The Russian economy is headed for collapse

With foreign sanctions presiding over a plummeting Russian rouble, Russia’s economic standing continues to fall.
Ordinary Russians are facing the prospect of higher prices as western sanctions over the invasion of Ukraine sent the rouble plummeting. That’s led uneasy people to line up at banks and ATMs on Monday in a country that has seen more than one currency disaster in the post-Soviet era. (AP Photo/Pavel Golovkin)

To justify invading Ukraine, Vladimir Putin has painted Russia as a hegemonic power re-asserting its rightful claim to imperial greatness. Yet even before the invasion, Russia’s economic capabilities were hardly capable of sustaining an empire.

Now, with foreign sanctions presiding over a plummeting Russian rouble, Russia’s economic standing has fallen further still. If measured at today’s exchange rates, Russia’s economy would be the 22nd largest in the world, with a gross domestic product (GDP) not much larger than the state of Ohio’s.

Graph of Russia's ranking among the largest economies in the world at current market exchange rate
With foreign sanctions presiding over a plummeting Russian rouble, Russia’s economic standing continues to fall. Author provided

That’s a far cry from the past, when Russia was a true world power. According to data assembled by the late economic historian Angus Maddison, it was the fifth largest economy in the world in 1913, behind the United States, China, Germany and Britain. By 1957, when the U.S.S.R. outpaced the United States to launch the first satellite into space, the Soviet economy was the world’s second largest after America’s.

Putin’s quest for greatness

Putin was elected president following the chaotic disintegration of the Soviet Union and the 1998 financial crisis in which Russia defaulted on its debt and abandoned its fixed exchange rate.

At the time, Russia’s market-value GDP had bottomed out at US$210 billion, making it the world’s 24th largest economy, behind Austria. (All contemporary GDP figures are from the October 2021 World Economic Outlook published by the International Monetary Fund.)

Putin established an informal social contract with the Russian people based on his ability to deliver strong economic growth. Under Putin’s rule, and buoyed by a commodity price supercycle that would stretch well into the 21st century, Russia’s GDP in market exchange rates rose tenfold, returning Russia to global relevance and providing purchasing power to its middle class.

However, Russia researchers argued that as Russia’s economy began to flag, from a peak in 2013, Putin sought new legitimacy to govern through foreign policy actions to re-establish Russia’s status as a “great power.” These efforts were epitomized by the Crimean annexation of 2014.

Russia’s invasion of Ukraine, against the backdrop of Russia’s market-rate GDP losing a third of its value between 2013 and 2020, represents a doubling down of Putin’s strategy to seek legitimacy from “great power status,” rather than economic performance.

Yet the West’s unrelenting financial and economic sanctions have only accelerated Russia’s economic downfall.

People standing in line on a sidewalk
Ordinary Russians face the prospect of higher prices and crimped foreign travel as western sanctions have sent the rouble plummeting, leading people to line up at banks and ATMs on Feb. 25 in a country that has seen more than one currency disaster in the post-Soviet era.
(AP Photo/Dmitri Lovetsky)

Russian stocks traded on the U.K. market have fallen by 98 per cent, wiping out US$572 billion of wealth, while stocks on Russian exchanges remain suspended.

The Russian currency has fallen to 155 roubles per dollar — a drop of more than 50 per cent from 75 roubles per U.S. dollar before the invasion. If not for recent captial controls and the rising prices of commodities — brought about by the sanctions themselves — that make up the majority of Russia’s exports, it would fall even further.

Domino effect

A country’s market-rate GDP is its GDP converted to a global currency like the U.S. dollar. While there are other ways to measure GDP, when it comes to global trade and investment — and economic power — the market rate is what matters.

Russia’s market-rate GDP in 2021 was US$1.65 trillion, enough to make it the world’s 11th largest economy, behind South Korea. If we crudely convert Russia’s 2021 estimated GDP by March 7, 2022, currency rates, rather than the average exchange rate used last year, and place it against the 2021 market-rate GDP table, the rankings change and Russia slides to 22nd place, falling between Taiwan and Poland.

This drop is likely an underestimate. While a falling rouble lowers Russia’s exchange rate of its GDP to U.S. dollars, its weakening economy lowers its rouble GDP directly. And Russia’s isolation will erode its economic competitiveness, widening the economic gap further in the medium term.

Ukrainians confronted with the oncoming Russian army were wise to Putin’s chimeric strategy. “Don’t you have problems in your country to solve? Are you all rich there, as in the Emirates?” one elderly man heckled Russian soldiers.

Putin’s next move

Robert F. Kennedy famously observed that GDP failed to account for many things that we care about — like health and education. The fall in Russia’s market-rate GDP cannot begin to describe the human tragedy playing out in both Ukraine and Russia.

But what these figures do make clear is that Putin’s claim to legitimacy through economic performance is all but destroyed. With “great power status” tied closely to economic power, Putin’s back-door source of legitimacy from stirring up nationalist pride now seems closed as well.

Putin may have led Russia from one “Times of Troubles,” but he has delivered it to another one. That’s cold comfort to the Ukrainians, and indeed to the rest of the world, who are wondering Putin’s next move.The Conversation

Eric Werker, William Saywell Professor of International Business, Simon Fraser University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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At least Putin is aiding the unemployed in impoverished, war ravaged countries. Russia is recruiting soldiers in Syria to fight in Ukraine.
Russia helped Bashar al-Assad to stay in power for many years in his ruthless civil war, bombing his own country to pieces, using chemical weapons.
Birds of the same feather flock together.
SA should withdraw from BRICS ASAP.

Agree with the last sentence but I fear that the SA government will do everything they can to prop up this imbicile !!

Yip …and Dear Cyril offering to mediate????

“President Putin appreciated our balanced approach. We believe this position enables both parties to subject the conflict to mediation & negotiation. Based on our relations with the Russian Federation & as member of BRICS, South Africa has been approached to play a mediation role.”

Expect a commission of inquiry with a timeline of 10-20 years and all-expenses paid first class travel and accommodation for his brilliant team of diplomats like pipe-smoking Thabo, Nosiviwe Mapisa-Nqakula with maybe even Fikile, Patricia, JZ and Iqbal thrown in for diversity.

Meanwhile back in SA … sigh …

Putin had his back against the wall. The West, under the leadership of the USA, has been encroaching on Russian territory with the aim of intimidating Putin into submission. Putin could wait another 5 years until Nato puts US military basis on his border with Ukraine, or he could take the initiative and act now. This war is not Putin against Ukraine, it is Putin against Biden. It is about the ownership of resources and the right to sell those resources to the buyer of your choice and in terms of the currency of your choice.

From the Russian perspective – What use is sovereignty if you are not allowed these freedoms?
From the American perspective – What is the use of having the right to print the reserve fiat currency of the world, if you are not going to enforce that right with all means at your disposal?

Either Putin tries to seize Ukraine now, or he will allow Biden to do so later.

“Be the first to seize intersecting ground, that is ground which lies the intersections of borders or intersections of main thoroughfares of commerce and travel. Your occupation of it gives you access to all who border it and all who would covet it. On intersecting ground, if you establish alliances you are safe, if you lose alliances you are in peril.” – Sun Tzu. “The Art of War”.

Come on Sensei, Biden has never shown interest to invade or occupy Ukraine.
Putin thinks of NATO, in the same way he looks at the outside world. You either bully them in complete obedience and submission, or you will be defeated yourself.
A deranged, delusional, fearful, violent narcissistic bully.

Thank you, and although you may be right about Putin, war is never about emotions or character traits, but rather about territory, commodities, economics, and vested interests. Wars are costly and emotions do not pay the bills. Wars are about money.

Regarding the interests and intentions of the USA, this historic speech by Congressman Ron Paul will help you to understand, and shape your opinion.

I do not agree. It is all about unmitigated greed, backed by irrational thinking based upon a perceived non-existing threat to Russian sovereignty. No one wants to invade Russia … why the h… would anyone want to do so? Putin, the wanna-be 21st century demagogue, needs to feel important and enforces this on the world’s fear of him being the most dangerous man on the planet. In his tiny mind, Ukraine is a statement, aimed at all of the free thinking world, you and me and not specifically at the USA. In 10 years time he will be facing war crimes, in absentia, at The Hague court.

Not agree to Sensei the above should read.

Safrican2 I appreciate your opinion. Please update your comment after you have read Congressman Ron Paul’s testimony before the US Congress. I would like to hear your opinion.

Sensei, for a normally rational person you are WAY off the mark!

The rest of the world did not care enough about Russia to bother about intimidating it.

In all the bluster about Ukraine possibly joining NATO, you completely ignore that Belarus, which borders directly on Poland, has long ago joined the Collective Security Treaty Organization (CSTO).

Who has told Putin – before sanctions – who he can sell what to???

I’ll raise a glass to the ruble at ½ a US penny in a few months. Could not happen to a more suitable shirtless midget thug.

I am not the Knight on the white horse on a mission to protect the interests of Russia. I don’t even like Putin! Maybe we can mention him in the same sentence as Muammar Gaddafi, Sadam Hussein, Bashar al-Assad, the Saudi Royal Family, Mugabe, Omar al-Bashir, Nicolas Maduro, and Hugo Chávez. I am not trying to give my opinion about the morals of Putin. I am not justifying his war in Ukraine either. It is clear that Putin is guilty as hell. He had options and he chose war.

When we lack facts we can only make emotional decisions. Wars are never about emotions because wars are expensive endeavors. If we blame a war on a “delusional maniac” it simply testifies that we have zero facts to go on. We are uninformed. Unfortunately, the media does not sell facts because facts are complicated. It requires an intelligence above 120 to build that puzzle. The media sells to a market with an IQ below 110. That is why the media sells emotions and not facts.

Now we can get to the point I am trying to make.
1. The world is currently on a fiat currency system.
2. America enjoys the privilege of printing the reserve fiat currency of the world.
3. The fact that commodities are traded in dollars creates a demand for dollars, a demand for US government bonds, and allows the USA to print paper, and exchange that paper for real commodities.
4. The USA exports its inflation to all nations that need dollars in order to buy commodities.
5. The fact that nations exchange their commodities for dollars is in the national interest of the USA.
6. Putin declared in 2014 that he won’t be buying US government bonds with the proceeds of his commodities any longer, and he began selling in Euros, Yen, and Yuan recently.
7. America has waged war against every nation that began to sell oil in alternative currencies, within 12 months of them starting to do so even though these nations posed absolutely no military threat to the USA. They only posed a macro-economic, or monetary threat to the USA.
8. The British empire began to crumble after they lost their gold to the USA.
9. The US empire will crumble the moment they allow nations to sell their commodities in alternative fiat currencies or gold.
10. The Roman Empire began to crumble the moment they stopped invading nations for tribute and taxes.
11. The nation that prints the reserve currency of the world can afford to have the largest army in the world, which they need to enforce acceptance of that worthless fiat currency as payment for real resources.
12. Putin and Xi Jinping decided not to support the US agenda anymore.
13. The CIA has been active in destabilizing the Donbas region for decades.
14. Nato is moving closer to the Russian border to put additional pressure on Putin to stop selling commodities in Yen and Euros and to sell in dollars only.
15. After US forces invaded countries in the Middle East, US companies took control of the oil trade and immediately resumed the sales in dollars.
16. The US never invaded Saudi Arabia because the Saudi Royal Family is the crucial cog in the petrodollar system.

I am merely trying to prove that maybe there is an alternative narrative than the one punted by Western media. That does not give Putin the right to kill civilians though.

With all due respect to my fellow commentators on this thread.

NOTHING can condone ANY country to invade its neighbors and kill its citizens without direct violent provocation in this time and age !!

NOTHING is more deceitful than a bunch of countries standing on the sidelines, witnessing the murders, and then do nothing material to intervene !!

NOTHING is more laughable than a league of nations castrated to the point of total paralysis !!

Ron Paul?? … I think I would rather eat raw chilly. It would certainly leave a better after taste.

Ignorance is a choice

Is this the same Ron Paul?

“In the first chapter of his book, Freedom Under Siege, Paul argued that the purpose of the Second Amendment is to place a check on government tyranny, not to merely grant hunting rights or allow self-defense. When asked whether individuals should be allowed to own machine guns, Paul responded, “Whether it’s an automatic weapon or not is, I think, irrelevant.”[113] Paul also argues that weapons bans only keep them out of the hands of law-abiding citizens, not dangerous criminals.[114] He sees school shootings, plane hijackings, and other such events as a result of prohibitions on self-defense.[115] He supports the right of citizens to carry concealed weapons if they are legally owned.[116]”

“In his 1987 book, Freedom Under Siege, Paul expressed the view that those who experience sexual harassment in the workforce should remedy the situation by quitting their jobs. He further argued that governmental oversight is warranted only where victims are physically forced into sexual actions.[citation needed]

Employee rights are said to be valid when employers pressure employees into sexual activity. Why don’t they quit once the so-called harassment starts? Obviously the morals of the harasser cannot be defended, but how can the harassee escape some responsibility for the problem? Seeking protection under civil rights legislation is hardly acceptable.[134]Wikipedia”

Long before Donald Trump emerged as the most prominent purveyor of a racist conspiracy theory concerning the country’s first black president, played political footsie with white supremacists, condemned “globalism,” sold himself to the masses as a guru of personal enrichment, attacked American allies as scroungers, and made overtures to authoritarian regimes like Russia, there was Ron Paul. The ideological similarities between the two men, and the ways in which they created support, are striking.

Sensei: You keep on harping on about commodities traded in dollars so that sellers have to buy US federal debt. That is wrong in many respects.

1. Commodities are PRICED in dollars, not necessarily traded in dollars. Though often paid in dollars that is not necessary. You can buy a kg of gold and settle out in franc or yen or whatever the seller can accommodate. At its simplest level, every day in Africa people settle a dollar bill in a local currency with reference to a rate of exchange.

2. By far more financial deals are done than are actually settled because of futures and derivatives. Not sure the number nowadays but for example a contract for September delivery oil will have changed hands dozens of times before September. A bit like how global currency swaps per day is multiples of annual global real trade. People bet on prices.

3. What do US government bonds have to do with commodities trade? I have GBP, want gold futures, buy some on CBOE, I pay the seller that may have been an Australian that receives AUD credit to his account. The ozzie does not buy US bonds with the dollar proceeds.

Any currency is only a reflection of purchasing power, there no mythical over or under valuation. If mine can buy twice as many potatoes then mine is worth twice yours. Commodities have nothing to do with a currency’s value. When Paul wrote that speech in 2006 an ounce of gold bought 12 barrels of oil and 16,000 rubles.
Now an ounce of gold buys 16 barrels of oil and 250,000 rubles.
Russia has plenty of gold and oil – did not help them!

In 2006 an ounce of gold would have bought you about 220W worth of solar panels. Today that ounce will buy you about 9000W of solar panels. Not because gold is worth more, simply because solar panels went from $3/watt to $0.23/watt.

I owe you an apology … I somehow had Rand Paul in my mind and not Ron Paul. Now enlightened I am.

The article tells us in detail what has happened to Russia and where it is headed – as a result of sanctions of literally everything and the inevitable economic effects of same. It mentions the domino effect but fails to mention that this effect is not limited to Russia, not by any stretch of the imagination.

The west stated from the outset that they wanted to craft sanctions in such a way as to inflict maximum damage on the Putin regime, whilst minimizing the impact on themselves. This is kind of like saying i will electrocute you in the bath we are both sitting in by dropping the hair dryer in between us?

From an economic perspective Russia and Ukraine make up the centre of the derivatives universe for now (contagion) and these actions/sanctions have had an immediate first wave domino effect which we have all seen in various commodity prints. However – there was serious stress in the financial system prior to the invasion, disrupted supply chains which were still deteriorating will now become magnitudes worse in the months to come, as will existing nose bleed inflation rates

Second and 3rd wave/ domino effects have already begun – just ask Xiang Guangda (Tsingshan) how his Nickel short is doing on the LME – which is still hanging in the air as trading has not resumed. JPMorgan i believe holds the largest ~counter party risk~ (a term you should get used to) we are talking in billions of USD here – but this is just one market.

Watch the global CDS rates they are not looking great in many industries not just big financial and commodity names. Nickel was not the only industry to see a 3 to 4 fold increase in prices. The volatility in the EU gas market is off the charts and forcing huge chunks of energy intensive smelting operations to be shuttered – even if the EU wanted to stop using Russian gas it would take them 5 years to wean themselves off it and the baseline price would be a lot higher thereafter.

Russia and Ukraine produce over 30% of global grains – without grains the world starves. Do not underestimate the market shares of Russia, Ukraine and Belarus in this regard and look at fertilizers and specifically ammonia a critical ingredient – to large swathes of crop growers everywhere… the list is endless, uranium, neon for chips etc

The middle east is already starting to buckle – Arab spring 2? The powers houses of Saudi and UAE are keeping a close eye on growing unrest – Iraq had riots already over price increases this week – how will this be going, when they are not just sky rocketing price increases but actual shortages. We are only 15 days into a world war and the impact on everyone has been brutal and instant but it is sadly just starting. The physical war is in Ukraine for now but WW3 in the commodity and financial markets has started

Mario Draghi is already calling for an EU wide Energy and Defence QE of Euro 1.5T-2.0T. We remember 2008 Lehman brothers and “systemic” risk and the concept of too big to fail – this is bigger… this will affect every aspect of your lives (cars, phones, vitamins, protein, freedom etc etc). Your politicians the world over do not care about you and will live the same lives they do today – as they would if the petrol and bread prices tripled… your politicians also have luxury fall out shelters equipped for years…

While the leaders of primarily the US and UK (most of their politicians could not find Ukraine on a map before the 24th February – ask Liz Truss) lead the world on the nuclear sanctions that have been imposed on Russia – Russia is not Zimbabwe, North Korea or South Africa – those sanctions will have a profound and significant negative impact on 8 billion people…

Coal markets are going vertical and contracted ESKOM providers are already setting aside their better qualities and moving them by road to RB… diesel prices and shortages are a politically expedient excuse – this does not mean they will necessarily default on deliveries but suppliers will take every aspect of wiggle room they can on quality and volumes… watch closely and keep an eye on Indonesian exports or a complete stoppage thereof

Careful what you wish for… lets hope that cooler and more sensible heads prevail in the weeks ahead – with a firm view and grasp of the law of unintended consequences on both sides.

You exaggerate the food issues. The EU produces double Russia’s wheat, China plus India about 3 times Russia. Many countries produce wheat. Then go look at corn/maize and soy beans. Putin cannot starve the world. If crop prices are high, cash crops are incredibly fast to scale up.

The fertiliser story is also exaggerated. There are many forms of fertiliser beyond ammonium nitrate. China produces 300% of Russian, America 150%, India 150% etc

There will be pain, but doing nothing after Putin invaded Ukraine was never an option. Heck even the Swiss got off their neutral high horse.

End of comments.




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