Thursday, December 18, 2014

Russia's position gets a little more...interesting

Back in August (when the Guns of August were thundering in the eastern parts of was still nominally "Ukraine") Al wrote about the Curious Case of Russia. He noted that:
"The Cold War was primarily a standoff between two military powers. The Soviet impact on, and involvement in, the world's economy was negligible. Probably one of the major reasons the USSR collapsed. It was Soviet military, and the resultant political power, that we wanted to keep in check. We are now dealing with a new Russia, and that new Russia has become an economic player far greater than the old Soviet Union. Now, when Russia rattles it's political saber, there are economic ramifications of concern. Yet we still seem to be stuck in the Cold War mentality that Russia is always to be opposed."
and quoted an editorial from one of the Athenian newspapers that in their opinion "...a "stable and powerful Russia" is a key ingredient to global economic security."

I'm kind of intrigued by this for several reasons.

One is that it tends to reinforce my suspicions that the rump-Soviet state is, in fact, what I called it back in August: "...a lot of the Soviet weaknesses...overlaid...with 1) a thicker layer of corruption and 2) an excessive, almost-Nigerian-level of extraction resource dependency." The Post article makes an interesting point, that:
"There's one way, and only one way, that this ends: with capital controls. Or, in plain English, by making it illegal for people or companies to turn their rubles into foreign currency. That would get rid of the selling pressure, and let the ruble settle at a new, lower equilibrium. Putin, though, is loath to use capital controls, because his political base—the oligarchs—wants to move their money abroad, whether that's to their London or New York hideouts."
So the "tyrant" is an economic hostage to his political condotierri, another little reminder of the old saying about doing anything with bayonets (or in this case, the long knives of your criminal crony-capitalist "pals"...) except sitting on them.

The other is that it gives me a nasty little cat-smile remembering all the Usual Idiots who were fulminating about how manly Vladi Putin was and how the United States needed a sharp dose of his shirtless manly manliness to counteract the emo-girly-man Kenyan Usurper.

To quote O'Brien from the Post: "At this rate Putin will be riding around shirtless because he can't afford one anymore."
Perhaps the single most worrying part about this is the reminder that Russia - still a major Eurasian power and a nuclear one at that - is neither stable nor as powerful as it thinks it is.

This isn't to talk up my own country, whose political response to the Great Recession has been to double- and triple-down on the great shift to oligarchic meanness and stupidity that characterized the fucking Hoover Administration, but to note that for all that my country seems to be overrun with morons who think that "government is the problem" that if you deliberately set things up to govern badly it will be badly governed.

And that after a bad government the more-worse idea is to turn the levers of power over to a bunch of rich pricks whose only concern is their own profit. That's the sort of thing about the incoming Republican Congress (as expressed recently in the loathsome Wall Street Welfare rider to the cromnibus spending bill...) that makes me sleep poorly at times.

But I don't think I'd be sleeping nearly as well if I lived in Gdansk, or Tallinn.


  1. I'm glad we can agree on torture. I won't touch your liberal rants on this topic.

    IMO, OPEC is paying the US back for decades of protection favors (e.g. removing Saddam, going after ISIS and Assad and Iran all at the same time ) by helping to cripple Putin's Russia. The US sanctions alone wouldn't have phased Russia. In fact, it was accelerating the BRICS org consolidation; which is a nightmare for the US. But dropping oil prices are devastating to Russia in the short term to mid term.

    This is the US waging economic warfare on Russia and the BRICS plan. It's a very dangerous game, but probably assessed to be necessary b/c the US has screwed itself economically and is currently artificially sustained. BRICS *is* a serious threat to the US in the long term as it could undermine our financial house of cards.

    no one

  2. What?


    The OPEC nations couldn't run a raffle, they have no more love for the US than they do for the Russians, they depend on oil prices as much as the Russians do, and the crippling effect the drop in prices is having on the Russians has as much to do with their fucked up economic "system" and toxic politics as it does on the price drop itself. To atrribute this to OPEC is a Bill-O'Reilly-level piece of conspiracy theory goofiness. Read the linked article, forcryin'outloud, before you go off the deep end with this "OPEC did it" shinola.

    And as for the US...we have no leverage to "wage economic warfare", as we have pretty much shot our cerdibility with the the petroleum cartels or with Europe, whose sanctions are as or more effective than ours at screwing the Russians to the wall.

    I'm used to trying to educate you on politics and economics, but if you think that hating on torture is a "liberal" issue then I can't help you there. As evidence of a Cheneyesque sort of moral vacuum that would put you well up in the running for the "MSR Roadkill of the 'Pub" Award, and that's not a compliment, by the way.

  3. Chief, Hating on torture is a human issue. Politics should have nothing to do with it. It's humanity 101. Comes way before anything else more complicated, like raising taxes and enacting to save gay dolphins that are being impacted by carbon emissions, or not believing that it's important.

    It is OPEC that has lowered oil price/barrel. Where oh where would the Kingdom of Saud be without its friends the US? Are you saying that the US govt is too stupid to get some return on the investment it has made with them? That's a sad indictment of govt, isn't it?

    no one

  4. Prediction: As soon as the Russians cave in on Syria and the Ukraine oil prices go back to where they were; +/- $100 a barrel. That or we are all immolated in a nuclear holocaust, in which the reality, or lack thereof, of debated causes celebres, like global warming, won't amount to a hill of beans.

    no one

  5. BRICS = China! The other four are hangers on. And the low oil prices seem to be helping China, India, and South Africa.

  6. Look, let's get this straight. "OPEC" is a fiction. The "OPEC cartel" has never been able to control petroleum pricing; there's always some state, whether the Saudis. Nigerians, Venezuelans, or whatever...that can resist trying to maximize their revenues. The notion that "OPEC" is colluding to bring down the Russians is...well, "tinfoil hat-ism" comes to mind.

    This is pretty simple; the Russian economy is a shitshow, run by oligarchs for the benefit of oligarchs. It has run into the wall of declining oil revenues, and Putin is being held hostage by his oligarchic pals. Period. "BRIC" has nothing to do with this, nor does the U.S. Period.

    And, let me remind you that YOU were the one that called my disgust and anger at torture a "liberal rant". To get lectured on how hating on torture is a "human issue" from you is like hearing Dick Fucking Cheney talk about hunting safety. On that particular point you may kindly take a flying frick at a rolling donut; you were the one who decided to call me out on this issue. Now you own it. Sorry, but there you are.

  7. Chief, hold on a sec......woah......maybe I worded in a confusing way. What I was referring to by way of liberal rant (tongue in cheek, btw) was the gratuitous inclusion in this post of jabs at "rich pricks". I wasn't referring, at all, to torture. What I was saying re; torture is that it is refreshing that people from both ends of the spectrum concerning the role of govt and concerning economic policy can agree that torture is wrong and has no part in American policy and tactics.

    no one


    It's amazing that a member of the "tin foil hat" club could head up a company with over $3 billion (US) in annual profits.

    Merry Christmas/Happy Chanukah/Groovy Quanza

    no one

  9. Yup, the Ruble is in freefall, again. Was there for Ruble Collapse I in 92, and at that time "hard currency" was very tightly regulated.

    The Right was enamored with Putin for the very reasons given in the American Conservative article. Not because of any "critical thinking" on the Right's part, but because Vlad put their buzz words into law and action. Oh how much better the US would be if our police were allowed to bash the heads of all those pesky gays, abortion supporters, Muslims and the like. And he let capitalists run wild. At least selected capitalists. IMHO, that's the basic danger of ideologues that know nothing more than a laundry list of buzz words. Our penchant for superficiality of thought is remarkable.

    A difference between Russia and the US right now is that CitiGroup, while able to author legislation, still has to do a little bit of proper play acting and conduct some foreplay to get that rider into law. In Putin's Russia, they can be much more direct about it. End result is no different, and the process of serving the oligarch's greed is faster.

    But more central to US interest is whether destabilizing Russia is prudent. We have destabilized nations and/or regions with far less political, military and economic clout, and what was the result? If you want to be the architect of order in the world, you have to realize that a structure (or chain) is no more stable than its weakest component (link). Not only has the Greek press expressed a concern over the folly of ignoring Russia’s place in the world, but Cyrus Sanati at Fortune Magazine questions the prudence of “letting Russia fall apart”.

    IMHO, at the core of the problem is that the American Right, as well as many others, sees that every decision must be cast in “Win-Lose” terms. Thus, we typically end up with a “Lose-Lose” result in global affairs. Not necessarily the oligarchs that lose, but the collective well being, at home and abroad.

  10. I think Anon maybe on to something, but I'm going to hedge with reason and go with the basic human principle of greed.
    Putin has failed.
    End of story.
    His idea of restoring a semblance of greater Soviet good is floundering in a key item of economics...Russia has markets overseas for their products, and thus, to entwined in the world economy to make it alone.
    Sorry, but history repeating itself here.
    Ask Gorbie...he went through the same thing as Putey Putin is going through right now.
    As for OPEC, lets be honest here...The House of Saud is not as monolithic as some would like to give it credit too...also considering their oil wells are being pumped with a shit ton of Salt Water to remove the dregs of their oil reserves is telling as well.
    No, a lot has changed in thirty years, and the US has diversified it's oil needs, and the other large market for oil, China, has cut back as well.
    No, what's driving the current, and may I add, glorious results is that the oil producers are trying to maintain their level of income with pumping more oil which is creating a glut on the market...and the prices are dropping because...basic supply and demand.

    Greed, never under estimate that as a primary motivator for why people act the way they do.


  11. sheer-

    Rejoicing over Putin failing isn't going to advance the state of the world, nor is contributing to that failure of benefit, especially in today's fragile global economic climate. We all have a vested interest in no country in the G-8 or G-20 failing.

  12. Al-
    At first I was going to say, "The hell I'm rejoicing!" but then, intellectual honesty took over, and yes, yes I am...but probably not for the reason you would think.
    I'm rejoicing in the fact that Russia is now part and parcel of the World Economy...ergo, Putin's attempts/legacy to retain a smattering of the "Grand O'Russkie bear!" isn't going to pan out.
    Which should bring him down a notch or two...hopefully three, but I'm good with two.

    But, and herein is the caveat emptor...Russia failing is maybe a good thing for the reformers...a lot of Putins buddies are the Rich and Powerful...ergo, they got a shit-ton of money...and to have your money suddenly turn to ashes doesn't make for a shit-ton of money anymore...and to have the guy whose policies be the device that turned their wealth to ashes still in power might force some back room bargaining of which should leave the shirtless wonder a bit more soberly reflective about how he wants a resurgent Soviet Union.


  13. I tend to think the reduced price per barrel for oil is linked to many causes but a Saudi conspiracy to deep-six Russia's economy is not one of them. Doesn't Venezuela have more oil reserves that the Arabian peninsula? And in my memory Venezuelan and Nigerian oil have always had somewhat unstable prices.

    But I can picture many Saudis thinking that the current pricing will hurt their sworn enemy - the Iranians. So why would they want to take any hard measures to limit production in order to bring the price back up.

    Iran and her puppet Iraq are part of OPEC and I do not see them cooperating with the Saudis in dumping oil to keep prices low to hurt the Russians. They are selling at the current market price because they are hurting. Besides, they (and all of OPEC) would lose market share to Canada and Russia or even to a few dribs and drabs of North Dakota shale if they started limiting production.

  14. yups,evil rotten putin and his soviet ambitions.
    i'm surprised you haven't posted krugman;s enlightened spin on the situation.
    you really should stop taking the wapo and the nyt seriously.
    but I guess you gots to get patriotic every so often and wave the flag.

  15. Mike,
    Personally, I think this has more to do with world demand dropping because supply is readily available, and with everyone's money locked up in investments means that funds are not so readily available...which kind of becomes a self-feeding loop...need to sell to keep disposable income coming in to pay off the accumulating debts, which fuels the drop in prices, which devalues one's currency which makes you produce more to sell nauseam.

    I think we'll eventually see a steady rise in oil prices again as the world supply adjusts to the demand.

  16. Ugh, sorry, Mike, I'm the anon writing the above reply "Mike, Personally..."

    Bloody hell, should just get on my accnt, but I'm too dam lazy.


  17. Sheerakahn -

    I agree with your comment on world demand dropping. My comment of December 19, 2014 at 8:06 PM was in no way meant to imply that the Saudis dropped the price to hurt Iran. What I was implying is that the Saudis have little incentive to hold down production in order to raise price per barrel. They can survive low prices for awhile, while gloating that the Iran is caught between the twin hurts of sanctions AND low oil prices. Per Reuters the Rial has fallen drastically against the dollar and the price of basic foodstuffs increased by 30% in Teheran.

    I do not believe we (the US or the West) put the Saudis up to it. They have enough hate by themselves without any instigation from us.

  18. The oil/mining and financial sectors of Russia may be in deep trouble, but they were poor choices for dominating the economy in the first place.
    The weaker ruble will make manufacturing as an alternative to imports and manufacturing for exports much more competitive, and this is exactly what Russia needed. The ruble was overvalued because of the oil export strength.

    In the long run, Russia may benefit from the current financial (economic?) crisis.

  19. Sven- Are you suggesting that German industry will begin to move beyond the low labor costs of production they have cultivated in the former satellite states of Eastern Europe and gain even greater price competitiveness by outsourcing production in Russia?

    I'm not sure Russia can get out from under the oligarchs. Back in 1992, while taking the train from St Petersburg to Helsinki, we bumped into an accounting prof from USC who had just finished a few months as part of a consulting group to some Soviet universities. He said that it would take a carefully guided gradual transition, over a couple of generations, for the Soviet states to become reasonably democratic, functional capitalistic states. Russians had lived under absolute leaders for centuries, and communists for much of the lifetime of the population. His personal view was that a dictatorship of the oligarchs was the most likely form of governance to arise from such cultural conditioning. Since power was already concentrated in the hands of a few, it stood to reason that when the wealth of the country was moved, almost overnight, from state ownership to private ownership, those who held the levers of government would simply assume ownership of the national wealth. While the average Russian would aspire and be in a position to own their apartment, the commissars of Department 3 (petrolum production) would aspire to and be in a position own that.

    He didn't see manufacturing undergoing significant growth, as the infrastructure needed significant investment, and there was no knowledge of market forces and market based pricing for same. Natural resources, however, while not market priced with in the USSR, were already priced on world markets, and made for easily identified profits.

    Overall, his biggest concern was that the West would encourage Russia to undergo "economic shock therapy", a Milton Friedman favorite, by going capitalist overnight. And, for all intents and purposes, it did. Thus, the fragility of their economy due to excessive reliance on oil and gas export revenues, owned by a very few.

  20. Al:

    The oligarchs have a problem. As they age, they need to have in place some lawful mechanism to pass on their ill-gotten goods to their kids. Otherwise, it will all be stolen by some newer generation of kleptocrat. Sure, they can export liquid wealth out of Russia, but the really big sustaining wealth is tied to Russia.

    This need to have some sort of post-death protection for your wealth means that the Oligarchs have at best a couple of decades to set up a functioning legal system. For at least themselves, but it is also likely to give the same sorts of legal protections to regular Russian citizens as regular American citizens get from their legal system.

  21. Ael- the right of inheritance is guaranteed in the Constitution of the Russian Federation. The civil codes provide the identification of heirs, both by wills or lacking a will, by relation. In fact, Russian law guarantees an inheritance to dependent children and dependent parents, regardless of the provisions of a will. All the oligarchs have to do is have their wealth in their own name to pass on to their kids.

  22. Al - Of *course* the right to inheritance is guaranteed in the constitution.
    That part was the easy part.
    The trick is to make it real.
    The USSR had a lovely constitution as well,

    However, Russia needs have to have a working court system to
    make any law worth the paper it was printed on.
    Otherwise the law of the jungle prevails.

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