back to article Why has the Russian economy plunged SO SUDDENLY into the toilet?

The best economic fun of the past few weeks has been watching the meltdown of the rouble and the associated problems in the Russian economy. OK, “fun” might not be quite the right word: schadenfreude, perhaps? Real people are undoubtedly, through no fault of their own, being made worse off by what is happening - so fun is …

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  2. Anonymous Coward
    Anonymous Coward

    So, Crony Capitalism doesn't work!

    Please tell those that live at 1600 Pennsylvania Ave, Washington DC (USA).

    Sorry I couldn't resist.

    Sorry for being an Anonymous Coward, but I normally don't do political commentary here.

    1. Anonymous Coward
      Anonymous Coward

      Re: So, Crony Capitalism doesn't work!

      Quite.

      The US economy is far, far removed from free market capitalism. Such concepts like banks that are "too big to fail", prove this. Corporatism rules the roost now and without effective campaign finance reform the politicians will continue working for their sponsors (large banks and associated mega-corps) rather than the people.

      1. streaky

        Re: So, Crony Capitalism doesn't work!

        Such concepts like banks that are "too big to fail", prove this

        Can't believe this still has to be explained.

        The issue isn't that the banks are too big to fail, it's that banks have too many customers (you, me, small/large businesses). If a bank fails and takes a billions of dollars/pounds/euros debt down with it the people who lose out are the customers - there is a long queue and the bank customers are to be at the back of it. The houses you borrowed against are now assets of a liquidator and inevitably they will be sold to pay of some (probably foreign) investor and the whole things costs admin time and money. Outcome: everybody is poorer.

        On the other hand if you rescue the bank you can fix it's fundamentals and eventually sell it off you can stand to make money, or potentially significant volumes of money, effectively for the tax payer. Yes, rescuing a failing bank is an investment in both it's customers and the bank itself.

        RBS is the classic example in the UK - if it's shares are worth £5 each the taxpayer breaks even, any more they make a profit, i.e. we're richer than we were before. They've hit £4.03 and most investors can see a time when they'll hit the target, frankly they'd probably have been there already if it wasn't for the various banking scandals since. The share price has tripled from the lowest point, the gap is easily made up - and no customers ever lost their homes/savings/pensions/jobs so the state didn't have to invest in that directly where there would be no possibility to recover the costs.

        The problem isn't rescuing banks, it's the effective lack of prosecution and consequences for people who let it happen in the first place; be it regulators or people who worked at those banks. That's where the cronyism has to be rooted out.

        1. veti Silver badge

          Re: So, Crony Capitalism doesn't work!

          @streaky: that defence doesn't hold water.

          If a bank goes under, that doesn't mean everyone who has money deposited in the bank loses out. That's what deposit guarantee schemes are for. In the UK, you're covered up to 85,000 pounds per banking license. So as long as you don't have more than that amount deposited with any one banking license, you're literally as safe as if the money were in the Bank of England itself.

          As for the houses being sold - because the Evil Foreign Liquidator would just spontaneously orgasm at the prospect of a property price crash in the UK, where they now suddenly have substantial interests? Yeah - no. It's in nobody's interests, certainly not the person who holds the debt, to force borrowers to pay back their debts ahead of schedule. The most they'd be likely to do is raise rates, and at that point there's nothing to stop you taking your mortgage elsewhere.

          RBS: " if it's shares are worth £5 each the taxpayer breaks even, any more they make a profit". Here's news for you: if you invest in something in year N, and succeed in selling your holding at the same price in year N+7, that does not make you a fiscal genius. To really "break even", the shares would have to reach around £10 (by the end of next year - and as more time goes by, the breakeven point only goes up). They're not going to do that.

          1. streaky

            Re: So, Crony Capitalism doesn't work!

            @veti -

            "That's what deposit guarantee schemes are for. In the UK, you're covered up to 85,000 pounds per banking license. So as long as you don't have more than that amount deposited with any one banking license, you're literally as safe as if the money were in the Bank of England itself"

            You're right - but who pays for it. Oh, yeah. Taxpayers do - and again there's no chance of recovering it, and the state would probably have to borrow to cover it. End result huge black hole versus sellable assets.

            "To really "break even", the shares would have to reach around £10 (by the end of next year - and as more time goes by, the breakeven point only goes up)."

            It does - but not by *that much*. Remember that interest rates are effectively negative. You actually make money by not keeping it in a bank but by spending/borrowing. There's a cuttoff sure, that cuttoff does move but not by the amount you're suggesting. It could but it hasn't.

            The reality is if they were sold today the taxpayer would make a loss but nowhere near as significant as the loss on burning all the accounts, compensating everybody and the admin costs of stripping the bank apart.

      2. SolidSquid

        Re: So, Crony Capitalism doesn't work!

        Techically there's never *been* a fully fledged free market capitalist society. All markets have some degree of influence or manipulation by governments, even if it's just regulating what can be traded legally (since this pushes up the risk and the reward of trading such goods beyond what pure supply and demand would) and government granted monopolies (copyright, patents and trademarks)

    2. tom dial Silver badge

      Re: So, Crony Capitalism doesn't work!

      I would like to see a coherent explanation of how crony capitalism (caps are not appropriate here) explains the growth in the US of the semiconductor industry, the computer industry, the computer software industry, and various internet based enterprises such as Google and Amazon.

      1. Mage Silver badge
        Devil

        Re: So, Crony Capitalism doesn't work!

        Giant country and actually for every Intel, MS, Google there are 10,000 fails or mediocre companies.

        Actually Google, Amazon & Apple probably hurt US economy by removing money from circulation and in Apple's case doubly so by borrowing to pay dividends..

        1. Ted Treen
          Devil

          @Mage

          Google, Amazon & Apple remove bugger all money from circulation when viewed in the context of QE - or printing as many 'new' dollars, pounds or euros as our esteemed overlords feel like.

          Add to this the fact that with fractional reserve banking, loans made by banks are little more than money created out of thin air, and it becomes apparent that the whole system is a house of cards.

          It continues as long as the participants believe - or pretend to - in it, but at some point someone of power/influence is bound to say "Hold on, this here's all funny money which doesn't really exist".

          And then? - Solids, meet air-conditioning...

          1. DavCrav

            Re: @Mage

            I love it when people use the phrase "fractional reserve banking". It just means that the rest of the comment is going to be deluded nonsense. It's Bullshit Bingo time.

            For the love of God, one final time, here it is: FRB only creates money if you are an idiot that forgets to subtract debt from money. The total assets have gone up, yes, as have the total liabilities. The money isn't generated from thin air.

            Just think through it: my family lends me some money because they don't have anywhere to put it, and I know people who need it. I keep a bit of it to one side, in case they need some back, and lend the rest on to someone else at a slightly higher rate than I give my family, to take account of the work I'm doing. How much money is there? I have a few per cent of the original, the people I gave it to have the rest. No money has been created. What also exists now is a debt from the company to me, which I in turn owe to my family, and this is considered a debt on one side of the deal and an asset on the other.

            All FRB means is that there is an intermediary doing the loaning, and the loan appears on both columns of their ledger: asset and liability. If I acted purely as an intermediary, and put my family in touch with the people I knew to lend the money directly, charging a small commission, the effect would be the same, and my profit would be the same, but the bank wouldn't have assets and liabilities, and people like you would have to find another catchphrase to get frothy about.

            1. LucreLout

              Re: @DavCrav @Mage

              I love it when people use the phrase "fractional reserve banking". It just means that the rest of the comment is going to be deluded nonsense.

              Yes, it's long been one of my amber lights as to the level of fiscal comprehension likely to follow. I think we should tax the use of the term until people either bother to understand what it actually is, what it actually means, and what it actually does, or just give up and admit they don't understand FRB, or indeed finance at all.

              Socialists seem to use the term more than anyone I know in the City, perhaps because it is one of the few terms they're vaguely familiar with and mistakenly believe using a few terms they don't properly understand adds credence to their view. It doesn't, of course, because anyone that does understand finance can see straight through postings by those who don't.

              1. jzlondon

                Re: @DavCrav @Mage

                It's like when people use the word "Quantum" or "Pharma" in a discussion about healthcare.

            2. Marshalltown

              Re: @Mage

              The point you seem to have missed is that debt is being "monetized." Banks do not loan "money" per se, that is credit symbolic of existing value. They loan future money - Wimpy's promise to pay tuesday for a hamburger today. They accept your promise to work your butt off so that you can buy a house and they can collect interest which will roughly double or or more the amount you actually need to pay. Banks are allowed under the FRB system to loan a certain amount based upon what they have in reserve. In addition if you were to deposit the loan you received from them back into the same bank, that loan then - at a discounted rate - becomes part of their reserve. That can then also be loaned, and that cycle can be repeated over several iterations: house-car-boat-credit card-... All the bank actually loans is your or someone else's promise to work long enough to create the value, plus interest at a compound rate. Also, if you look closely at your example, the one thing you are not doing is making a living. So, out of that "bit" you set aside, or out of the interest made to repay that loan you are extracting a living yourself, and the "value" you added to the transaction is debatable. Monetizing debt is inherently inflationary and cannot be avoided - and hasn't been during the entire span of western history. The problem with banks is not that they are bad some how. They impede the research into and development of any better methods of reconning values and costs, or where "money" should come from. At present in the US, although the Constitution places the creation of moeny squarely on the shoulders of congress, with the exception of [relatively] tiny amounts of cash printed or coined at government mints, essentially ALL money in circulation is monetized debt issued by private sources (banks - that is).

              1. Tim Worstal

                Re: @Mage

                It's much easier to keep all of this straight if we make the simple distinction between money and credit. Also known in monetary circles as base money and then money (which is where some of the confusion comes from, but the distinction is the same in both cases.)

                Money, or base money, is what is created by the central bank. Coins and note,s yes, but also some electronic money. Credit, or money (in the other definition) is what is created by the FRB system, the banks etc.

                Yet another set of definitions is to use M0, M1, M2 and so on. M0 is purely that central bank money creation. M4 is all of that plus all of the credit creation by the FRB system.

                And the important point for us here, talking about Russia and Rosneft, is that creation of more base money, more M0, is much more inflationary than creation of more M3 or M4 (bank credit etc). I won't bore you with technical details as to why this is so but it is (OK, because the multiplier of how much more more money and credit can be created on the back of it is much higher).

                And that's what has really been done. Some bank credit (which would be in M3 or M4, but not in M2 or lower) has been replaced by the issuance of new currency, M0. This is also monetisation of debt and is highly inflationary, comparatively. Go too far with this (and "too far" is a flavour, to taste) and you get Zimbabwe.

            3. The next Phil but one

              Re: @Mage

              You're talking about the "loanable funds" model of how the banking system works. It's true for non-bank entities that don't get to issue their own credit as being equivalent to cash. If you're a bank (or any other entity whose credit is traded as if it were "money") then the financial system works differently.

              Have a read up on MMT (Modern Monetary Theory) if you're interested in learning about this way of looking at the financial system.

            4. splodge

              Re: @Mage

              @DavCrav, re: The money isn't generated from thin air.

              Why does paragraph 4 of this Bank of England document say that's exactly what happens, then?

              http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

            5. Justthefacts Silver badge

              Re: @Mage

              Sorry, it is YOU that doesn't understand FRB.

              The spreadsheet works as you say, but is exactly irrelevant.

              Because you don't understand what money is either. As it is used in practice, money is not a heap of a thing, it is a velocity. I (continue to) work my standard working week, and I get to spend £X per year on stuff that I want, which in turn depreciates over time - iPhones over a couple of years, food rather more quickly.

              FRB works by hugely inflating the velocity of money, to a precisely arbitrary extent.

              Let's assume a sample 5% tier1 capital ratio requirement. Bank has £1M, so it lends out £20M.

              I take the money, spend it in the real economy. Each of the suppliers I pay money to, put that into their bank- bank#2. Bank 2 has £20M of deposited assets, so it can (and does) lend out £400M. Etcetera to happy pig land. What stops this diverging in practice is that money is also used as a medium of exchange, taking out some of the exponential feedback.

              Key point #1: The amount of circulating money scales exactly inversely proportional to the arbitrary capital ratio requirement. Drop that to 2.5%, and quantity of money sloshing about in the economy doubles. It is not "fixed" like "grandmas family bank"

              Key point #2: None of the banks have any incentive to care about the debit side of their balance sheet. If (when) the bad loans become due, they rely on government to square it.

              Key point #3: That is why (and when) inflation occurs. During the boom time, we all buy stuff because the spreadsheet says we can afford it. Actually, we can't, it is illusory. Then bust times come, there is no larger pot of money to raid, and governments have NO CHOICE but to print money. The inflation occurs during the boom time from FRB, but becomes apparent later.

              Key point #4: why do I say only money velocity matters? Because, the £50K in my bank account is a convenient fiction. Actually, I get paid £50K a year, and spend it. Nothing, absolutely nothing, changes if I add a 0 to those numbers. Very small fraction of population have more than 2 months savings.

            6. John Savard

              Re: @Mage

              Banks creating money to make loans indeed isn't counterfeiting. It's only check-kiting... and this created money is backed by the collateral on the loan, if not by the gold in Fort Knox. So the system just allows the supply of money to grow to a level commensurate with the real wealth of the nation, rather than allowing a lack of gold-backed money to prevent people from working and producing.

              However, the system is still fragile. Things like a collapse of real estate values can cause collateral for a lot of those loans to stop having enough value to actually back the created money corresponding to it. So, while the banking system is indeed not a scam, as people from Social Credit and so on might have you believe, it's not as rock-solid as the gold standard either.

        2. tom dial Silver badge

          Re: So, Crony Capitalism doesn't work!

          @Mage, RE: "Giant country and actually for every Intel, MS, Google there are 10,000 fails or mediocre companies." Indeed there are many fails for each success, and few of the successes reach the magnitude of an Intel, Google, or Walmart. But the "crony capitalists", whoever they may be, do not prevent people from trying, often succeeding, and very rarely succeeding wildly; and in general they are due little credit for the success, or blame for the failure of new businesses.

  3. MatsSvensson

    Well lets hope that Putin makes a nice soup.

    1. adnim
      Joke

      I think I'll just stick with

      Cream of Tomato

      1. jzlondon

        Re: I think I'll just stick with

        Actually, one of the things Russians are particularly good at is soup. And not just cabbage or beetroot. They have loads of soups.

        And dumplings. They're pretty good at those too.

    2. GitMeMyShootinIrons

      Putin the kettle on for a cup-a-soup...?

      Baaad pun time!

  4. jake Silver badge

    Hands up speculators who didn't short the rouble ...

    ... when the Ukraine thingie started happening.

    Putin is a putz. At best.

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    1. Peter2 Silver badge

      Re: So if I have this straight

      I thought the reason the Saudi's were doing it was to screw up investment in western shale oil which would wipe out a lot of their customers.

      Worse, from their point of view is that if the US/UK don't need to obtain oil from the middle east then we have no further geopolitical reason to attempt to stabilise the middle east.

      You see, Saudi Arabia funded most of the terrorist organisations. Given, not because they have any particular love of them but because if you don't pay them then they start operating in Saudi Arabia, and paying them was simpler and not particularly harmful. Now they have a large group of terrorists they funded setting up a country on their doorstep. Oops. Still, it's ok. The US/UK can be relied on to do the dirty work in removing ISIS. As long as we don't get fed up, and tell the middle eastern countries to deal with it themselves instead of paying terrorists protection money.

      It'd actually be good for the middle eastern countries to deal with this sort of thing themselves. Western countries developed through civil wars, revolts and revolutions and the middle eastern countries need to do the same to progress.

      At the moment I think a lot of people would be quite happy to leave the middle eastern countries to it. However, we can't because we actually have to buy oil from them. But not for long, if shale oil takes off. That we might be in a position to say "your on your own" genuinely scares them.

      From their point of view, dropping prices by 35% screws up shale oil investment, keeps us in the middle east to deal with the problem they created by funding terrorists for years and it also dents ISIS's income from oil revenue.

      1. Anonymous Coward
        Anonymous Coward

        Re: So if I have this straight

        There's also the matter of Israel, probably the only "decent" country in a region full of "bullies." And they have the scars to prove it, too. Basically, they're the OTHER reason we have to pay attention to the Middle East, as the Jews are pretty much Old Testamentarian. When someone hits them, they hit back, turning the place into a powder keg (rumors fly it would be an atomic powder keg, at that). If someone gets crazy enough to decide to do something big in Israel, odds are it'll be the precursor to World War III.

        1. Marshalltown

          Re: So if I have this straight

          Israel is more tolerant of religious nuts than most of their neighbors, There are huge numbers of fanatically religious Jewish, Christian and Muslims that crowd into the old cities. Mostly they get along better between rather than within religions. The orthodox argue orthdoxy not with Christians or Muslims, but with other orthodox. The flavours and varieties of Islam and Christianity also by and large reserve their special bile for their erring co-religionists. So, in old Jerusalem, the rock throwing riots you run from are not between religious groups but within them. The shopowners will just slam the shutters and share a cup of coffee with shoppers trap inside while the rock-throwing debates are conducted. With a little luck, the trapped shoppers buy something.

          In other ways Israel is nearly as cast-ridden as South Africa used to be before Mandela. Israelis of Palestinian-muslim decent are right at the bottom of the heap, competing with out-of-country labor for a very small amount income. There are plenty of patriotic, muslim Israelis of bedouin descent, who can get quite peevish if you mistakenly treat "Israeli" as a synonym for "Jewish." They aren't Jewish, they ARE Israeli, and they have aboslutely no use for Hamas of any other out-of-country bunch that lobs rockets and suicide bombers at Israel, even if some of that OOC group are relatives. They could well be in the house or on the bus that gets hit. I've been there and talked with them and listened to their hopes and wishes.

          1. Anonymous Coward
            Anonymous Coward

            Re: So if I have this straight

            > in old Jerusalem, the rock throwing riots you run from are not between religious groups but within them.

            He he! That brings (mostly) fond childhood memories. :-) Good summary, though.

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      3. Palpy

        Destroying ISIS

        "The US/UK can be relied on to do the dirty work in removing ISIS."

        Well, not really. Outright military occupation has failed to destroy either the Taliban or Al Qaeda. In fact, Al Qaeda now controls more territory worldwide than it did before the US et al occupied Afghanistan.

        First thing: A homegrown guerilla force always has had home turf advantages that make it very hard for an foreign occupier to defeat it. The availability of effective weapons of war in the post WWII world tilted the balance further. With AK47s, RPGs, shoulder-launched missiles, a wide variety of explosive devices, etc, the homegrown guerilla force is virtually unbeatable in any long-term sense.

        Second thing: In traditional military action, sowing chaos upon the enemy will eventually result in his defeat. (Bust up the Third Reich's military-industrial complex, disrupt the fatherland, and the army will falter and crumble.) But that doesn't work when fighting terrorists -- because terrorist organizations thrive best in social chaos. Bomb granaries and social centers, as the US has done in Anbar, and locals will cooperate with ISIS more often, its recruitment will rise, arms and money will accrue, etc. ISIS will get stronger.

        The US and UK will fail to destroy ISIS, just as they have failed to destroy the Taliban and Al Qaeda.

        The banking aspects of the Russian bear-trap are beyond my ken -- but it makes sense on the face of it that an inefficient system does not become more efficient when a corrupt planned economy is replaced by a corrupt cronyist economy. At least so far, a corrupt corporatist economy with a capitalist veneer seems to be better.

        1. Anonymous Coward
          Anonymous Coward

          Re: Destroying ISIS

          "The banking aspects of the Russian bear-trap are beyond my ken"

          As described by TW, it sounds remarkably like what Our Friends in the City call 'quantitative easing', complete with an extra touch of re-hypothecation of 'assets' as collateral for further loans (also much loved by Our Friends in the City).

          Obviously it couldn't be that though, because QE and re-hypothecation are Good Things (according to Our Friends in the City).

          Nick Kew's post (reference timestamp needed but not available) has more details.

          Happy New Year.

          1. dr2chase

            Re: Destroying ISIS

            As Krugman and similarly minded economists will happily tell you, there's a difference when you borrow in your own currency versus borrowing in somebody else's. And similarly, the dose makes the poison. Not all expansions of the money supply end like Zimbabwe.

            A little bit more inflation back in 2008-9-10-11 would also have done a heck of a lot to refloat some of those underwater loans.

          2. Tim Worstal

            Re: Destroying ISIS

            There are definitely parallels between QE and what the Russians have done. Creation of more M0 in order to increase M4 for example. The point being the difference in what people are trying to do. With QE, we've noted that we're at risk of general deflation. This is bad. So, let's print lots more M0 in order to have a bit more inflation. We'd like to have 2% or so (that's the BoE target). That's what we're actually trying to do.

            Russia has what, 10% inflation? QE, more base money, isn't the right solution there. But they're doing it anyway. Tsk.

            The cure for what ails you does depend quite a bit on what it is that ails you.

        2. Matt Bryant Silver badge
          FAIL

          Re: Palpy Re: Destroying ISIS

          ".....Outright military occupation has failed to destroy either the Taliban or Al Qaeda....." Maybe not destroyed but most definitely reduced to the point of hiding in caves behind their womenfolk. Both the Taliban and AQ had the ISI giving them protection and shelter in Pakistan, but that looks likely to change given the recent army school atrocity.

          "....In fact, Al Qaeda now controls more territory worldwide than it did before the US et al occupied Afghanistan....." Really? So which bit has an actual AQ government and structure? True, AQ is openly active in more areas of the World now than in 2001, but that is mainly because of alliances with groups that were already sympathetic to AQ, not due to AQ's own success, and is far different to actually controlling anything. AQ still depends on alliances with groups like Al Shabaab and Boko Haram and does little actual control of anywhere. Their ability to control and coordinate anything has been ripped to pieces by the CIA, especially by the killing of Bin Laden, so much so that groups like ISIS openly disregard AQ as leaders of the Islamist movement. As AQ's star wanes so more of those alliances decline as the active Islamists bent on jihad seek more successful groups like ISIS.

          "......A homegrown guerilla force always has had home turf advantages that make it very hard for an foreign occupier to defeat it....the homegrown guerilla force is virtually unbeatable in any long-term sense...." Tell that to the IRA (Ireland) or the MNLA (Malaya) or the PFLOAG (Oman), or the Mau Mau (Kenya), or the Simbas (Congo, and one of Che Guevera's less appealing revolutionary outings), all defeated on what they considered home turf. Even Rhodesia/Zimbabwe only saw a government loss due to Western sanctions and political interference, and not any guerrilla victory. The 'inevitability of the revolution' and that an organised military cannot defeat guerrillas is just a propaganda myth.

          ".....But that doesn't work when fighting terrorists -- because terrorist organizations thrive best in social chaos....." Not so. The Anbar Awakening showed that Iraqi Sunnis could be persuaded not just to abandon AQ but to also take up arms against fellow Sunni Islamists. The problem has been that the Nouri Al-Maliki Shia-dominated Iraqi government has undone all of the work done by the US and allies in Anbar. That is why one of the first things the US insisted on in the current crisis was the removal of Al-Maliki.

          ".....Bomb granaries and social centers, as the US has done in Anbar....." And your proof of those claims comes from where? Al Jazeera?

          ".....The US and UK will fail to destroy ISIS, just as they have failed to destroy the Taliban and Al Qaeda....." AQ is a massively diminished organisation, a shadow of their former threat. They are reliant on 'lone wolf' attacks as their operational base has been gutted. The Taliban are still hiding in the hills (and their Waziristan boltholes are about to get a lot less secure after their senseless school rampage), and whilst they are desperately trying to call the Alliance withdrawal a 'defeat' the truth is they are really in control of nowhere. And ISIS is already being pushed back out of Iraq and back into Syria. For Assad, ISIS was his carefully calculated saviour that he used to convince the West there are worse things than his rule. ISIS will linger for a few years but is already an organisation facing destruction, and their brutality will mean the World will largely turn a blind eye when Assad thanks them for his survival by eliminating those that escape death or capture in Iraq.

      4. Anonymous Coward
        Anonymous Coward

        Re: So if I have this straight

        > if you don't pay them then they start operating in Saudi Arabia

        You haven't been to Saudi Arabia much, have you?

        I left the country a few years ago (pre-Arab spring) but back then the situation was highly unstable, to put it mildly. In fact, Libya and Egypt were oceans of calmness compared to Saudi.

        Not that you would hear about it in the news, mind.

      5. Ted Treen
        Alert

        @Peter2

        "...I thought the reason the Saudi's were doing it was to screw up investment in western shale oil which would wipe out a lot of their customers..."

        Not at all old lad. The House of Saud (with a little prompting from that nice Mr Obama) has its prime intention as severely harming Iran - their implacable anemy/arch-rival - whose export of oil is the only thing keeping the Tehrani economy anything like afloat. Depress the price of oil, and the general populace in Iran become somewhat disenchanted with the Ayatollahs...

        Mr Obama is pefectly happy to see Tehran deep in the mire, and with the added bonus of buggering up Boris, he has had a pefectly happy Christmas - with it all effectively done through proxies.

        The EU's rush (under US prompting) for expansion eastwards has fuelled Boris's natural age-old paranoia regarding being encircled by the enemy. with the enemy at the gates. The EU foray towards the Ukraine was a step too far from Boris's point of view.

        Also, in reply to Arnaut the less, who states "With the possible exception of Angela Merkel, please let me have the name of a single leader of a major first world country who is not a putz.", the delightful Frau Merkel might not be a putz, but she is a dyed-in-the-wool authoritarian not-so-ex Osti apparatchik who views German hegemony over an enlarged European Union as the Fourth Reich.

        Interesting times...

    2. Anonymous Coward
      Anonymous Coward

      Re: So if I have this straight

      You are spot on in terms of description, you just missed the whole picture.

      It was not just Saudi selling oil under cost. It was USA too. Ever since the Suez crisis, USA has maintained an immense oil reserve. If we plot the amount of oil in reserve it has been dropping from the moment the Ukraine conflict started. The current stock is nearly at zero and this has hurt the Russian economy 10 times more than all the embargo measures.

      There are two long term aims here:

      1. Destroy as much as possible of the current energy relationships worldwide to ensure market for USA as an oil exporter. Eu is "wheened off" Russian gas dependency. Nice ain't it? Well, I am not so sure as it is replaced short term by gas imports from USA shale, long term from Eu being forced to allow USA shale industry in. As all patents on shale exploration are held by USA corps there is only one shale way - it is the USA way or the highway for the next 10+ years (probably more as USA will extend these patents at least once beyond the 17 years normal patent term).

      2. Destroy Russia as the sworn enemy. When the Soviet block (and union) collapsed there was a turning point for about 10 years when Russia could have become a democracy. That opportunity was lost because a number of external powers inclusive of USA, UK, Saudi and Qatar sponsored actively "freedom fighters" along its Southern borders. It is wonderful when a freedom fighter rgoes and blows up a bus with hostages somewhere near Rostov-na-Don or takes a few pregnant women for human shields from a maternity ward. Fantastic thing to sponsor ain't it? Well we did. In a reality like this democracy does not grow - and surprise, surprise it did not. We should be thankful that Putin emerged out of this particular west sponsored event. It was a matter of luck (or some interesting "coincidence") that general Lebedev died in an accident at about that time. Otherwise we would have been at the gates of WW3 with this policy.

      As far as USA happy to see chaos in the Middle East it is the same story - destroy existing oil supplies, benefit gas suppliers to "replace Russia" (Qatar which was nobody 10 years ago) short term and benefit the shale exporters short term, the industry as such long term. After all, what are the lives of 140 million people versus the profits of USA oil producers and shale gas exploration intellectual property holders.

      1. Irony Deficient

        Re: So if I have this straight

        Anonymous Coward, by “USA has maintained an immense oil reserve”, did you mean the Strategic Petroleum Reserve? If so, note that it was established after the 1973–1974 OPEC embargo, not after the 1956 Suez crisis. Also, its current stock is well above zero.

      2. Marshalltown

        Re: So if I have this straight

        The US still has law in place that prohibits the export of crude oil. Refined petroleum products can be shipped out of the US but not crude. Many of the multinationals that were once American companies would now like to shipe crude out of country. Skilled refinery help out side the US would increase profit margins when the out put was shipped back.

    3. Donchik

      Re: So if I have this straight

      As for your last comment, I do care and if you had relatives being slaughtered by Putin's criminal thugs you might care as well.

      Putin has created a hell in the East of Ukraine, and I for one will never forget or forgive.

      Align yourself with him because its convenient and because you hate the US or the EU is contemptible.

      Hate any of them, but do it for the harm they do. Do not forgive them and next year pretend it never happened!

      1. This post has been deleted by its author

      2. Anonymous Coward
        Anonymous Coward

        Re: So if I have this straight

        Putin has created a hell in the East of Ukraine, and I for one will never forget or forgive.

        But Donchik, you're of course welcome to hold your own point of view, but specifically when did Putin create this hell? By when, I mean on which exact date?

        ....some clues....was this before the 2004 externally funded 'Orange Revolution'? or was this creation/inception of his hell before the 2013 new externally funded Color Revolution was started in Ukraine, or was it....? context is everything, events are seemingly part of a long and complicated, almost unbelievable narrative...precision is important

        I also have relatives in this war zone, they didn't choose to have a war, but I think it's beyond doubt that the list of people who did choose a war is somewhat longer and wider than the single name you've offered

        I'm not Putin aligned, although as I prefer my news/discussions to be accurate, I sometimes recently choose Russian propaganda to be more believable than American propaganda - I recognise propaganda as news sources were banned during my life in KSA and I had to secretly buy a powerful radio to listen to the BBC WS. Now I wouldn't bother, I'd spend my time collecting fossils from the desert.

        1. Anonymous Coward
          Anonymous Coward

          Re: So if I have this straight

          > I also have relatives in this war zone, they didn't choose to have a war

          Neither have my friends, a close-knit group which includes both Ukrainian and Russian speakers. Their attitude (which in my experience is representative of large sectors of the population) is one of "there are things that could be improved for everyone, let's talk it out". However, they have no voice.

          Curiously, I have a friend from Western Ukraine and another, ethnically Russian but born in what nowadays is Turkmenistan and living in Ukraine, whose father was a somewhat high-ranking Soviet Army officer and both have used the same words (they're mutual friends too, so might have had this talk at some point): "The same old big boys' game", referring to certain powerful people within the country who are more than happy to ally themselves with whichever foreign actor is willing to help them achieve greater power or make more money. A bit sad really.

          The comparison with Northern Ireland can only be taken so far, btw, since in my experience things are nowhere near as sectarian out East as they used to be back in the day in the Northern counties (and maybe still are? I have no idea).

          What was the name of that old hag from the US Department of State, btw? The one of "Fuck the EU" fame, who was hand-picking the future president of Ukraine before the coup d'État? :-(

        2. AndrewDH

          Re: So if I have this straight

          Actually Putin is doubly guilty. Latterly he has fueled the conflict in Eastern Ukraine by supplying arms and men to support the rebels. Formerly the Putin economic and political model adopted by Viktor Yanukovych and supported by Putin ended badly for Viktor when, understandably Ukrainians rejected his Russian styled Kleptocracy and embraced closer links with a less corrupt more accountable EU model.

          The Putin model where a Kleptocratic minority of super rich oligarchs embezzles vast amounts of money and the working and middle classes a bribed with some of the proceeds of Oil revenues to turn a blind eye failed in Ukraine because Viktor could not afford to bribe the electorate as Putin has done in Russia.

          Putin is guilty twice firstly for exporting the Russian political and economic model to Ukraine which ultimately led to Ukraines rapid lurch to the West and secondly for fueling the resulting conflict by supplying men and arms to the rebels.

    4. midcapwarrior

      Re: So if I have this straight

      "A US quasi-satellite, Saudi Arabia, is allowed to sell oil below cost"

      Saudi cost is $20-$30. They are among the lowest if not the lowest cost producers.

      They don't lose money at todays prices they just make less.

      1. Rota Virus

        Re: So if I have this straight

        The cost base does matter but what is more important is the $ value used for state budget long-term planning. For Saudi Arabia it is around $85-95, don't remember the precise figures.

        This implies Saudi Arabia does this involuntarily and cannot afford to do it long-term without risking socal-support-related protests. This also implies US has most probably forced them to lower the price to hurt Russia or they both conspired, the upside for Saudis being better long-term profits after putting Russia into a difficult position.

        One more thing to remmeber is Israel pays and trains ISIS as well as US and others so Syria can be removed as the obstacle to building Europe-bound oil and gas pipelines. Israel is also developing huge gas deposits in Eaestern Medi. waters and has already proposed to EU building pipelines ending in Southern Europe. That puts American pressure on Russia in a whole new perspective, given US politicians being largely controlled by money or blackmail by Jewish organizations.

        1. El_Fev

          Re: So if I have this straight

          @ Rota Virus

          "One more thing to remmeber is Israel pays and trains ISIS as well as US and others so Syria can be removed as the obstacle to building Europe-bound oil "

          There is not enough tin foil on this planet to cover your head

          1. Rota Virus

            Re: So if I have this straight

            @El_Fev

            Enjoy your bubble or find a script without cliches.

        2. tom dial Silver badge

          Re: So if I have this straight

          In the long run, Saudi Arabia cannot sell oil above the market clearing price, and it is not incumbent on producers in other parts of the world to adjust their prices to allow the Saudis to meet their budget planning targets. If the clearing price is ~$50 a barrel as it seems to be at present, and they need ~$90, it is unfortunate for their plans, and they should rethink their plans. Similar considerations apply to the Russian oil producers and the government under which they operate.

      2. This post has been deleted by its author

        1. midcapwarrior

          Re: So if I have this straight

          "The oil extraction cost may be $20-30, but anybody who tries to run a company based on the COGS will rapidly run into trouble with the bank due to those pesky overheads."

          well plenty of internet companies are trying but the point is that even at today's prices they are not selling below cost.

    5. David Neil

      Re: So if I have this straight

      "A US quasi-satellite, Saudi Arabia, is allowed to sell oil below cost in pursuit of its strategic aim to enforce its raving loony version of Islam on the entire Middle East by targeting states that don't persecute Shi'a."

      The Saudi state is essentially Sunni and has persecuted Shi'a's living there repeatedly.

      1. This post has been deleted by its author

      2. Tom 13

        Re: So if I have this straight

        Let me fix that for you:

        The Saudi state is essentially Sunni a 6th century potentate and has persecuteds Shi'a's living there anyone who disagrees with the regime repeatedly.

    6. Anonymous Coward
      Anonymous Coward

      Re: So if I have this straight

      One small point on the Saudi Comment: Saudi Arabia is a very small country. They built the well heads and infrastructure for producing oil decades ago. There is still a lot of petrochemicals beneath all that sand. This means that they have very few expenses apart from maintenance.. there is no exploration or development costs when you know where the oil is (right beneath you) and you already have the drilling equipment in place.

      The Saudis aren't selling oil at below (their) cost, are still making money at the current prices, and would be able to do so even if they fell further.

      1. This post has been deleted by its author

    7. Tom 13

      Re: So if I have this straight

      Except, the Saudis aren't selling oil under cost. They can sell oil profitably at $20/barrel, a point their OPEC rep made a big deal about in recent interviews.

      This is only the most obvious piece of garbage in your KKK style rant against the US, Saudi Arabia, and the UK.

  6. frobnicate

    In the mean time, rouble regained 30% against dollar, raising from 67 to 52. The prophesies of doom continued unabated on both sides.

    1. the spectacularly refined chap

      In the mean time, rouble regained 30% against dollar, raising from 67 to 52. The prophesies of doom continued unabated on both sides.

      Never heard of the dead cat bounce? There are always brief resurgences in crises such as this, both people hoping to exploit short term term volatility and looking to unroll previous short positions. This article is considering what will happen in the medium to long term - next year or next decade - based on long term factors that are unlikely to change at the drop of a hat.

      You counter that by looking merely at the last week whilst simultaneously ignoring the rest of the preceding month.

      1. Anonymous Coward
        Anonymous Coward

        > Never heard of the dead cat bounce?

        I hadn't until now, but after some empirical research I confirm.

        Sadly, my formerly cat owning neighbours are no longer in talking terms with me. :-(

    2. Richard Jones 1

      '@frobnicate

      Guttering candle effect?

    3. Tim Worstal

      Well, yes

      The spending of a couple of tens of billions of FX reserves, the forcing exporters to convert balances, tax time (Russian taxes must be paid in roubles, are paid just before Dec 25th, leading to more people buying roubles to pay taxes) ....there's all sorts of things a government can do in the short term. The real question is what happens when they can't afford to do those things any more?

      1. Anonymous Coward
        Anonymous Coward

        Just for the record...

        Taxes in Russia are paid in April next year, wisdom of *registered* economists notwithstanding.

        1. Tim Worstal

          Re: Just for the record...

          Corporate taxes are paid quarterly.......if you're a big enough corporate that is.

          1. Anonymous Coward
            Anonymous Coward

            Re: Just for the record...

            Indeed, corporate taxes are paid quarterly and the payment for the last quarter should be done until April next year (until 28th of March, technically). It should be quite obvious that a quarterly tax cannot be paid until the end of the quarter (end of the year), right?

            1. Tim Worstal

              Re: Just for the record...

              And the end of the quarter before the quarter that ends on 28 March is? 28 Dec maybe?

              1. Anonymous Coward
                Anonymous Coward

                Re: Just for the record...

                Oh my, I didn't expect you to be so stubborn. You clearly have no idea what you are talking about. Here, from the horse mouth: http://www.nalog.ru/rn51/taxation/taxes/profitul/ . Note that "but I cannot translate this" would somewhat spoil the air of knowledgeable confidence your analysis radiates.

      2. Mark 65

        Re: Well, yes

        Tim, how do you see the attempts by Russia to move the World away from transacting everything in US Dollars faring? They already allow China and, I believe, Europe to transact in alternatives. There's simply little need, when the controller of said country is such an anti-social playground bullying arsehole, to transact in it.

  7. Nick Kew

    Take a look in the mirror.

    This story is true up to a point.

    But Russia has to print to back Rosneft? The west has been printing on a scale that dwarfs Operation Bernhard to back zombie companies - headed by the banks - since 2008. The differences in Russia seem to be the circumstances (sanctions, vs a huge bubble), and more crucially the fact that Russia has been running a surplus in the Good Times and therefore has resources to back action in a crisis. Whereas we were (and are again) running a huge instant-gratification deficit right through our bubble.

    Who's right? You could look right back to the biblical story of Joseph and Pharoah's dream for inspiration. Osbrownomics abuses the name of Keynes by running a huge deficit right through a bubble! Not a good place to be, nor where Russia is. Furthermore, we now have a whole bunch of zombie companies kept alive only by special government measures[1]. Our government is picking winners and stifling innovation, particularly amongst its cronies in the (old, established) banks.

    And you're comparing Russia to the US. A similar comparison to the UK would look a lot more alarming for us. Whereas Russia may be built on natural resources, the UK is ever more reliant on a zero-sum game of property speculation (is it any wonder that our rich list is topped not by the likes of Gates and Buffett, but by aristocrats with inherited wealth)? Our economy is frighteningly dominated by the unproductive, and our currency is propped up by safe-haven status for the global super-rich.

    Given that choice, Russia looks a whole lot less scary than Blighty!

    [1] Topically right now, this might be why the Moulton treatment failed to turn City Link around. In a zombie-dominated economy, the turnaround was trying to drag it through treacle.

    1. DavCrav

      Re: Take a look in the mirror.

      "But Russia has to print to back Rosneft? The west has been printing on a scale that dwarfs Operation Bernhard to back zombie companies - headed by the banks - since 2008. The differences in Russia seem to be the circumstances (sanctions, vs a huge bubble), and more crucially the fact that Russia has been running a surplus in the Good Times and therefore has resources to back action in a crisis. Whereas we were (and are again) running a huge instant-gratification deficit right through our bubble."

      One big, massive difference: QE in the West was at a period of threatened deflation, and so although it was inflationary, inflation was a good thing. QE in Russia now, with massive interest rates and high inflation, is exactly what they don't need. They already have stagflation, really worse than that, and sticking more flation, and also a bit more stag, is not going to help.

  8. JJSmith1950

    Tim... where do I begin?

    You call yourself a "free marketeer" yet from the outset you delight in the influence brought to bear on the Russian economy by thinly veiled US foreign policy. You try and explain away Russia's woes in market terms, studiously ignoring the elephant in the room: Russia is receiving a massage from a US baseball bat. Russia's woes are by design, not by "market forces".

    When Russia was brought in from the cold in the early '90s the "free market" proscriptions its economy endured were not applied to improve the economic situation, they were applied to break Russia - to remove the Russian threat - once and for all. Under the smoke screen of "market reforms" and the rhetoric of "comparative advantage", Russia's industrial base was systematically destroyed, for geopolitical reasons. By rendering Russia a supplier of primary resources in the global economy Russia was effectively declawed. Its new economic position placed it at the mercy of US capital flows, and stripped Russia of economic and political autonomy.

    The "free market" is simply a rhetorical tool used to mask the exercise power; only fools and Machiavellian ideologues pay lip-service to its tenets. Which one are you Tim?

    1. Anonymous Coward
      Anonymous Coward

      Russia's industrial base was systematically destroyed?

      It may have been destroyed or not, I don't have data to asses that. What I know for sure is that it was not going to be able to withstand competition.

    2. tom dial Silver badge

      I have no recollection of seeing "Made in USSR" or "Made in Russia" on manufactured goods. My impression, which I cheerfully admit may be somewhat in error, is that the USSR had a pretty good arms and military equipment industry and fielded good heavy lift rockets. That still seems to be true,. What industrial base was destroyed?

      1. DavCrav

        "What industrial base was destroyed?"

        Tractor production, which was up 15% every year until 1991.

      2. JJSmith1950

        Re:I have no recollection of seeing "Made in USSR"

        Why do you think that was?

        Why do you think you couldn't get your paws on Soviet products? Do you know what "Communism" means? Did you hear about something called the "Cold War"?

      3. DropBear

        I have no recollection of seeing "Made in USSR" or "Made in Russia" on manufactured goods.

        Your mistake, but an understandable one. You should have been looking for "Сделано в CCCP" - and yes I've seen plenty of that in my time (and they were far better made than early Chinese stuff too - although recent Chinese wares are a different story).

    3. ckm5

      I did a lot of business with the Soviet Union both before and after the fall of the wall. I owned an import/export company in the early 1990's that dealt exclusively with the remnants of the Soviet Union. I also worked for a small period of time as an official for several Western countries, specifically dealing with Soviet (then Russian) issues. And I also studied this period in graduate school.

      Your 'analysis' comes from a deep, deep lack of knowledge, even if, as a theory, it explains some things. In 1991-92, there was a slight glimpse of hope for Russians - Democracy had won out over militarism and a true free market started to emerge. My business partner was actually in Moscow when the attempted coup against Gorbatchev happened - he ran to the airport as soon as he saw a tank on the street, grab the first flight out that had room.

      There was some crazy asset grabbing (not too dissimilar to the US in the late 19th century), but there was also a huge amount of opportunity top to bottom. Along with that came a large amount of desperation as everything was being repriced but wages (mostly state paid) were not keeping up.

      For a few years, although life was not easy, you could see a steady improvement. Then, something happened and moral 'discipline' started to break down. From my company's vantage point, the cost of crossing borders started to rise dramatically, so much so that we actually shut down the business. Basically, corruption got completely out of control - it was no longer a matter of 'I need a bribe to feed my family' but 'I want all of your money because I just need more money'. This chaos transitioned into a very, very dangerous environment, a mafia-esq downward spiral of violence & theft not out of place in a Hollywood movie.

      At this point, a number of patriotic officers from former secret services decided that it was their duty to save the country from this mess. Into the picture stepped Putin & a number of ex-KGB officers. Their solution was to use the still-present Soviet tools of control to restore order - bribery, show trials, violence, exile, assassination. Note, this is not an exact history, but this is effectively what happened.

      Out of these Soviet tactics, and the mafia-like violence & theft, emerged the Russia we see now. Complete with the old Soviet strategy of finding any scapegoat for internal problems, however implausible they might be. The reality is that most of Russia's problems are self-inflicted and a result of this chaotic transition and a reactionary return to what was known to work (e.g. Soviet tactics)*.

      The reality is, no one in the West, least of all the US, gives a shit about Russia. Which, of course, Russians view as proof that 'Russian power' is terrifying for the West.

      In reality, the West (esp the US) would like nothing more than a wealthy, strong, stable, non-expansionist, open Russia (with a cogent, working legal system) it could sell more crap to and invest in. The same is roughly true for China, BTW.

      As far as the industrial base goes, everything had already started failing apart in the early/mid 1980's - it was fundamentally a 1960's industrial base in the 1990's, with zero investment in the intervening years (and I tried to buy some of it so I got an up close look). For extractive industries or raw materials processing, that might be OK, but everything else, including Lada, was a disaster, even the military stuff.

      * To be fair to Russians, I'm not sure they knew what else to do. Never having had a real Democracy and with most of the country's 'patriotic values' destroyed by either Communist or the death of Communism, they just did what they knew how to do, even if it wasn't a long term solution. And, following Western values had, in their minds, nearly destroyed the country (as JJSmith1950's comment implies). But correlation does not imply causation.

      1. JJSmith1950

        @ckm5

        Your personal anecdote is interesting, but, like Tim Worstall, you demonstrate staggering naivety. Your "understanding" of Russia's position is devoid of geopolitical context.

        For fifty years the Soviet Union presented the US with an existential threat, the US wanted to neutralise the threat, understandably; the unravelling of the Soviet empire provided that opportunity. The US didn't want an economically weak, unstable, Russia - quite the opposite - it wanted an integrated, economically dependent, Russia.

        In the early '90s Russia's economy was restructured under the auspices of the Chicago School in order to integrate it into the global economy; a global economy dominated by the US. Russia's vast natural resources provided its "comparative advantage", this is where investment was targeted. It was to be a supplier of primary products to international markets.

        Russia's industrial base wasn't merely of '60s origin, as you suggest, it was designed and built in an environment without commercial pressures. To starve it of investment and expose it to global markets was to kill it off, effectively; Russian industry was subjected to market "shock therapy", in other words: dismantled and sold for scrap. Only the weakness of the Ruble prevented its complete destruction.

        None of this happened by accident, it was by design, it was part of the conditions of the economic rescue package offered by the IMF and World Bank. Russia's new "rationalized" economy was a dependent economy; if Russia attempted to exercise its autonomy, counter to US interests, economic thumb screws could be applied relatively easily. The collapse in the oil price in the wake of the Ukraine crisis is the application of the thumb screws. Russia's current economic situation is the result of geopolitical machinations, not market forces.

        Tim Worstall's "analysis" is not much better than your average kindergarten Marxist's, he's descended into Alice in Wonderland economic determinism. Like many wedded to "free market" ideology he has no comprehension of power or how it is exercised. In reality, "free market" tenets are only adhered to when it is in the interests of the powerful, they are abandoned as readily as the are adopted, when it is expedient.

  9. Grikath

    the worrying thing....

    is that it's all good and nice to make fun of Putin et. al. But in the end the whole damned Free World™ runs on this principle.

    Now....When , besides US Lawyers and the USPTO, are we going to put Bankers up against the wall and shoot them for Crimes Against Humanity? After all... a foreclosure kills just as much as a bullet.

    1. DavCrav

      Re: the worrying thing....

      "Now....When , besides US Lawyers and the USPTO, are we going to put Bankers up against the wall and shoot them for Crimes Against Humanity? After all... a foreclosure kills just as much as a bullet."

      The Bankers (your capital) did some Bad Things. Sure. Did they do any Illegal Things? As the saying sort of goes, I would prefer a thousand Bankers to go free than us start locking up people who have committed no crime, or crimes that are not punishable by jail. That is a very Soviet Union thing to do.

      And what makes you think that Bankers are responsible for crimes against humanity? (I cannot bring myself to continue to capitalize things like you.) If you live in the UK or US you will see that the majority of the problem was retail banks, not investment banks, lending money to ordinary people. Your killer foreclosure wouldn't have happened if the banks had behaved responsibly, because ordinary people would never have been given a loan to buy a house in the first place.

      So now you (presumably) are going to blame the banks for house prices, at least in the UK. Interestingly, house prices are still going up even after the tightening of credit, meaning you (presumably) are wrong. There are a few things that the government can do to arrest house prices:

      1) Rent controls. As any fule know, this is a quick way to annihilate your housing stock, second only to carpet bombing at efficiency.

      2) Price controls. AKA, communism. There might not be anything wrong with that (there is) but at least be honest.

      3) Restricting foreign ownership of property. Not a popular move among the people that like to blame rich people for all their problems.

      4) Massive social housing projects. We are talking millions of new houses here. Not particularly popular among anyone who currently lives in these areas.

      The conclusion of all this is, at one point at the height of the New Great Depression, GDP in the UK in 2009 was almost down to 2004 levels! I remember 2004: there were dead bodies piled up on the streets, pestilence and starvation everywhere, and hardly anyone had decent smartphones.

    2. LucreLout

      Re: the worrying thing....

      a foreclosure kills just as much as a bullet.

      Erm, no. No it really doesn't. Foreclosure kills nobody. It isn't pleasant, but then neither is relationship breakdown, or redundancy, or many other things that happen when the choices we've made don't work out they way we'd wished. Equating it with taking a bullet is juvenille at best, and betrays a lack of rational thought.

      When... are we going to put Bankers up against the wall and shoot them for Crimes Against Humanity?

      And just what imaginary crimes would these be?

      Remind me again how bankers forced Ed Balls and Gordon Brown to borrow a trillion quid we didn't have, to spunk up the wall on public sector staff we neither needed or wanted?

      Remind me again how bankers forced the governmnt to restrict planning permission, and forced suckers to borrow beyond their means to buy houses they simply could not affford?

      You need to stop soaking up political dogma like a sponge and start thinking for yourself. You have, or will have soon, the right to vote. It is your responsibility that comes with that right to educate yourself before taking up that right.

  10. Zog_but_not_the_first
    Mushroom

    Gulp!

    Putin and his ego and a nuclear-armed country backed into a corner. What could possibly go wrong?

    Happy New Year.

    1. Anonymous Coward
      Anonymous Coward

      Re: Gulp!

      Who do you think he's going to attack with nukes? The US? Saudi Arabia? Ukraine? He may be backed into a corner, but he's not a raving lunatic, so I don't think this is a worry.

      He'll do what every despot does when backed into a corner. He'll deflect blame from himself and his government by blaming outsiders. He'll whip up nationalist fervor so people feeling patriotic instead of angry about being deprived and becoming poorer. Hitler blamed the Jews, Putin will blame the West. He's always wanted the good old cold war days, and this might let him get them back. But he knows he can't go to war with NATO, so he'll just hint at it enough to make his citizens feel pride in their strong country, without giving the US cause to actually think he'll carry them through (because he saw what happened when Saddam took such talk a bit too far and people actually believed he had WMDs)

      1. Anonymous Coward
        Anonymous Coward

        Re: Gulp!

        @Doug S

        "because he saw what happened when Saddam took such talk a bit too far and people actually believed he had WMDs"

        I actually agree with everything else you have said here but I think the difference for Saddam was that people in power didnt actually believe he had WMDs. That was largely the sop thrown to the general public as justification.

        Once a crackpot dictator gets actual WMDs, they are pretty much safe from any form of military conflict - North Korea being a good example.

        If was a tinpot, mentally unstable, leader of some random country (hey, we can all have goals...), the main lesson I would have learned from Saddam is that being mouthy without the arsenal to back it up is pretty fatal. Get the arsenal and the world's your oyster.

        1. This post has been deleted by its author

      2. AndrewDH

        Re: Gulp!

        Putin is already blaming the US and the West for Russia's financial woes. It will be interesting to see if Putin's deal with the electorate will survive. Putin's proposition can be summarized as "I will run the country as a centrally planned kleptocracy where my friends will get very rich but the working and middle classes will also see benefits driven by huge Oil revenues

        The sad irony of Ukraine is that Putins erstwhile friend Viktor Yanukovych tried to run Ukraine along the same lines as Putin runs Russia. Yanukovych created a similar cadre of oligarchs who swiftly hovered vast amounts of money with at least $70 billion being misappropriated. But Ukraine doesn't have access to Oil revenues Russia had and so there was no trickle down benefit to the working and middle classes because there wasn't enough to go around particularly after Viktor and his pals had their share.

        Closer alignment with the West in particular the EU which with some exceptions has much lower levels of corruption and much higher levels of control over the actions of the executive became more and more attractive as did distancing Ukraine from Russia which was the model on which Ukraine was being run.

        Suddenly Putin lost a pal and ally and another country to the west of Russia and to the East of the EU lurched dramatically Westward. Putin predictably reacted like a scalded cat, he has always hated the expansion of the EU eastwards if only because it represents a rejection by former satellite countries of the economic and political model he has put in place in Russia.

        The sad irony is that he only had himself to blame. His model only works when you have enough money floating around in the economy to bribe the masses to turn a blind eye to the crimes of the elite. It will be interesting to see how he fares when he like Viktor doesn't have the cash to pay the bribes.

      3. Tom 13

        Re: but he's not a raving lunatic

        An unproven assertion with plenty of evidence in sight that indicates otherwise. And that's the fundamental problem with nukes: a person who is what we usually define as rational will not use them, but when it's a mad man backed into a corner all bets are off.

        What the West has relied upon with Russia/Soviet Union (because they really are the same thing despite rhetorical flourishes), is that there are other thugs in the room with the Big Thug and if it looks like the Big Thug has lost enough of his marbles to let it all burn, one (or a group) of them will take him out before he actually pushes the button. While this is still 75% probable, it's not the 95% it once was.

      4. Vic

        Re: Gulp!

        He may be backed into a corner, but he's not a raving lunatic

        [Citation needed]

        Vic.

  11. ACx

    OK, Im fine(ish) with the US, or any other country, taking measures its self to punish another country, if its so chooses to do so. But essentially blackmailing foreign banks and there for countries to do the same, by threatening them with being cut out of the dollar market, is an issue and quite obviously why many countries, regimes, and people despise US exercise of power. It also makes the dollar its self less attractive. Banks and countries will look for ways to mitigate that insecurity.

    Really, the US doesn't help its self at all. What interests me is that global power over time is cyclical, and one day the US will become weak(er). O, that may be decades off, but at some point, many will look to settle old scores and if that happens at once, the US will pay terribly for what is seen as its indiscriminate, arrogant, self righteous, excessive exercise of power. This would be a problem for all of us. The US is secure while its top dog, but it cant be top dog for ever.

    1. thomas k.

      Amen to that, brother/comrade

      Like all deluded ubermenchen drunk with power, the oligarchs/corporatists running America have convinced themselves (like those deluded old Nazis did) that their 1000 year reign will, indeed, last 1000 years, totally ignoring the lesson history gives us over and over again - that as empires come, empires eventually go, and other empires will rise up to replace them. Ignorance is bliss, I guess.

      The question is not 'if' but 'when' and whether it will come with a whimper or a bang, a slow descent into irrelevance or dragged kicking and screaming from the stage.

      And why would they care, even if they've taken that into account? The millstone of history, though it grinds inexorably, generally grinds slowly, so they'll all be long gone when that day of reckoning rolls around.

      A shame that they're so short-sighted, so obsessed with getting their own (and fuck the common folk), such dicks about it, in other words, when with a modicum of effort they could manage the transition with grace. That would, however, require they harbor some tiny shred of decency or altruism, qualities they have repeatedly shown themselves to be completely lacking.

      One is tempted to say, "Line them all up and shoot them" but that would be wrong, right?

      1. Anonymous Coward
        Anonymous Coward

        Re: Amen to that, brother/comrade

        Historically, when the "middle-class" perceives its own socioeconomic status under threat, sees a decline, with no better future prospects in sight, is when they choose an alternative to the current elites. And that's been true for thousands of years. There's an awful lot of that perception in the world today. I know, if I were one of those elites, I'd be very, very nervous.

    2. Rota Virus

      It depends what we define as a country. The options are:

      1. The state in theoretical terms

      2. The people

      3. The ruling elite

      China as a state and as a ruling elite has numerous instruments to hurt any country in the world but they don't usually do it. In my book, being a top dog is being smart. Raw power is short-lived especially when the said dog is against a hard wall economically.

    3. DropBear
      Facepalm

      ...many will look to settle old scores...

      The thing with diplomacy is that it has no memory. At all. None, whatsoever. A politician will only consider the present state of affairs and nothing else. None of them - not a single one - will forego taking advantage of a current offer on the table only because past actions would suggest a more antagonistic attitude...

  12. PCS

    I live in Moscow. Two years ago it was 45 roubles to the £. Two weeks ago it was 106 roubles to the £. Now it has steadied at about 83 roubles to the £.

    My girlfriend works for one of the large tourist agencies here: last year at this time they had 70,000 bookings for European summer holidays, this year they only have 1,000. Redundancies are kicking in everywhere, expats are leaving the country (I get paid in £ so am better off now) and Ivan Bloggs is suffering.

    But vodka sales are increasing :P

    1. Tapeador

      @PCS

      Why have the holiday bookings stopped?

      1. Anonymous Coward
        Anonymous Coward

        Re: @PCS

        Well, check out the excellent holiday website "interhome.ch" (where I know that some Russian friends bought Spanish holidays in 2013 & 2014), you'll find that their disposable salary in roubles buys quite a few less Swiss francs in 2015, so they might have their vacation in Russia. If EU in general have 15% less external tourists due Saudi/US inveigling then presumably the market prices for 2015 holidays will come down, and the deflation will be great for the consumers, if not quite so helpful for the EU MS government debts.

        Also there's the 2014 information war effects on the Russian tourists' psyche to consider "People are eyeing Europe with suspicion because it remains unclear what restrictions Russian travellers may face there."

  13. Anonymous Coward
    Anonymous Coward

    All this reminds me of something from Jerry Pornuelle

    Someone that can hardly can't be considered a shade of leftist/communist said something like this about the gulf wars: if we took all the war money and instead spend it on massively moving the US of A to use renewable energy sources, things would be much, much better. Fossil oil should be kept to be used as a raw material for creating other products, not as an energy source except where there is no replacement (air transport, for example)

    That would mean that the Middle East and sourroundings, Russia included, could be left to their own devices to solve their own issues instead of relying on the Western world to "fix" them (where "fix" means shifting the balance of power to whoever owns the oil rigs) As a bonus, we could tell arabs, russians and assorted African dictators to take their oil and shove it where the sun does not shine.

    And before you say that it would place the western world at an economic disadvantage, please consider a few other factors: such as the cases of a few countries already massively switching to renewable energy sources, the future costs of keeping these middle east oil wells pumping, and that fossil fuels are a finite resource (no matter how many exotic extraction methods we develop and how many frozen places we drill in) so we have to do it at some point after all.

    1. Anonymous Coward
      Anonymous Coward

      Re: All this reminds me of something from Jerry Pornuelle

      "...that fossil fuels are a finite resource..."

      The US Navy is researching harnessing nuclear reactors to synthesize jet fuel out of ocean water. If it pans out, it could push fossil fuels out of finite and back to abundant.

      Anyway, while the article notes much about increased revenue from increased capital, I have a bone to pick about TFP. That is, isn't there a limit to this, too, as in you can only run things so efficiently?

      1. Anonymous Coward
        Anonymous Coward

        Re: All this reminds me of something from Jerry Pornuelle

        "That is, isn't there a limit to this, too, as in you can only run things so efficiently?"

        You might like to compare the work a person could do in say 18thC with a shovel with that same bod in a JCB. There were several steps in between. Now we are seriously considering mining asteroids.

        So yes there may be a limit but I'm not sure where it will kick in.

        1. P. Lee

          Re: All this reminds me of something from Jerry Pornuelle

          >So yes there may be a limit but I'm not sure where it will kick in.

          I'll speculate. The tech companies no longer want to make stuff to sell because they can't sell it anymore, so they want to rent. Massive amounts of money are spent in entertainment. That's a rather ephemeral market.

          Increasing efficiency is only useful if it is applied to something. That something is pulling things out of the ground, changing their form and selling them. Most of our tech effort is no longer aimed at production, its aimed at analysis and entertainment.

          Tim is making the classic ecomomist mistake of confusing money with useful work. There is a link, but it isn't a very strong one. The West is rich, but not very productive. To a large extent we don't even own the means of production. We just own "ideas." That's a dangerous strategy even when everyone is playing nice. What happens when people start to starve? Don't crow over the economic ruin of your enemy, the French did that with the Treaty of Versailles and it didn't end well. Even "efficiency" is often wrongly named. It now means "low cost" You can increase your efficiency by cutting your workers' pay (e.g. outsourcing). You haven't made the process any better, the process is not more efficient, resulting in a larger pie from the same ingredients, you've just concentrated wealth, re-allocating more of the pie to yourself. This is hidden by moving the work cross-border, since we don't care what happens to foreigners.

          And yes, war is an extension of economic policy as we hahve seen from the USA, so be careful who you make poor.

      2. This post has been deleted by its author

        1. Charles 9

          Re: All this reminds me of something from Jerry Pornuelle

          You forget. Every aircraft carrier currently in service in the US Navy is powered by a reactor. That was the idea: use leftover reactor power during quiet moments to churn out jet fuel, saving the logistics of porting to get more.

          Anyway, put this together with much-safer (and perhaps much-smaller) reactors and you can see a track to true energy independence.

          1. This post has been deleted by its author

            1. Tim Worstal

              Re: All this reminds me of something from Jerry Pornuelle

              The making oil from nuclear power one is about reducing the logistics tail needed to get avgas to a carrier. Once you figure that in (I've seen a figures, no idea how true it is, of $35 a gallon at the point of use once you add it all up) it's economic. Just.

            2. Anonymous Coward
              Anonymous Coward

              Re: All this reminds me of something from Jerry Pornuelle

              The power plants used by the US Navy have very little relationship with those on land; completely different beasts in every aspect except, perhaps, steam generation. I'll leave it at that. [Classified up the yin-yang.]

          2. Chestislav Achterkamp

            Re: All this reminds me of something from Jerry Pornuelle

            Pretty much every nuclear reactor is extremely safe, a few are less so and recommendations are made to improve those. Pebble beds might be what you mean by safer, as it is impossible for them to enter meltdown(all self sustaining nuclear reactions are critical), even with every possible thing going wrong in the worst way.

          3. Anonymous Coward
            Anonymous Coward

            Re: All this reminds me of something from Jerry Pornuelle

            Two reactors, actually. You could also toss in the non-nuclear escort ships with gas turbine engines as another customer. Since full power off of both reactors isn't generally called for, fuel generation would be a continuous activity. Oh, and refueling her escorts is one thing we do practice often enough while deployed around the world. Heck, I've seen an oiler refueling the carrier's supply of JP-5 while the carrier is refueling one of her escorts the same JP-5. [Practice, practice, practice. Everything.]

        2. Anonymous Coward
          Anonymous Coward

          Re: All this reminds me of something from Jerry Pornuelle

          I'm probably showing my ignorance here, but why is Russian Siberia the best place to make use of the process?

          1. This post has been deleted by its author

            1. This post has been deleted by its author

          2. Tom 13

            Re: why is Russian Siberia the best place

            for the same reason that makes it the worst place: it's equally inaccessible from everywhere (which has also been said of my college alma mater).

      3. Martin Audley

        TFP is unlimited - Re: All this reminds me of something from Jerry Pornuelle

        Nope - there's no limit to TFP, (that is, right up to the hard-limit ability where, Star Trek-like, we can abandon economics altogether as irrelevant.)

        We already make cars in near-lights-out factories full of robots. You might say that there's an efficiency limit reached once we reduce the number of staff to zero. But there'll still be efficiency savings to be made on the amount of steel used in the cars, or in who's making the robots for the factories.

        When I worked at Toyota, there was a kinda company meme going around that "We don't build cars - we build factories that make cars". Toyota 'got' the point that to be truly efficient, you go meta - you build something that builds something else efficiently, reproducibly, reliably.

        A similar concept hypothetically applies to software engineering - you don't (generally) code at machine code 'bit' level - you abstract up to a higher level language that can churn out machine code.

        Back in the physical world, we've got that abstraction still to come - but the singularity is fast approaching. Once robots can build robots (and once robots can design and build robots that build robots) then humans can take the day off and go to the beach.

        How, in that future economy (of 99% permanent unemployment) we manage to give an income to those non-workers - via a Citizens Income to buy ice cream there - remains an exercise for the reader - and that's when politics will get really interesting.

        1. DropBear
          Devil

          Re: TFP is unlimited - All this reminds me of something from Jerry Pornuelle

          "Back in the physical world, we've got that abstraction still to come - but the singularity is fast approaching"

          Funnily enough, I tend to use any mentioning of "the singularity" the same way one of the earlier commentards confessed using "fractional reserve banking" - ie. I draw my own conclusion on the technical competence of the author right there and disregard the entire post wholesale, immediately.

      4. LucreLout

        Re: All this reminds me of something from Jerry Pornuelle

        The US Navy is researching harnessing nuclear reactors to synthesize jet fuel out of ocean water.

        Any chance of a credible source for this please? I ask not because I disagree, but because I'd like to learn from it.

        I have a bone to pick about TFP. That is, isn't there a limit to this, too, as in you can only run things so efficiently?

        If you assume we continue all current activities and create or invent no new ones, then yes there would be a limit. If you allow for the potential to create new things, such as mobile application development, which wasn't much of an industry 10 years ago, and didn't exist at all 20 years ago, then I'd say no, we can grow indefinitely.

        1. Tim Worstal

          Re: All this reminds me of something from Jerry Pornuelle

          http://www.forbes.com/sites/timworstall/2014/04/08/dont-get-too-excited-but-the-us-navy-can-now-make-gasoline-from-seawater/

  14. fritsd
    Meh

    innovation only fruitful under rule of law

    I have some half-baked thoughts on the "crony" part of "crony capitalism".

    You gave an example of diminishing returns: the first year of study is more valuable than the last year, or something.

    Why bother to invest in an expensive study, if the jobs are going to the nephews and nieces of the dictator or oligarchs?

    Why bother to, as a small company, experiment with new efficient or sustainable production methods, if your friendly neighbourhood zaibutsu will just patent it and slap you around the ears with their lawyers? Innovation is a threat to established multinational corporations.

    There must be a belief that when you put the effort in, you'll get to reap some of the rewards (after taxes, of course) of your dastardly attempt to increase that economic TFP factor. If it works.

    If the society is not structured to approve of the innovators and protect them with the rule of law against the "sharks", then this mythical TFP will not flower, I think. Why bother?

    It's a small miracle that Andre Geim bothered to discover graphene, for example.

  15. Anonymous Coward
    Anonymous Coward

    The Russian government has always been criminal

    The lack of punishment for their crimes however has been astonishing. Many Euro countries profit from dealing with Russia so they are hesitant to take appropriate action when Russia invades and illegally takes Crimea or when Russia provides surface to air missiles that rebels use to shoot down a commercial airliner full of innocent people, killing them all. Money is more important to some people than morals or ethic behavior. That is the problem. Unfortunately it's not the criminals in Russian government who suffer, it's the citizens and businesses. Executing the entire senior Russian government staff would be a good means to start rebuilding Russia.

    1. Anonymous Coward
      Anonymous Coward

      Re: The Russian government has always been criminal

      Correct me if I'm wrong, AC, are you saying supporting the criminals in the Russian Government is more wrong that supporting the criminals in other (e.g., British, US) Governments?

      I for one don't think our own Government is any more moral or ethical than the Russian. They might appear to be, but I bet they have their own agenda.

      1. Anonymous Coward
        Anonymous Coward

        Re: The Russian government has always been criminal

        Thankfully your beliefs are incorrect. While all governments have some crims, the Russian government is comprised virtually totally of crims and the populace suffers from their crime.

        1. Anonymous Coward
          Anonymous Coward

          Re: The Russian government has always been criminal

          Executing the entire senior Russian government staff would be a good means to start rebuilding Russia.

          Didn't Joe Biden and a few others, in the heat of the chagrin over the outmanoeuvre around Crimea, suggest that an immediate signing of the Transatlantic Trade & Investment Partnership would be the best reaction to Russia's crimes? In-fact, has the TTIP already been secretly signed? In which case then everything will soon be rosy!

        2. Anonymous Coward
          Anonymous Coward

          Re: The Russian government has always been criminal

          "While all governments have some crims, the Russian government is comprised virtually totally of crims" - you seem to be under the delusion that you get to be a member of a government - ANY government, ANY country - without being a criminal long before that. Do you seriously think power is simply bestowed upon the worthy, or that those that have it give some of it up to newcomers on their own accord? Actually, don't bother answering that...

  16. WalterAlter
    Pirate

    The global economy is manipulated by these basterds

    https://www.youtube.com/watch?v=Dq9yjt_JbWs

    ...and until we become educated to how banking and money creation, credit and debt, function in the real McCoy 3-D world, we'll scratch our heads hairless all the way to the horizon.

  17. skeptical i
    Meh

    All politics is local.

    Across America, City Council staffers are nodding in recognition: it's not the best-run companies or most innovative ideas that get rewarded, it's the buddies of TPTB being allowed to run rough-shod and devil take the hindmost. As above, so below; if you're in a cesspool it won't be cream that rises to the top.

  18. Anonymous Coward
    Anonymous Coward

    Crony capitalism fails? Doesn't surprise me in the least

    How can a Facebook or Google start up in Russia? Answer: with great difficulty. For starters, if you're the owner of a successful Russian tech business, it can simply be taken from you*. Then there's the minor problem of Russia's best engineering talent getting fat in Silicon Valley**? I think Putin forgot he had a country to run (i.e. his job).

    * It's amazing what an invented unpaid tax bill can do, especially when the judge is bought and paid for.

    ** And why shouldn't they? Being script kiddies for the FSB isn't a sustainable way to make a living.

  19. Bladeforce

    Its beginning to look a lot like..

    ...America is the evil axis

  20. G Mac

    A rewrite of history - I wonder why?

    Interesting that the economy is being blamed on Putin, when he inherited it from Yeltsin.

    Most likely that is because by doing so Mr Worstel takes the blame off the economic folks that he probably aligns with, aka the 'Harvard Boys', those bastions of free market economy that sold the Russian state assets at fire sale prices to the oligarchs that Putin has in some measure curbed (but not of course some of his own cronies). Just look up these terms:

    harvard boys russia

    for example, http://www.thenation.com/article/harvard-boys-do-russia

    It's also interesting that the 'efficient market hypothesis' was wheeled out, you know the one that said that the GFC couldn't happen. Quite frankly, it was my understanding that that was declared DOA at that time. Zombie economics FTW I guess.

    What is *really* interesting with the article is what it did not say, and I think most folks would be more interested in than a neo-classical economic rant that carefully leaves out history.

    To wit: Most of the debt is private - the government does't have much. So what *are* the knock on effects of $900B in debt if it cannot be repaid over time, say pension funds, hedge funds, banks and of course western governments? OTH, what if they declare 'force majeure' due to the sanctions (even more interesting!) and suspend payments until that is unwedged. If I owe you $100 bucks, that is my problem. If I owe you $900B, that is *your* problem.

    But then this was more of a rant than an objective view of the situation. Which is fine, as long as you recognise that.

    1. AndrewDH

      Re: A rewrite of history - I wonder why?

      I think you are missing the point. The 900B if debt that needs to be refinanced in Russia may not appear on paper to be Government debt but really it is. That is because in Russia there is no clear break between Government and the Oligarchs running the companies who need refinancing. They are one and the same thing.

      1. G Mac

        Re: A rewrite of history - I wonder why?

        Not sure who is missing the point here. The companies could default or suspend payments. That affects the payback to the western banks et al - that has the ripple effect.

        As for further foreign financing, absolutely that is an issue, and one Putin will desperately try to remedy. But losses on existing bonds was my point, which you missed.

        As for clear breaks between governments and oligarchs, well the GFC proved the west also has a bunch that get bailed out too.

        1. veti Silver badge

          Re: A rewrite of history - I wonder why?

          Sure, the companies can default or suspend payments. And that will effectively end their ability to function as companies ever again. Theirs, their owners', and anyone too closely connected with them. They can continue to operate within Russia, "paying" their workers with fantasy roubles printed by the state bank for the purpose, but those roubles will have rapidly declining value to buy anything imported. Basically, at that point you're back to Soviet-era currency controls.

          How did the old Communist-era joke go? "They pretend to pay us, and we pretend to work."

  21. John Deeb

    commodities vs common moods

    "If you're wondering why economists harp on about that efficiency, that TFP, so much the reason is one that Karl Marx not only understood but popularised."

    Hmm, how do I read that convoluted sentence exactly? I think I might agree :-)

    In any case, this all assumes oil and other resources to be commodity which only works as an abstract, unlimited entity. But oil obviously isn't. Actually it depends on vague calculations on "Oil Peaks" and the various cost analysis and estimates for new fields and retrieval methods. Right now they are generally way more optimistic and hyped than they were earlier. It's not inconceivable that world instability and/or regime changes are just another tool for influencing or stabilizing oil prices on the long run.

    The story about efficiency is generally true but does not really apply for the principle of scarcity. When that happens, it's all about perception, prediction, belief and ability to stabilize (eg OPEC pricing schemes). In my view that's exactly the global chess board right now. No matter which "model" one takes, the power of mood and emotion are the most defining in the larger economical games corporations and politicians play. Which does introduce the topic of (civil) wars and rumours of war rather quickly in these sort of discussions.

  22. Nifty

    better than FT here

    The article and comments are of such quality that I will cancel the subscription to the FT that I don't have henceforth.

  23. Anonymous Coward
    Anonymous Coward

    My tuppence worth

    Reminds me of the old Soviet Joke/Folklore:

    "Lenin was wrong about communism, but very right about Capitalism."

    And I tend to agree with those sentiments.

    The poster earlier surmised it succinctly, that western governments are now just being run (overrun) by the faceless Mega corps & Bankers with a lot ( and I mean a Lot) of power. We the Citizens / Consumers/ Individuals of these supposedly "free World" are in fact mere numbers for them. And profits (at any cost), before people, is becoming a very acceptable face of Capitalism, even if people may die.(huge numbers - witness the big Pharma pushing unsafe drugs, patenting innovators out of business, Food processors feeding us evermore synthetic offerings, GM crops having extincted the natural rhythmic mutations, varieties and evolutions of natural foods, and pushing other boundaries - we are mere fodder for them).

    Obama meant & started well with his medicare plans & other attempts at clipping the wings of these big Corps. But has been effectively neutered. He is now just playing for his time left in the White house.

    Shudder to think where and how will this all end.

    Wishing you all a happy (as much as possible - in this grim scenario !) new AND INTERESTING new year.

  24. Bernard

    Has Putin really cocked up in the macro scheme though?

    He's certainly miscalculated on this issue, and it's interesting/scary to see what will happen if he's backed even further into a corner given that Russia has the world's most lopsided military power (woefully mismatched to the US in conventional capability but able to blow the world up several times over if really left with nothing to lose).

    But on the bigger one this idea that Russia were ever going to work their way to a rebalanced and open modern economy looks implausible. Like the gulf states, venezuela and the many African nations who rely on primary resources for the lions share of GDP I just don't believe it's possible. Norway has done a fabulous job, but it was wealthy and pluralist before oil became a big factor in its economy.

    For those that weren't democratic before commodities became more valuable than human labour to their economy the incentives facing politicians are just too lopsided. If a hypothetical Putin had worked hard and honestly to modernise Russia and properly distribute the proceeds of the oil, gas and minerals boom then he'd have been the subject of a coup by someone more like the actual Putin who used military and organised crime muscle to cut 99% of the population out of the money. Putin is at the top because he's unusually good at playing dictator, but that wouldn't give him freedom to screw over the narrow power base he sits on top of.

    There's even a name for it, I think. The commodities trap? There are some economic reasons too (unstable economic environment due to wild swings in commodities prices make normal investment high risk) but the main problem is that when a country's wealth exists regardless of the population and not because of it there's absolutely no chance of the pluralist political environment needed to sustain a modern economy.

  25. Willem

    Actually the author is saying that the Russian economy is outdated. When the subsidies of Oil and Gas income disappear the lack of productivity and creativity in the rest of the economy becomes obvious.

    Russia has made tremendous steps in modernizing the Oil and Gas sector. A lot of knowledge has been brought in from the West to improve the efficiency of the sector. Now oil prices are falling, the weakness of the rest of the economy and the dependency on the oil and gas sector, is hurting strongly.

    This cannot be blamed on the West. This has to do with internal issues in Russia. The Russian government killed a lot of initiatives coming form the Russian society. Taxes were raised on smaller companies, keeping a legal system in place that does not give many guarantees and clientism.

    The Russian Apples, Yahoos and the many many small companies that started in the West and East did not have a real chance.to grow and prosper and even survive.

    It is a pity that Russia could not liberate itself from its old identity. Many Eastern European countries did make the painful change. They are still poor but much richer than they used to be.

    If Russia Gvernment could try to make the change in their thinking. They should not keep on thinking in the benefits of Russia as entity, but start thinking in the benefits of the Russian people. Try to start joining the EU or makes steps in that direction. The EU will have its conditions on Human Rights, corruption etcetera, but joining the EU or working more closely together with EU would benefit the Russian people.

    I am afraid he current regime will not make these steps and will try to fight for its own interests. The above is too idealistic.

    Russian officials state that the Russian economy should focus on other activities tha Oil and Gas. The cheaper ruble gives chances for other parts of the economy. The problem here is that the other part of the economy is not very compettieve on the workd market and needs time to catch up.

    Chances are big that the Ruble will go down even further in the coming weeks and the Russian people will have to go through some very though times in the near future.

    Concerning the Rubble: Last week the Russian bank intervened with USD 15 billion to support the ruble. This is bringing back the reserves of the Russian bank back to USD 390 billion of which USD 170 billion is not liquid (and cannot be used for interventions). Also this week many Russian companies wre forced by Russian Government to sell their dollars.

    This all happened in the X-mas period. What will happen from the 5th of January onwards: all traders are back and oil price slight lower and Putin making some more aggressive remarks on the Ukrain? I fear for a collapse of the Ruble.

    1. Anonymous Coward
      Anonymous Coward

      The former soviet satellites that modernised didn't have substantial primary resources to prop up their economy.

      The ones that do have resources have squarely failed to modernise and in most cases (Kazakhstan, Uzbekistan etc.) have actually done less than Russia.

      As has been said above, it may be politically impossible to modernise an economy with booming mineral wealth. History is littered with examples of leaders elected on a wave of hope for reform only to be either co-opted or deposed by the elite with very little changing. Putin sits very much on top of the pile in Russia and has enormous wealth hidden behind the scenes, but don't for a moment imagine that he has freedom to burn the wealthy and ruthless elite that sit under him and rely on the chaotic and corrupt economy for their continued power.

  26. Ken Mitchell

    "The non-boring non-technical upshot of this is that Rosneft has just got a loan by the central bank printing roubles. That's inflationary and inflation is going to, at some future point, push down the exchange rate."

    Big deal. The U.S. Federal Reserve has been doing the same thing to the US economy for 6 years now, to the tune of a TRILLION dollars a year. If and when any accurate inflation statistics are ever released (and the current inflation statistics are entirely bogus) then the dollar's collapse will make the ruble look tame.

  27. Trollslayer
    Thumb Down

    it was already sliding into the toilet bowl

    Massive corruption, Putin's friends buying massive companies up for a pittance when their owners were arrested on trumped up charges etc.

    Same people who ran the Soviet Union and it is failing for the same basic reason. Corruption.

  28. dncnvncd

    Where are the old Soviet traders?

    The analysis without regards to politics is correct. However, it is nothing new. In the Cold War days there was a time that Marxist regimes could not use American banks, stock or commodity exchanges. The Eurodollar was created because the Soviets were buying so much European currency the free world feared a currency dump and thus the collapse of European economies. Then came co-existence, detente, glasnost and peristroika. The Soviets had always been cash customers until the "collapse of Communism" and credit was extended. Fortunes made by ex-KGB types turned capitalist is legendary. They may have been good spies, but capitalist and political planners they are not. In days of old, the old Soviet traders would have paid the debt in gold, silver, titanium, etc., opened a shadow bank that didn't deal in US Dollars in another country for the purposes of selling military hardware to countries like India and then suspended oil sales to countries using US Dollars for purchases and blamed the American embargo for the suspension. Gold prices would drop, energy prices would rise and in this day, who knows what would happen to the dollar. If Western Banks no longer held Russian debt, it wouldn't be good. And for what? Someone the West didn't like won an election, so a revolutionary overthrow was fomented. Why? How is the U.S. paying for trips to the ISS without violating their own embargo? The old Soviets would have had a field day with this group of novices. President Eisenhower had it right early in his Presidency when he said, "let's not throw sand in the other guy's gears, let's concentrate on outdistancing them". By the time he left office and realized he had been "snookered" by the military-industrial complex it was too late and the stage for 60 years of conflicts was set. The leaders of today have forgotten the ravages of all out war and frankly don't have the intellectual capacity to keep it from spinning out of control in their lust for money and power.

  29. Version 1.0 Silver badge

    "China will have that TFP growth that Russia hasn't"

    Very true - up to a point. It seems to me that the Chinese economy is much better managed than the Russian economy these days (both have had their disasters in the past) but the problem is still the same - both countries are effective dictatorships.

    The Western democracies have the advantage, not of being marginally better managed, but simply because a democratic society shuffles the idiots at the top on a regular basis - a feature that is lacking in both the Russian and Chinese political systems.

    1. Anonymous Coward
      Anonymous Coward

      Re: "China will have that TFP growth that Russia hasn't"

      I'll take your 'Very true up to a point' and raise you a 'Very true up to a point'.

      The Western democracies aren't better just because they're democracies. The very fact that you specifically reference the Western ones shows that you're aware that democracy without pluralism doesn't work out too well. The big thing the western world has is a history of pluralism among the voting population with a franchise gradually extended to people who fought hard to get it and had a clear idea how to make it count (women's suffrage, the civil rights movement etc.). Those things have also created an environment where, however reluctantly, elected governments represent the whole population and leave office with good grace.

      In countries which are less pluralist democracy becomes an exercise in using any means including the threat of violence (up to and often including actual violence), vote rigging and vote banking on an eye-watering scale to ensure that your side get into power so they can explicitly benefit your side and starve the opposition of opportunity and sometimes food.

      This isn't a starry-eyed look at China's path to growth. The corruption and imbalance there is becoming increasingly clear. However I think that recent events in Iraq and Egypt and even the recent history of Russia itself show the limitations of a democracy that doesn't grow organically out of internal pluralism.

      1. Anonymous Coward
        Anonymous Coward

        Re: "China will have that TFP growth that Russia hasn't"

        "In countries which are less pluralist democracy becomes an exercise in using any means including the threat of violence (up to and often including actual violence), vote rigging and vote banking on an eye-watering scale to ensure that your side get into power so they can explicitly benefit your side and starve the opposition of opportunity and sometimes food."

        Even in countries with a history of pluralism, the basic human instinct to get a leg up against the fellow man kicks in at some point and the whole works gets twisted from within. I frequently compare current Western governments to the latter days of Rome: there are a lot of similarities. What's worse is that since this corruption occurs at the sovereign level, it's for all I know impossible to either prevent or mitigate it (because at the sovereign level the law itself can become mere ink on a page). Throw in bread, circuses, and a few internal enemies and I frankly don't see a way out of this.

  30. Anonymous Coward
    Anonymous Coward

    OK, “fun” might not be quite the right word...

    At least with an economic war we aren't actually blowing people to pieces, but people in Russia will die because of this.

    1. Tapeador

      Re: OK, “fun” might not be quite the right word...

      I think the analogy is the policeman and the thief. The thief breaks into someone's house, the policeman turns up, and says "freeze or I'll shoot". The thief tries to run out of the back door.

      When the police officer shoots the fleeing thief, who caused the thief's injury, the police officer or the thief?

      My point is that I'm not sure if it's these sanctions ultimately causing harm to Russians. I think the ultimate cause is Putin's unacceptable seizure of Crimea and East Ukraine.

  31. roger stillick
    Big Brother

    USA warefare in the 21st Century...

    Is not about Boots n Guns... it's more about the bad guys having to huddle in a cold, dark room, hungry and wondering what tomorrow will bring (along w/a bunch of new refuges).

    a fact= we pay Russia to supply the folks we say we will supply arms to... Russia actually supplies arms to both sides. a-la the Krups of WW1 Germany, only Russia is going broke doing so... the USA controls their money.

    IMHO= Present USA monitery policy works just fine= when Russia or anyone else behaves, they prosper... Carrot and Stick policy works for everyone that isn't inherently evil, and eventually those evil folks will just have to evolve or stay unhappy (ask Cuba how things are going)...RS.

  32. 1 Million Dollars

    Russian cronism is Soviet era control. Fascinating read stating exactly that: http://www.nybooks.com/articles/archives/2014/dec/18/how-he-and-his-cronies-stole-russia/

  33. All names Taken
    Paris Hilton

    Ah?

    So this "free market" thing and "world trade" is really a ruse.

    (These being strategic (and obviously tactical) weapons to ensure dollar domination?)

  34. aurizon

    A bribe is a tax of unknown amount, if you do well, more bribes are asked. If you refuse to pay, others get the concession. If the concession is too good, then it is taken from you on faked charges and given to a crony. The net result of this market inefficiency is a decline in output and a higher unit cost of output.

    Cronies usually have little idea on how to properly and efficiently operate a business, they see now need to waste $$ on research or quality control. Their concern is simply for the cash they can steal.

    This is how the Soviet Union fragmented. Putin and his cronies are repeating this - from a smaller asset base.

    Recently there has been some try at reclaiming some of the 'Stans, by their economic amalgamation. Soon we will see the tinpot dictators of these 'Strans assassinated and pro-putin cronies installed. All this in a try to increase the asset base for Putin and cronies to slowly rape.

    Now the Saudis want to help the USA in this game, as they know that the Russians will funnel cash to dissident groups all over the Arab world. (along with Iran).

    So they pretend to hurt the USA, in fact they hurt Russia, This 17% interest rate will cripple Russia and the cronies will not want to return their stolen $$ - they are in it for the greed, not for Russia..

  35. This post has been deleted by its author

  36. jzlondon

    This is a genuinely great article, but it will not be widely read as it sounds like it was written by Al Murray's pub landlord.

  37. Phuq Witt
    FAIL

    Cheap Holiday in Other Peoples' Misery

    "...The best economic fun of the past few weeks has been watching the meltdown of the rouble and the associated problems in the Russian economy..."

    Hmmm... depends on your definition of "fun". But then I suppose there aren't many spiders about at this time of year for you to pull the legs off.

    Well done on penning an entire article about the collapse of the Russian econonmy without once suggesting the whole thing might be being orchestrated by the USA. Don't you know it's their standard tactic: military muscle and "shock'n'awe" for those countries too weak to put up any resistance. Economic strangulation for those who might give you a smack in return.

    1. jzlondon

      Re: Cheap Holiday in Other Peoples' Misery

      The collapse of the Russian economy wasn't "orchestrated" by the USA. The Russian economy is a bag of nails and was going to collapse sooner or later regardless.

  38. John 104

    Tech Angle

    Nonexistent.

    Nice article, but what the fuck does it have to do with technology?

    1. jzlondon

      Re: Tech Angle

      Depends.

      A lot of the Register readership works in banking technology - it is one of the biggest employers of technologists in the UK, after all. It's nice to get an angle like this.

      Some of us even work for Russian banks - most have London and NYC offices as well as Moscow.

      Besides, when did you become editor of the Register?

      1. John 104

        Re: Tech Angle

        @jzlondon

        I get that there are lots who work in bank tech, but this article really has nothing to do with bank tech. It is a commentary, (and a good one, mind you) on the current state of the Russian economy caused by an over dependence on the import and export of non-technology goods.

        Oh, and I got to be editor for Christmas. :)

  39. Anonymous Coward
    Anonymous Coward

    I can give you one good reason: dollars

    The reason that Blair & Bush went into Iraq had nothing to do with 9/11 or WMD, it was because Saddam started to sell oil for Euros and was making a nice profit in the process, and the US cannot afford ANYONE to follow that idea.

    The reason for that is simple: when the US dollar is no longer the default currency for energy purchases, it removes two pillars of the US ability to keep borrowing and printing dollars: the world's need for them for oil and as reserve currency.

    What does this have to do with Russia? Well, they sold energy to China - a rather large amount - and NOTHING of that was in dollars. Not a single cent. Nada. Combine that with the fact that the Chinese currency is now a Worldbank accepted trading currency and it's clear to see that the US is very, very worried and needs to meet out some punishment. The problem is that that is not really working if China is making all the toys that the US economy depends on to appear viable, so they hit the only party they could: Russia.

    It is just a theory, of course, but it appears to fit..

    1. fandom

      Re: I can give you one good reason: dollars

      And yet Iran has been selling their oil in euros since 2003 without being invaded by the US.

      1. Anonymous Coward
        Anonymous Coward

        Re: I can give you one good reason: dollars

        And yet Iran has been selling their oil in euros since 2003 without being invaded by the US.

        Within limits - they don't do this exclusively in Euros. Now you may also understand why the whole nuclear agreements and embargo situation doesn't seem to go anywhere..

  40. Sokolik

    Please help Colonial ignoramus

    Sincerely, and with all due respect, could someone please distill this into a newspaper-article lead sentence...something like the classic journo lead-formula of no more than 21 words? I confess my ignorance, every time national or global economics come to attention, my head swims and I get dizzy. Morevor, I was educated as a journo thus am challenged by introduction to something that isn't distilled into a lead sentence.

    For what it's worth* (or not), here's what I get; please tell me if I am accurate or inaccurate: Russia has a natural-resource-based economy. Such an economy is unstable and-- as natural resources are finite-- unsustainable. Plus, Russia has reverted to a command economy, only the commands now are issued not by the Party, but by Putin and his indentured klepto-pluto-crats. And, finally-- and this is the bit I feel most important but feel least-sure I've got right: it's all but impossible for free-markets to interact with command markets, leaving the command markets impoverished.

    I was shocked to read a bloodthirsty-take-no-prisoners-free-market attributed to China. I mean, yeah, I get it. That description, however, primarily in my mind has been tightly-associated with the Russian economy.

    These have been my observations and conclusions both from afar, and also from three visits spanning two decades since the fall of the old union.

    At the end of the day: I would like to think I care for the Russian people and have a bit or two of insight to their individual and collective temperament. I know they want the "heavy hand", they want stability, perhaps they don't trust themselves to govern themselves, and are sadly afflicted with a xenophobia that, when there's a problem, instantly points the finger at everyone/everywhere else. Thus, my long-standing conclusion, the Putin dictatorship has been democratic because it is what the Russian people want.

    I would like to think I care deeply for the Russian people and culture and thus really want to get this one right.

    Sadly, also I would like to know if it it is no longer possible for an anonymous westerner (read, "me") to wander the streets of Moscow or Petersburg outside the tourist zone, in safety and in peace of mind one is not likely to be exploited (read, "framed") by over-eager zealots from FSB and Militsiya.

    Just like in the Bad Old Days individual Western wanderers begged to be hassled, framed, and jailed by the KGB.

    Please help me with these questions. Thank you.

    *apologies to Stephen Stills et al

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