17 yrs of QE. You can use dollars if you like, or you can use any other currency unit as a % of GDP in that currency unit. It’s not even close, and I suspect you know this. QE is what it is. It’s not escapable.
As for M2, you will need to do some study since the M2 definition in Russia differs from the US definition.
There is no law of the universe, btw that says inflation derives from money supply. It’s profoundly claimed by the world of Economics, but there are zillions of exceptions. In fact, let’s look again at 2007 onward, when interest rates were zero and, indeed, below zero (specifically Germany), inflation was modest though not zero (essentially impossible).
But of course it is possible. It is a substance created from nothingness. No rules need apply.
I refuse to grant him credibility - as you noted, "and then you reply that it’s not true and start talking about an entirely different timeframe".
It's his whole schtick on FR.
So in a ten year timeframe, US M2 money supply less than doubled (11.5 to 21..2), while Russian M2 more than tripled (30 to 106).
Since 2007 US M2 roughly tripled, while Russian M2 increased twelvefold, from 8.7 to 106
https://fred.stlouisfed.org/series/M2SL
https://tradingeconomics.com/russia/money-supply-m2
What is happening now (since the 2022 invasion) is worse for Russia, than even those timeframes, not only because because the rate of change is so high, but also because they are inflating while the major economies are moving in the opposite direction, further widening the gap in real value between the ruble and the hard currencies of the world.
When everyone was reacting similarly to the 2008 financial crisis or COVID, relative value was not impacted as much, but flooding out new rubles while the major currencies supply is restrained, is having the expected effect on the value of the ruble, and the risk premium that investors put on that currency.
Funny that you should mention butter - inflation in the price of butter is currently an issue in Russia.
Guy, you’re changing the stripes again.
I said over 10 years accumulated . . . QE. I specifically said QE. I didn’t say anything about M2. This is something somehow interesting to you.
US GDP from 2007 (which is measured in dollars aka M2) to now is 14 to 29 Trillion. This was not capitalism. This was accumulated deficits and since we all know (or one would hope you do) that
GDP = C + G + I + (exports - imports) we see that government spending (which generates debt after taxes) is the source of that 14 —> 29T. The debt over that time frame 10 to 36 Trillion. The GDP came from debt. We borrowed our way to GDP, which of course, pretty much everything gets divided by to quote XX to GDP ratio.
Russia? GDP 2007 1.3T (in dollars, which is a suspect measure but the easiest for me to find). GDP today 2.2T.
Debt increase? 2007 112 billion (dollars). Today $392B. That $0.9T GDP gain was achieved with nearly no debt increase.
Compare and contrast.
As for the horrors of military spending, no law of the universe says the GDP equation above shuts off in time of war. You can military spend your way (G above) to GDP.
This has always been the reality of military spending. That money is salaries. Taxes are paid on those salaries. What do they get in return for the spending? Weapons.
What do we get? Gov’t subsidies.
This is why the correct measure is calories. Or joules. Those defy QE definitions. Or differing M2 definitions.
You don’t say! 😱
“I said over 10 years accumulated . . . QE. I specifically said QE. I didn’t say anything about M2”
Actually, your point was about how much money Russia was printing, relative to the USA. (“ To date it (Russia) has printed far less money than QE over 10 years accumulated.”)
Quantitative Easing (QE) was simply a name given to the program of expanding the US money supply. It is just a euphemism for printing more money (expanding dollar supply).
M2 is simply the most widely used measure of money supply.
Over your favored timeframe of the last 10 years, Russia in fact printed more money (proportionally) than did the United States (of course the US is a much bigger pie, either Texas or California alone has a bigger GDP than Russia). Also over the other timeframe you mentioned (since 2007) - Russia printed a lot more aggressively, in percentage terms, accumulated over either of your timeframes.
Since COVID (during its full scale invasion of Ukraine) Russia has been particularly out of step with the world economy, in rapidly printing new money (I.e. expanding the total pool of rubles in circulation, most commonly (and most meaningfully) measured by M2).
More rubles chasing the same goods and services, results in people bidding up prices (inflation). Not just in theory - prices on the grocery shelf increased rapidly for a while after we printed excess money during COVID, and the rises slowed after we slowed the COVID printing. Russia is still printing, and they are still seeing food prices rising (like the butter Allegra mentioned). Russians are seeing roughly 25% per year food inflation now, on average.
“You can military spend your way (G above) to GDP.”
Yes, that’s true. That is what Russia is doing now (minus their Military activity, the rest of their economy is contracting). That is also what Hitler did. In 1944, Germany had the fastest growing GDP in Europe. Like Putin, they printed money, and then used it to buy things that they promptly blew up.
The term “Guns vs. Butter” is often used to highlight the relative economic value of different forms of spending/investment. Debt is not bad in and of itself. It can make you richer if you acquire appreciating assets, like owning your home through a mortgage, or starting a successful business, that profits more than the cost of the interest. The big problem with what Putin is doing, and what Hitler did, is that good money is wasted (malinvested) in things that provide no return on investment.
Yes, GDP is increased in the quarter where you buy a million artillery shells. But after they are fired, the value of that money ceases to contribute anything further to growth. It is a bonfire of money that could be used more productively elsewhere. Russia is rapidly spending their savings and going into hock, to buy things they promptly destroy, and to pay people big bonuses to die or become disabled. Economic potential wasted.
Many people are not aware that the current buildout of American manufacturing plant and equipment is twice as much as during WWII. A lot of reshoring is underway from China since the first Trump term and COVID, and Government is investing heavily in enabling infrastructure. These projects are typically 5-10 year efforts, or longer, that require stable debt financing.
“Quantitative Easing (QE) was simply a name given to the program of expanding the US money supply.”
Don’t you even look this stuff up? Are you just imagining?
Per . . . everyone . . . QE is a term used to describe a central bank buying government debt. The purpose is quoted to be stimulus of GDP.
Money supply is nowhere in that. In fact, I’ll quote the wiki:
Quantitative easing (QE) is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity.[1] Quantitative easing is a novel form of monetary policy that came into wide application after the 2007–2008 financial crisis.[2][3] It is used to mitigate an economic recession when inflation is very low or negative, making standard monetary policy ineffective.
Note that buried in the Wiki text, unless it was extracted by now, is / was a blurb that says
Central bank buying of government debt is monetizing that debt. Buying government debt is also precisely what Quantitative Ease is. The actions are identical. The only difference between the two is when the central bank says it is being done to stimulate GDP.
I would not be surprised if that was extracted by now.
Identical actions. One becomes in some manner respectable if the stated purpose of the action is different (and precisely no one ever says they are monetizing debt).
At least understand the terms.
Inflation in general is a description of urgency. The buyer is more urgent than the seller. This can exist regardless of money supply.
Sure they are, BooBoo.
Methinks that The Russia isn't spending more than $1 trillion this year on interest payments on its debt...
No sale, Wimpy.
>>>>inflation in the price of butter is currently an issue in Russia.<<<<
Inflation in the price of butter and EVERYTHING else is currently an issue in America.
But you wouldn’t know because you’ve got your head up Zelensky’s arse.
Always selling your "results" forward, eh, BooBoo?
"Har, har, HAR! Just wait'll ten years from now, I'm tellin' ya!!!"
“QE is a term used to describe a central bank buying government debt. The purpose is quoted to be stimulus of GDP. Money supply is nowhere in that.”
What is the difference between the Central Bank buying Government debt, and anyone else in the world doing so? Everyone else uses pre-existing dollars, but the Central Bank creates new dollars to do it, expanding the total money supply.
“I’ll quote the wiki: Quantitative easing (QE) is a monetary policy action”…
Monetary policy is the act of managing the money supply, fiscal policy is how the Government chooses to spend the money it has.
When the Central Bank chooses to expand the money supply, it does so by loaning the new money out (to banks, or to the Government). They are constantly doing that. The primary method that they use to regulate the quantity of new money that they are releasing into circulation through those loans, is to set interest rates to the level that attracts the level of demand that they seek. The reason that they do it, is to achieve their missions of economic growth (GDP), employment and control of inflation.
“they [Russia] are inflating while the major economies are moving in the opposite direction”
I was referring to monetary policy (money supply), not fiscal policy (spending).
Russia’s fiscal deficits are worsening, but are not as bad as the USA. Russia’s monetary policy however, is far more inflationary.
One significant difference between Russian and American fiscal deficits however, is that investors will still lend the American Government money (buy Treasury bonds) to finance that deficit spending. Russian bond sales can no longer meet the budget deficits that remain, even after significant redemptions from their dwindling NationalWealth Fund reserves. So the Russian Central Bank must monetize that debt, with newly created amounts of rubles, that the Government then spends into circulation.
I belonged to an economics website for a number of years.
FR don't do economics well, I'm here to tell ya. 
BooBoo: “Har, har, HAR! Just wait’ll ten years from now, I’m tellin’ ya!!!”
“You realize that I don’t bother to read”
It seems likely.
Sell your troll garbage elsewhere.
What Effed-16s doink?
What Selidovo and Gornyak doink?
What Kurakhovo doink?
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