EDITORIAL: Economics, Russian Style

EDITORIAL

Economics, Russian Style

You have to hand it to the Russians.  No matter how bad things might be today, they can always suprise you — and make tomorrow so much worse you can’t believe you thought yesterday was bad.

Just cast your eyes upon this bloody carnage:

• As we reported last week, Moody‘s has downgraded both Russia’s banks and its most prestigious stock brokerage, Renaissance Capital, as they teeter on the brink of collapse

• As UFG Invest CEO Alexei Podoinitsyn states: “Russia is not going through a financial or economic crisis” Yet it “had a liquidity crisis that only an unprecedented infusion of $60 billion in government funds was able to stem.”  Yelena Sharipova, a senior economist at Renaissance Capital, noted: “The private sector is more efficient than the government, and global growth will slow down if the share of government in the economy increases.”

• Podoinitsyn adds: “About 500,000 Russians — or roughly 0.5 percent of the labor force — own stocks through the country’s mutual funds. That figure is many times higher in more economically developed countries.”

• Even that tiny fraction of Russians who were previously in the market no longer are. The Russian Trading System reports that panicked Russians are racing out of stocks and plunging their money into gold bullion, making Russia’s gold market “fastest growing bullion derivative instrument in the world.” 

• And they were never serious investors, they were just riverboat gamblers.  Podoinitsyn observers: “The absence of long-term individual and institutional investors, which would normally provide a safety cushion against this level of capital flight, is Russia’s fundamental investment obstacle.”  No market can survive that kind of environment.  Eugene Belin of Citibank in Moscow sums it up: “Russia was considered a safe haven, but now people are realizing it’s no safe haven whatsoever.”

Given all this horrifying bad news, you might think even Russia’s benighted KGB rulers would realize they have a crisis on their hands.  Think again.

The Moscow Times quotes top Kremlin economic aide Arkady Dvorkovich as stating “echoing statements by President Dmitry Medvedev earlier this month saying it was Russia’s goal to become one of the world’s top-10 financial centers in 10 to 15 years” and stating: “We won’t move into first place in the next few years, even in the next 10 years … but we have a lot of good opportunities and a lot of potential to get out of this crisis and build a powerful financial center in Russia.”

Russia is operating a third-world economy.  It is not ranked in the top 100 nations of the world for male adult lifespan, and has an average hourly wage less than $5 per hour.  It has one of the world’s highest murder rates, and appalling levels of fatalities due to fire and automobile crashes.  It has an AIDS crisis that is out of control, it has turned itself into an international pariah by launching a military invasion of a smaller neighbor, and it has totally wiped out every aspect of civil society (no more opposition political parties, no more local government, no more independent television).

Like various banana republics in Africa, the Russian government has managed to leverage itself into power by sucking the nation’s lifeblood oil supply like leech and crushing dissent in the most brutal manner possible.  Nonetheless, despite stratospherically high oil prices, Russia has seen both its stock market and banking system collapse spectacuarly before the gaping eyes of the world.

And instead of calling for massive reform to stave off total disaster, those who purport to “lead” Russia are talking about shortly taking first place among all nations of the world in financial excellence.  This insane raving is not one little bit different from what the rulers of the USSR used to say, what they kept right on saying even up to the very moment of utter national collapse.

Meanwhile, the craven population of Russia imply watches it all unfold, just as they watched Stalin build his Gulag archipelago and toss in their neighbors.