By @AlexanderIV17 (Twitter) for the Saker blog
One of the favorite lines of the West propagandists is “ Russia doesn’t count, it’s about the size of Italy’s GDP” . I remember B.Obama saying something like that with scorn in December 2016, when D.Trump had just been elected and the Democrats were abuzz with all sorts of Russian conspiracy theories. Ever since the Empire and its minions, serfs and vassals have toed the line and you hear that kind of put down everywhere in the Empire.
You cannot help but wonder how is it possible that the largest and richest land mass in the world, with $75 trillions of natural resources in 2021, a country with a population of 145 millions , 20 millions more than Japan’s, can have such a limited GDP.
Enter the different ways GDP (Gross Domestic Product) are computed. In particular the GDP on a PPP basis (Purchasing Power Parity) vs the GDP on a nominal basis.
On a PPP basis Russia’s GDP is currently the 6th largest in the world with $4.37 trillions, just behind Germany’s ($5.27 trillions). China has the largest GDP-PPP in the world at $30.18 trillions. (Source IMF estimates). This is never mentioned by Western politicians, TV-radio talking heads or the MSM.
On a nominal basis Russia (11th with $1.82 trillions ) is indeed behind Italy (9th with $2.1 trillions) and Brazil (10th with $1.83 trillions). It is thus not surprising that the West propagandists uses GDP on a nominal rather than on a PPP basis in order to disparage Russia. I am not here supporting the idea that these figures are cooked, on the line of W. Churchill famous quote:” I only believe in statistics that I doctored myself”, but I just underline the selective approach of the Empire’s spin doctors.
Why does this matter and what is GDP on a PPP basis?
GDP is the total monetary value of all the finished goods and services produced in a country in a specified period of time expressed in the same international currency for comparaison purpose, usually the US dollar ($). This value can be arrived at using the current $ cross exchange rates with the specific country currency. It is the GDP on a nominal basis. But is not a satisfactory comparaisons gauge because it does not consider the inflation impact and because exchange rates are notoriously volatile and subject to long or short term currency manipulations or national policy imperatives. For instance exports juggernauts like Germany and China always try to put a lid on their currency appreciation (this is why the Germans finally accepted the Euro creation in order to create a weaker proxy for the DM). Also opportunistic and shameless speculators always try to make a bundle attacking weak countries (G.Soros and the UK£’s Black Wednesday on September 16, 1992). Finally the notional GDP does not eliminate the international discrepancies between cost structures and productivities.
This is why PPP calculations and researches have gradually been adopted by the IMF, the OECD and the World Bank since the concept was introduced in 1968 by the UN in the International Comparison Program (ICP). The idea behind PPP is to find a cross currency rate for every pair of countries in the world that would equalise the total price of a basket of identical or near identical goods. Using this “rate” or “equalising factor” in the conversion of any particular country’s GDP calculated in the local currency into the US dollar will guarantee a level playing field comparaison. You will for instance downplay the labor costs differences between rich and poor countries. At this stage please notice that the forces behind PPP and GDP-PPP basis are the most respectable Western or “Imperial” Institutions: the UN, the IMF, the World Bank and the OECD. How more politically correct can one be?
And the PPP concept became even more mainstream when the Globalists weekly Bible, “The Economist” invented in 1986 the famous Big Mac Index standardising and simplifying worldwide currencies cross rate computations and comparisons by using a basket of only one universal product that is composed of exactly the same ingredients worldwide, bread, lettuce, meat, onion and a patented special sauce: the Big Mac.
The Big Mac Index is “a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.” Excerpted from The Economist website.
According to the Big Mac Index the Russian Ruble was the most undervalued currency in the world in January 2022 at -70% and it remained so until the start of the Special Military Operation (SMO) in the Ukraine. And this explain that as soon as V. Putin decided that the immense natural wealth of Russia will be priced , and its exports sold, from now in Rubles the Russian currency became the best performing currency of 2022 in the middle of a war and in the context of a June 2022 fabricated technical default nobody cared about! Amazing performance! This is also an illustration of how PPP works, how it corrects the fog of manipulated economics and sunken asymmetric costs and societal idiosyncrasies .
We can now add to the Big Mac (Moscow price $1. 74—NYC price $5.81) in our basket of products, a Sukhoi 75 Checkmate at $30MM apiece vs a F35 at $80MM apiece (rock bottom export subsidised prices, especially for that disaster of a plane that is the F35, rumoured to have cost the US Navy upwards of $300MM per unit!!) and a liter of gasoline (Moscow price: $0.81—US average price: $1.27). We see the significant prices differences there are for that basket, as for any other baskets, for products of similar social, military or commercial interest, use or appeal. Hence the imperative need for that apples to apples comparison tool , the GDP-PPP, for the correct assessment of international GDPs and countries true relative strengths. That is why in this instance and more generally you would do a country PPP-GDP calculation by using the US$ price of equivalent products and services, the ultimate simplification of the 1968 ICP initial PPP and the 1986 BIG Mac concepts.
But GDP-PPP comparisons are ignored by Western propaganda
To come back to B. Obama, loosely quoted at the beginning of this article, a very clever operator and ex-, but still de facto current, President of the United States, how come he did not read his very own CIA’s World Fact Book? It is all in there. First you get a nice and easy definition of GDP-PPP: “A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States”. Then the ranking follows: 1. China, 2. USA, 3. India, 4.Japan, 5. Germany, 6. Russia,….(and that’s 2020 estimates confirmed by the underlined 2022 data mentioned at the beginning). So Russia has been ahead of France, the UK, Italy, Spain and the Netherlands, and China is #1, since at least 2015 and B. Obama didn’t know it? Of course he did! He is just a sharp propagandist hell-bent on putting down everything Russian. Just read what he says about Russia and V.Putin in his memoirs “A Promised Land” volume 1! It’s pure scorn and hatred. And since B. Obama is still the real President of the United States, “puppeteering” J.Biden, hence the “Emperor”of the West, everyone is toeing the line in the “Empire”: politicians, businessmen, diplomats, intellectuals and journalists. Madmen to his right even want to better his assessment of Russia’s GDP and now you regularly hear that it is about the size of Spain or the Netherlands (M.Pompeo, M.McFaul or S.Hannity).
Russia’s GDP to overtake Germany’s within 3 years
I wanted to conclude this piece by elaborating on economic projections that were made before the start of the SMO on February 24, 2022. The consensus was then that Russia would have overtaken Germany’s GDP-PPP before the end of 2025. Now of course there is much less visibility because of the war. And V.Putin said recently he is keenly aware of the enormous task ahead in order to minimise the Western sanctions impact. But Russia is frankly off to a surprisingly good start in that area and I am confident, based on external trade and currency projections, that the above scenario of Russia overtaking Germany’s GDP-PPP by 2025 is attainable, especially as Germany will face a serious GDP crunch as it tries to wean itself off the cheap Russian gas contribution, that strong and reliable corner stone of its prosperity since the sixties. The “Axis of Good” wanted to collapse the Russian economy by waging a total economic and financial war (March 1, 2022 statement by B.Le Maire, French Economy and Finance Minister) or bring Russia back to the 19th century (J.Biden March 26, 2022 remarks in Warsaw). It did not work and incidentally J.Biden’s comment above was idiotic and illiterate since Russia’s 19th century borders incorporated what is now called the Ukraine, Warsaw, the Baltic midgets and Finland!! What pre-dementia does to people!
Since the beginning of the SMO, we can only fault the Russian economic war machine for the mismanagement of Russia’s $284 billions foreign currencies deposits in Western countries that had sanctioned her since 2014-2015. These deposits were sitting ducks waiting to be kidnapped by the “Pirates of the West”. And they should have been moved long ago to friendly countries and converted into their currencies e.g., Indian and Chinese banks, Rupee and Renminbi. The Euro and the $ currencies should have been spurned long ago as had been the US Treasuries. And I still do not understand why E. Nabiullina, Russia’s Central Bank Governor, was not fired on March 18, 2022 for dereliction of duty or at least for incompetence.
On all other topics V.Putin economic blitzkrieg scored big.
- The “mother of all sanctions”, being disconnected from SWIFT, went barely unnoticed as 4 key Russian banks are still allowed in that international payments messaging system, because they are indispensable channels for the international trade, and because the SPFS system (Russia’s Swift equivalent) is expanding its coverage to 23 countries and with Iran and India about to join. And the SPFS is also planning to integrate the Chinese CIPS international payment system.
- The foreign currencies frozen deposits sanction was countered with measures threatening the West’s larger assets pool in Russia (estimated at $400 billions). They are all potentially subject to expropriation or forced status modification, for instance Renault was “forced” to sell its Russian assets for the symbolic 1 Ruble, McDonalds sold its stake to a local licensee and the huge far eastern Sakhalin-2 gas and oil project is re-structured to protect Russia’s interests.
- The Ruble went in three months from most undervalued currency in the world in February 2022 (Big Mac Index) to 2022 best performing currency despite the colossal Western sanctioning that has been taking place, and returned to a multi-year peak rate of 60.30 for 1$ on August 5, 2022, after dropping to 130 at the beginning of the SMO. The only thing V.Putin had to do to achieve this amazing result was to start pricing gas and wheat in Rubles, forcing un-friendly countries to pay in Rubles and conferring something akin to a gold-pegged status to the currency. The Ruble definitely didn’t turn into rubble as was predicted by J.Biden.
- We can also mention the successful development of the MIR – UnionPay card to replace the Visa/ Master cards, the June 2022 fabricated nothingburger Russian default on some Forex Bonds that went mostly unnoticed, and the near trebling of Russia’s 2021/ 2022 first quarter external trade surplus to $58.2 billions due to significant commodities price increase (Euractiv-Eurostat)
All these fantastic developments give us confidence that by 2025 Russia’s GDP-PPP will be the world 5th largest, closing in on Japan’s. By that time the successful completion of the SMO will have provided Russia with the strategic battlefield depth it is entitled to have, the expansion and financial integration of the BRICS will provide the world an alternative to the neo-colonial Brzezinskian Weltanschauung of the West and the close cooperation between Russia and China in space will lead us to Mars, first step towards the stars where we all belong.
@AlexanderIV17
International Banker (retired)
Good article. Thank you.
“And I still do not understand why E. Nabiullina, Russia’s Central Bank Governor, was not fired on March 18, 2022 for dereliction of duty or at least for incompetence.”
I read somewhere that the Central Bank’s handling of the inflation increase after the SMO saved the day.
Russia leaving $400 billion in foreign reserve currency to be stolen and then it was stolen seems to be a reasonable price to pay to expose the corrupt Western bankers and governments. Now the world knows this could happen to them and trust is gone. This is a huge hit to the reliability of the USD as the world’s reserve currency and this may be what Russia expected and wanted.
Exactly Kirk.
Property rights are one of the “principles” on which liberalism is based. The immediate confiscation of Russian property without due process was a huge mistake by the West. They have shown their “rules based order” to be a confidence trick.
Liberalism is no more than the exercise of power.
Liberalism is a sham and has destroyed the entire West. Russia is richer than Germany. Russia has a lot of natural wealth, and Germany is a proxy for the USA. The countries of Europe went mad and went blind. They were deceived by the darkness. We are living in a spiritual battle, and most people do not understand the cause of the decline of the West. Russians have more quality of life and spiritual quality than the West. We have entered a new world order, and the lies of darkness are being unmasked. Now it’s time for a multipolar world:
https://youtu.be/EZ-7t99BPhY
The assets that were confiscated are less than the assets of the West that are physically in Russia. I fail to see the problem.
GDP is the total monetary value of all the finished goods and services produced . . . . . .
As Andre Martyanov stated , the cost of producing a US tank is $5 million, the Russian equivalent $500k, making a nonsense of GDP. Are the stupid western vassals paying the US $5 million + Profit for those tanks, Jets, other crap?
Secondly ‘services’ hmm; London and New York are great at massaging exotic financial instruments.
Go Figure!
That is a good observation. It is not just the fact that the PPP calculation exposes the true real cost of the resource-input…but the economic systems also create further disparity in the fact that the US taxpayer has to pay a premium to an investor-class – creating a bubble-economy – whilst the Russian equivalent is paid for at cost, because the State owns the factories.
Theres also the speculator bubble within the casino-capitalist world >
The best example of the ridiculous asset price inflation is the current stratospheric valuation of Tesla stock…..relative to its total production of cars…compared to Ford, who produce far more cars…but have a far lower stock value…
The financial instruments stuff is going to offer some pain soon…the Derivatives bubble is out there, threatening to bust…
And then there are all the bloatware meaningless jobs in thew west that add to GDP but detract from the efficiency of the daily task of getting stuff done. By my recent estimate some 25 to 35% of the Australian economy could turn to steam and blow away and it would actually make everyone happier, more efficient, effective and friendlier.
A neighbours shed blew down in the last storm. New shed cost $38,000. An easy build, standard engineered disign, but no, must use a licensed builder, get soil test, demolition permit, building permit, building surveyor for 3 visits, plumbing permit for the guttering, and hire a crane and roof railing. The total of that wasted effort adds up to at least the price of the shed, a building that is far easier than the one I built 20 years ago over a period of 3 weeks from scratch. My costs over and above materials were about $2,000 for cherry picker hire and a draughtsman to draw up the plans and certify the wind loading.
Likewise our health system, it is failing across the board but every time it fails it adds to GDP because GDP does not dicriminate between spending that improves peoples lifes and spending that results in pain and suffering.
Thjose responsible are either knaves or folls. Either way, humanity would be better off without them.
I know well of “bloat-ware”, serving as a local gov’t legal advisor and watching Governments oversee the rebuilding of a nearby town after a wildfire.
One of my clients updating their construction codes had to adopt 1,500 pages of picky codes, which effectively increased construction costs of buildings by 30% over the “old codes”, for just a miniscule increase in life safety!
The burn survivors are seeing replacement costs for homes built under 1980s codes, doubled from their original costs!
Perfect examples of bloatware for no good end for real people. But that huge increase in costs will be reflected in GDP!!!
wow you hit a nerve there…my own example: I spent 14 years visiting Hungary and could see the forced transition from their soviet style planned economy to a casino-capitalist privatised one. Sure the old system had its faults and people felt frustrated as Hungarians are a very aspiring people…but…the western capitalist world moved in, new jobs were created, things that never existed before, such as advertising, marketing, market research, and other areas that needed radical improvement such as packaging, distribution logistics even language studies and new areas such as accountancy and mergers and acquisitions…all these new careers helped only 33% of the population – the younger ones. 33% were distressed as they were too old to change but had some means to escape the worst…33% were even more distressed as they were so old that there was no role for them in the new society, where young people no longer cared for their elders…
Has all this frantic activity in the new capitalist world improved their life?: well, i saw a coca cola rep in in his new tiny opel corsa chasing a pepsi cola rep in HIS tiny new opel corsa, aiming to show that CC was number one, down the motorway from Nagikanizsta to Budapest…great fun for them… it symbolised to me the moral emptiness of the new competitive market …i saw scores of employees from the former state owned enterprises who used to be cheerful and happy to see me, but who now had frightened looks on their faces as their companies were absorbed by foreigners, with mafia-like and bullying new yorkers and australians now in charge…Prices inflated to accommodate the additional cost of all the new services…and Hungarians could only get into debt, as the banks were extremely generous with loans…and people were so enthusiastic to improve their lives…and then came the awakening…today everyone is more cynical about the benefits of the West…and does see the merit in the old soviet system…it may have been more modest, but it was a stable, calm, predictable world…hence the current good understanding between Hungarians and Russians.
True. And how would Germany have faired if it were sanctioned as Russia? A look at Russia’s space program, military/weapons systems, aviation, food production etc makes a joke of GDP as an economic comparative measure.
The West has deftly switched to another method of calculating GDP – expenditure based! Yes, this is our rules-based order.
If all doesn’t go as planned at least we will have front row seats to the WW3 show
Empire is just as likely to take the world down with it rather then go meekly into the night
AlexanderIV17, thank you for your analytics and thoughts.
There is one question.
“The only thing V.Putin had to do to achieve this amazing result was to start pricing gas and wheat in Rubles, forcing un-friendly countries to pay in Rubles and conferring something akin to a gold-pegged status to the currency.”
It looks like incorrect. Who can explain this?
Because inner exchange dollars or euros to rubles inside Gasprom bank account is a) not the sale in rubles, b) it is a subject to be locked out in any time.
Because of 1) dollars or euros first arrive to Gasporom account and 2) exchanged.
So, the net result of the “sale” are these dollars and euros sitting in Gasprom account.
And these dollars are nothing more than liabilities of Western banks (and the bottom of dollars liability chain is in the USA.)
And in order to buy something on these dollars, say buy some import, Gasprom has to go back to the West and pay with these dollars. (And again if the West decides not to honor their liabilities, then the gas is sold for free).
The true sale of gas for rubles would be West buying rubles for gold and then using them. Or accepting payment in rubles when R. buys some import, say computers. Then when these rubles are bought this way, West can use them to pay for gas. This would be a real sale for rubles.
So, “amaizing result” is not because “gas sale” for rubles. This “amazing result” is because restrictions on buying import. Because of these restrictions, dollars became less in demand, and ruble more in price. So, who achieved this result? The West. (By own stupidity.) Neither “Vladimir Putin”, nor Russian financial regulators did much to heal the ruble. (Except for some psychological effect or “price double denomination in ruble/dollar ratio” ). The hero is the West.
(Or in more complex scheme, which does not change the matter, Gasprom sells these dollars to Moscow stock exchange, and gets rubles, but these “toxic” dollars are still somewhere in Russian financial market and a part of West controlled dollar sphere.)
Third, (now I am speculating) if for decades (as apparently Glaziev in many of his articles says) it was not possible to heal R. financial regulators to stop syphoning dollar’s wealth abroad, then by which magic power healing will happen now, during SMO? Compradors won’t give their power just because of patriotic mood. So, people saying “gas for rubles” are simply “good-whishers”. I don’t want to say “all is bad”. But the simple logic should refuse “hurray-analytics”.
Fourth, (speculating) why West does not completely lock all foreign currency in R. and lets R. use some “air”? Because, this will harm Russian compradors and Western stock speculators and will harm dollar domination. So, this is a trade-off game where all players must calculate their game many steps ahead. But again, it does not look like R. financial regulators calculate main thing, they just leave cracks to preserve financial status-quo.
References:
[1]
https://glazev.ru/articles/6-jekonomika/104426-minfin-reshil-obrushit-rubl-skol-ko-budet-stoit-dollar-i-evro
[2] SERGEY GLAZEV. Poverty and splendor of Russian monetarists
https://glazev.ru/articles/6-jekonomika/54543-nishheta-i-blesk-rossi-skikh-monetaristov
[3] April 7, 2022.
https://glazev.ru/articles/165-interv-ju/100822-ob-ukraine-merakh-reagirovanija-na-sanktsii-i-formirovanii-jeffektivnoy-sistemy-upravlenija-rossiyskoy-jekonomikoy
You stated: “It looks like incorrect. Who can explain this?
Because inner exchange dollars or euros to rubles inside Gazprom bank account is a) not the sale in rubles, b) it is a subject to be locked out in any time.”
If you buy something from a foreign country in their currency then you would exchange your local currency for their currency and pay for those goods, right? A genuine sale in that currency. And if you get an agent to take your money, convert it to the desired currency and pay for those goods then this is exactly the same – the goods are paid for in that foreign currency and it is a genuine sale in that foreign currency.
What is happening with Russian gas is that Gazprombank, as the agent, are taking the dollars, doing the conversion however they do it, and paying the bill. Rubles are being bought for dollars and that is what is raising the value of the ruble.
The EU, in order to save face, are claiming that the transaction is complete once they pay over their dollars. Russia says the transaction is complete once the ruble payment has been credited.
It is theoretically possible that the dollars could be blocked by the West – no idea if this could actually be done or not. But to what end? The gas could be turned off – that is not a theoretical possibility but a practical certainty.
So yes, it is a sale in rubles as the author states and payments will take place honestly even if the parties do not love each other.
Haymer, thank you for your concise, eloquent, and simple comment. It forced me to study the subject more.
Your comment does not answer my question. I reword my thesis again and provide the “proof” while adding “more explicitly” paragraphs.
The thesis: The “new rule” keeps “exchange agent” nature the same. Same nature does not create ruble flow inside Western bank system and does not make West willing to sell for rubles. In other words, dollar still “dominates” in dollar / ruble trade equilibrium which is still predatory.
More explicitly,
the net result of transaction is: Western firm came with bag of dollars, got gas and these dollars siphoned into Russian firms. No other significant effect except slight improvement of government policy “to sale foreign currency profits for rubles” which may raises value of ruble. But this is already in place. So again, if no “external change”, who cares what happened inside of Russian financial sphere? (No surprise, that after cosmetic verbal shock, foreign firms see that nothing changed to them [4].
More explicitly,
“Agent” always exists. But the key is the nature of an agent.
In current scenario, agent is Gasprom itself. It takes dollars, then buys rubles for dollars from some buyer in Russia. So this buyer in Russia takes Western liabilities (which is a promise) and transfers this liabilities to Russian owners, or simply holds this liabilities in own account. So in this case these liabilities are controlled by the West (liabilities chain). (Lets talk about following details later: the West can print money by exporting inflation into Russia, or can do many other things at will, or may someone in Russia want to buy Western obligations for dollars, ….)
But the whole point is that the true agent X must be inside Western banking sphere and have ruble accounts filled from Russian payments in rubles or ruble accounts resulted by selling gold to Russia. This agent must have ruble account liabilities, ( liabilities of Russia, liabilities supported by Russia, liabilities created by money emitted by Russia, liabilities by rubles created in Russia, electronically or not, does not matter.).
More explicitly.
So the fair scenario must be: Germany’s firm brings dollars to agent X, and the agent X transfers exchanged rubles from own bank ruble account, say in New York, to firm’s bank (say Frankfurt) account which is in rubles. So now, the Frankfurt bank has account in rubles. Now the firm can begin buying gas in rubles. Russia gets back money which has been emitted inside of Russia and sends gas to Germany. No one in Russia has to care/speculate/steal/think about dollars. These dollars no longer exist from Russian point of view.
The whole point of sale of gas for rubles must be to make rubles circulating inside Western banking system. Sale for gas for rubles must make the West looking for rubles. It must make the West willing to sell computers for rubles to Russia, for example.
Plainly, USA prints dollars and buys rocket engines from Russia in dollars.
Plainly in the spirit of correct sale, Russia should print rubles and buy computers for rubles from USA. The mere possibility of this, for the moment, is laughable. Russia can buy nothing for rubles from US for now.
Above describes is a fair circulation of national currencies. Of course there will be mixed cases which will balance ruble/dollar/barters flow directions, but such details are irrelevant for the question.
More explicitly
about the following statement:
“Rubles are being bought for dollars and that is what is raising the value of the ruble.”
or
“Dollars sale for rubles on MOEX did raise the value of the ruble”
First, this is a minor question in context of lack of ruble propagation through West financial system as articulated above.
Second, this statement is non-precise and unproven. Of course, in general it is a very popular and known trend and cliche. But the proof must be done in context. Here is a context: West blocked usefulness of dollars for Russia. S. Glaziev and M. Hudson stated that was a reason for raising the ruble. In this context, does this matter, does the “new scheme” exist or not? I don’t know, I don’t have such deep knowledge (and a supercomputer:) to get all the math.
For example: Glaziev: [1] 5:40 … Politics of Russian Central Bank was in interests of currency speculators all these years. Today situation changed meaning, in the West, it became forbidden for Western speculators to work with Russia. And suddenly it was discovered that Russia is very rich country. That ruble course was significantly lowered. …
(recc. use Chrome video. transl.]
For example: Michael Hudson:
https://www.rt.com/business/560399-anti-russia-sanctions-are-great/
… Washington has frozen all accounts in dollars and euros, so Russia had to get out of the dollar system. And this is what helped the Russian ruble. …
In general Glaziev also states that “new scheme” contributed to ruble raise. But does not say in which proportion.
[4] Danilenko: “There is no deep logic here: exporters have been selling revenue on the Russian market, and will continue to sell it. These transactions have been serviced by Gazprombank and will continue to be serviced. Fundamentally, all these technical, in fact, things, will not change anything for the ruble,”
More explicitly
about pros and cons of the new scheme. Of course, new scheme may have minor improvement and positive qualities.
First it is psychological. Firms in the West began to know the word “ruble”. Learning Russian. And thinking about ruble for currency basket.
However this can be as bad. Because “new scheme” changes nearly noting, it gives a signal to the West that Russian government is not able to change financial status quo and that it is to much interwoven with compradors. And misleads the patriotic public.
Second, Gasprom is forced to sell rubles. This is an equivalent of improvement of another crucial government policy of selling 100% of currency income. Quite important possibly to fight speculators and wealth outflow.
Speculating, this scheme may be a preparation for dropping the first step when Western firm comes with dollars in the bag, and instead to demand, to come with rubles bag, the bag from your “London bank account”.
More explicitly
about Russian oligarchy.
Dollars inside Russian fin. system are under speculation and outflow to off-shores. Possibly trillion of dollars was “lost” this way in decades. (I should say “stolen”, but don’t like be scary.)
In the current scheme, dollars flood to Russia allows compradors to find cracks to siphon the wealth back to the West. Perhaps this is why this scheme was so “ingenious” by making an impression of “protecting” own economy, but in reality preserving a status quo.
Poetically, this reminds situation with transferring land ownership to peasants in Russia before 1917. No matter how hard the government, interwoven with land oligarchy, tried to solve it, it would not be able doing so. But Bolsheviks solved the issue “in one day” declaring – “Land to peasants”!
Isn’t the Russian gov. so interwoven with oligarchs that it moves in painful zigzags? Are there too little of Bolsheviks? The issue seems somewhat muted. But what will be a trumpeting if surprisingly “true sale for rubles” will be adopted?
More explicitly
“It is theoretically possible that the dollars could be blocked by the West”
— This is not the main harm. “Blocked” is a trifle comparing to the harm to Russian financial system to be denominated in dollars which blocks circulation of rubles in Western banking system despite the fact that this circulation would be supported by positive Russian trading balance.
“The gas could be turned off – that is not a theoretical possibility but a practical certainty.”
Well, this already happened. After years of accumulating dollar gas revenues in Russian reserves, these reserves were stolen. Yes, gas may be turned off, but too late. And current “gas sale” for “ruble” is a continuation of the same situation. Suppose this scheme will last for 5 years. And then what? After accumulation of dollars in Russia accounts they will be lost again?
But losing $300 billions is not a point of my question. It is a side effect, a trifle.
More harmful is depriving ruble from circulation in the West.
Many thanks for Saker blog for focusing on these issues.
References (continued from original comment)
[4] https://www.bbc.com/russian/news-60946834
Compromise Scheme”. How “unfriendly countries” will pay for Russian gas
Olga Shamina, Anastasia Stogney, Ksenia Churmanova
BBC March 31, 2022
Does not work like that but I see what you mean. The $ or the € of the European gas buyer flows into his own account at GZP bank Lux or Zurich where that bank sells them for Ruble as per standing instructions of the gas buyer . And these Ruble are then transferred by GZP bank to Gazprom head office as per another set of standing instructions . So the Euros or Dollars in the gas buyer account cannot be sanctioned in a Gazprombank US or European “nostro “ account in NYC or Frankfurt. And the Rubles are in a Moscow “Nostro” account which was used by GZP Lux or Zurich to fund its sale.
Samsungkun, thank you very much for so much needed details.
After your clarification, I can say that
in this “gas for rubles scheme”, Western firm stands with bags of dollars at the input doors of GZP bank Lux or Zurich account. Then Western firm gets gas. From the side view of the firm, the transaction is: input=dollars – output=gas. What happens with dollars after that makes no difference for the firm. From Russian side of view, Russian Gazprom gets dollars, gives gas, and sells dollars on MOEX. As a result of the sale, someone in Russian financial space gets these dollars. (West does not sell rubles yet much, isn’t it?) (Other side effect for Russia may be raising rubles on MOEX (out of my question concern), but nobody on the West cares about the ruble price, there is no demand for rubles, so effectively ruble price on the West is 0.)
You said “standing instructions”, I don’t know does this makes difference in this “gas for rubles scheme”, because the firm gives dollars according to the dollar price, what difference can these “standing instructions” make?
But in the “real scheme”, however, the firm should already come to input doors of GZP account with bag of rubles inside this firm’s “Nostro” account. With the rubles either bought for gold or by selling to Russia, say, computers. Shortly, input in rubles, output – gas. In this “real scheme”, all circulation of money goes in rubles, starting from emission of money in Russia and ending by returning these emitted money back to Russia.
(Of course, flow can be more complex, the firm can have rubles in New York, or can buy rubles for yuans in MOEX, or use only one GZP ruble account only, or coexist in balance with ruble/dollar sale, but this does not change the principal idea of being able to do what USA is doing: prints dollars and buys computers for dollars.)
Apparently and surprisingly, the “real scheme” was offered to Russian government nearly 30 years ago, but all these years it was financially inept to implement it. Moreover, even during recent 5 months of urgent war-like situation, this ineptness did not heal. The current “gas for rubles scheme” appears only to mislead ordinary people and Russian government own self and feed a hype “what winning step we did!”.
Just read Glaziev. [3]:
… Как видите, рубль укрепился. Предложения о переводе …
… As you can see, the ruble has strengthened. Proposals to transfer our trade to rubles have long been put forward by domestic scientists. In 1993, your humble servant, being the Minister of Foreign Economic Relations, proposed to transfer the export of our energy resources to rubles, but the government elite was sharply against it, since then gas for export to Europe was sold through lining companies, in which a third of foreign exchange earnings disappeared, spreading through offshore accounts of corrupt officials and their European accomplices.
“The hero is the West.”
Hero rides into town. Slaps his own face several times. Pulls out a pistol. Shoots himself in the foot. Some hero!
I would rate economies on the basis of quality of life of the majority of people, how many live in poverty and in prison, general health and lifespan.
If you do this, Russia is way behind Italy at life expectancy. A Russian might get 73 years old and an Italian 83. That’s huge.
Great parts of Russia are extremely poor. Sure, living in Russia is better than living in countries in Africa.
Interesting except the last line. We are far far away from stars.
Why does all this talk of GDP and PPP make any difference? If a country can provide jobs for its people so that no one is in extreme poverty, there is no homeless, and people have enough food, isn’t that enough. Those are all economic constructs for what purposes? To determine the strength of one currency vs another? Industrialization within a country is what makes an economy strong, whether you sell to internal or external customers. A big issue is being able to support the elderly while facing a declining younger workforce. This is a problem in Russia, China, Japan, US, Hungary, that I know of. Russia is even offering bonuses to families to promote population growth, I think I read somewhere. Without population replacement to educate and train for job positions, economic production will fall. Isn’t it just that simple, without all this theoretical economic nonsense. That’s why I like Michael Hudson. He’s not one of these theoretical economists, but seems to grounded in reality, in the forces and policy that affect a countries prosperity.
You have hit the nail.
Mr. Hudson claims that most economists are sociopaths (quoting from memory)
Lol. My son would agree with you. Just say economist and an explosion goes off.
The difference of Michael Hudson with all other “theoretical economists” is that first he is grounded in Marxism, coming from a revolutionary family, and second, he has actual experience working in the financial field.
Did not know that. I’ll listen with a fresh ear now. I’m thinking of getting his latest book. I just hope it’s not too technical for me.
Bhutan have the best solution: since the early 80’s they rejected use of GDP, and instead use a measure called “National Happiness Index” which measures how happy the people are in their daily lives on a basket of measures.. They still use it to this day – and it encourages good government! It works very well and is popular with the people.
Now, that is really interesting. I’m going to do a little research. Thanks for mentioning it.
“A big issue is being able to support the elderly while facing a declining younger workforce. This is a problem in Russia, China, Japan, US, Hungary, that I know of.”
Actually, it was an issue, it is and it will be even more for everybody in the world, except, maybe, in some African countries.
The GDP of Russia, even when adjusted by the PPP conversion factor, does not even come close to depict the real economic potential of Russia, especially in comparison to Germany.
-Russia produces 2 times more electricity per year than Germany.
-Russia produces 2 times more cement per year than Germany.
-Russia produces 2 times more steel per year than Germany.
-Russia uses 3 times more primary energy per year than Germany.
-Russia produces 4 times more coal per year than Germany.
-Russia produces 4 times more wheat per year than Germany.
-Russia produces 7 times more aluminum per year than Germany.
-Russia’s military industrial complex has 4 times more employees than Germany’s entire car manufacturing industry.
Russia is a much bigger economic power than Germany could ever dream to become. GDP, even with PPP adjustment, is a rather useless concept, especially in this age of universal financial and statistical manipulation.
And atomic energy industry, ship building industry, aviation industry and many more
I also think that Russian economy is bigger than that of Germany. Andre Martianov is right
Germany has bigger car industry…but not for long time
I agree. Germany does not actually produce very much, except cars and chemicals.
Does the term PPP have various different interpretations? If I am not mistaken there is some controversy over the calculation of PPP. The term implies that those who have higher purchasing power = ability to buy should have a higher value. Those who have little ability to buy have by any realistic definition a very low value.
China in terms of ability to buy has a very high value: for example ordinary Chinese workers have enough disposable income that they can afford to travel overseas, and in Europe have a reputation as the highest spenders of all tourists, on average.
In Germany, in contrast, the disposable income of most ordinary people is extremely low (because the cost of living is too high). People have to work extremely long hours, and many people need 2 or even 3 jobs to make ends meet. That, it seems, should by any realistic definition be a very low value.
According to Martyanov, the standard of living in Russia is very high. Gilbert Doctorow, in recent (unscientific) comparisons AFTER sanctions, rates the standard of living in Russia significantly higher than Brussels, even outside the city – and the standard of living in Brussels is MUCH MUCH higher than Germany.
So yes, I think the Russian GDP-PPP in any realistic measure must surely vastly dwarf that of Germany.
However if the GDP-PPP is based on metrics devised by the IMF and World Bank, then it is guaranteed to be vastly skewed to hide the intrinsic economic disadvantage of an uber-rentier economy. A major reason the standard of living in Germany is so low is because RENTS are so high – most of people’s wages get spent on rent, disposable income is very low.
In addition to that finance should be excluded from the calculation of GDP, as it produces nothing. Once you exclude finance, Germany goes way down – and the US even further down.
«The GDP of Russia, even when adjusted by the PPP conversion factor, does not even come close to depict the real economic potential of Russia, especially in comparison to Germany.
-Russia produces 2 times more electricity per year than Germany.
-Russia produces 2 times more cement per year than Germany. […]»
A long time ago GDP was defined as a list of physical quantities, and GDI as a quantity of money, but then neoliberal Economists created a deliberate confusions between GDP and GDI. Good to see the older sensible approach here. GDP (physical quantities) is still used, as it was used in WW2, for war planning, when political economies switch to a command system, and what matters is the physical production of war supplies for the military.
The biggest problem with GDP in the original meaning as physical quantities is that it does not take into account the quality of those physical quantities, but GDI has even bigger problems, as it includes as “revenues” a lot of costs, e.g. finance.
Note: soviet statistics reported something call gross material product, which largely excluded services, based on an incorrect understanding of marxian theory; for example an entertainment service like movie theaters still have a physical output, in hours of entertainment delivered.
GDP is inherently flawed because it counts welfare payments, and then counts that same amount of money again when the recipients spend it.
An honest GDP wouldn’t count welfare and a lot of other government spending, other than purchases of hardware (such as military equipment) and services (such as road construction to contractors). Salaries of government employees are pure overhead, and don’t belong in any GDP-like economic assessment.
The West are what they cosmetic to say the least!
GDP discussions are all a waste of time, no matter if extended by pop: Get a hair cut for 100€ by a gay in main Street Los Angeles or the 3mm version by your buddy having a bottle of gin afterwards. What produces more wealth? A wasp manager paid 200k a year having a shit for 15minutes reading wapo has what increase of living standards;)?
GDP is fundamentally flawed for the following reason:
If you mow your own lawn, and I mow my own lawn, there’s no contribution to the GDP. But if I charge you $100 to mow your lawn, and you charge me $100 to mow my lawn, the GDP has just grown by $200, but the end result is identical.
Economists spend their lives counting trees, but if foresters used their methods, they would literally have no ability to distinguish between a healthy forest, and one that’s literally on fire.
PPP doesn’t cut it. Russia’s economy is way ahead of Germany’s. Look at energy consumption. Russia consumes almost twice the electric power than Germany. Even if you allow that Germany may have more efficient machinery (which is not necessarily the case), it still puts Russia ahead of Germany. The same goes for oil and gas consumption. Then you can look at what the two countries produce – or rather, what Russia produces that Germany does not/cannot. Germany cannot design and manufacture 5th gen fighter aircraft, rocket engines, gps, nor complete aircraft. The closest Germany gets in aircraft manufacture is the joint European airbus. The more you look at the details instead of meaningless GDP figures, the more this truth is apparent.
Agreed but when it comes to energy consumption you have to discount it a bit in Russia’s ase because quite a lot is generated just to deal with the cold. Canada is the same.
On the other hand Russia’s steel production matches that of the USofA
First statement removed … mod
Debt should be deducted from GDP in all cases to determine where a country or state stands (more like exists), overall. This means financially, economically, politically, culturally, spiritually. Prosperity only exists as a surplus. Being debt free is the most desired state: “Neither or borrower nor a lender be.”
The overall health of a country can be determined by its debt, not its GDP. Any country whose debt exceeds its GDP is a homeless deadbeat, a pedophile, a philanderer, squanderer, a drug addict, a homeless bum — with a gambling problem. And is to be avoided at all costs.
Any state or country with a debt that exceeds its GDP should be banned from the table of responsible adults.
If I were Russia, I would rather my GDP be compared with either a country or a state with the lowest level of debt, ideally one with no debt at all, because that is where Russia is, with a national debt of just under $2-billion dollars USD.
In Russia’s case I would only allow myself to be compared with Russia. Russia has the lowest national debt of any country (or state). It holds vast natural resources in natural resources — in land (referred to as property by countries that have no land), natural gas, oil, coal, minerals and rare earths.
All true. However, we must notice that ‘debt’ always has its complement, ‘credit’. Every dollar owed by the US government represents a dollar is someone’s bank account. The difficulty comes when a country owes more outside of its sphere than inside it.
Oh, that’s like saying how even if you got rid of all the debt there would still be the interest on the debt to pay off. More gobbledygook. For crying out loud.
Sounds good to me. WEF can safely be left in charge of the rubbish tip they have made of the West.
Andrei Martyanov actually thinks that Russia’s economy is twice Germany’s. Considering the wide range of things Russia makes that Germany doesn’t and can’t, and Russia’s large mineral and agriculture production, that makes sense.
Martyanov’s estimate also means that Russia’s economy is about half America’s, and that makes sense, too.
«Martyanov’s estimate also means that Russia’s economy is about half America’s, and that makes sense, too.»
It makes some sense, but in a conflict situation what matters is the ability *and* willingness to produce enough military supplies to sustain operations, and that is question of physical capacity, not of accounting like GDP. During WW2 USA physical production of military supplies expanded gigantically, for example, but the UK one pretty much collapsed.
The ability of the RF industrial system to produce military supplies to sustain operations is likely much bigger than GDP figures suggest, also because the RF is self-sufficient in cereals and fuels, which are the base of any military supply system.
What the USA strategists are counting on is the lack of *willingness* of the RF upper-middle classes to live in a war economy targeted at producing military supplies to sustain operations, lack of willingness that they hope will result in a “color revolution” against the RF government. Their calculation is that the RF upper-middle and upper classes would rather be vassals of the USA elites than to have their luxurious living standards suffer in a war economy.
GDP, however calculated, is just turnover. As everyone who has been in business knows T/O means little figure without the context of quality, long term viability and profits. The classic illustration of GDP irrelevance is that if a widower employs a housekeeper he increases GDP. If he marries her he reduces it, assuming he stops paying her a salary.
Common sense is a help. Anyone could see that Russia was conducting a difficult military operation in Syria without financial strain. Germany couldn’t do that. We now see Russia efficiently conducting an active military operation along a front of of around 900kms – much lnger thatn the Western front in WW1 – and without too much evident stress.
A view is growing amongst economists that the value of financial activity is over-rated in current GDP calculations and therefore manufacturing is under rated. Russia has a far bigger manufacturing sector than Germany and a smaller financial sector.
the other factor that is not mentioned in the article is the extent of the uplift necessary to take into accout the ‘informal economy’. It is clearly a great deal bigger in Russia (30%) than in Germany (13%).
Debt levels are crucial in calculating short term economic strength. Russia’s is exceptionally low. In all Western nations’they are exceptionally high.
My own calculation, for what it is worth, is that Russia is at about the same GDP level as Japan and rising.
Economists use GDP to measure economies because it is all there is, not because it is a particularly accurate system.
Maybe you would want to write this article again…in 1 yr’s time, after Germany has gone through winter. See which one came out on top.
Then also, where will ukraine be – or what’s left of it (poland is already getting some rights inside ukraine via zero – not a hero) in the rankings?
Not even GDP PPP is telling us the true story of real economy. If we could adjust energy consumpion with weather and energy efficiency reality, that energy consumption would give rather good perspective of real economy.
In 2021 Germany had 3,512 TWh primary energy consumption. Russia had 8,694 TWh. Surely colder northern weather play certain role on that. We might guess how much. Let’s try to estimate.
Canada: 3,871 TWh
USA: 25,825 TWh
Canada per capita consumed around 50% more than US. Weather plays certain role on it but Canada also has big aluminium and forest industry needing much energy. Using same 50% to adjust German and Russian energy consumption will still give Russian real economy consumption 65% higher figure. If Germany had let’s say 20% better energy efficiency (this is just my speculation based on no studies) Russia still had 38% bigger real economy energy consumption.
There are strong evidence now that Russia has actually bigger real economy than Germany. In many countries 40-50% of energy has been used by industry and around 15-20% by traffic. Heating buildings even in cold climate nations takes mostly 25-30% of energy. There is no production without energy. In Germany just like e.g in Finland it has been industry reducing energy consumption because production has gone done, not heating building and other sectors.
Let’s not forget that even GDP PPP can be heavily inflated. For instance Ireland has one of the highest per capita GDP PPP but according economic studies Irish people have on average 5% purching power compared to average EU citizens. According those studies at least 50% of Ireland’s GDP and GDP PPP is fake based on corporate “safe heaven” harbour effect (e.g Apple and Micro$oft).
Correction: Irish people have on average 5% lower purching power compared to average EU citizens
Nominal GDP is not trusted much by seriously taken economists and correlation between GDP and economy has become very weak especially since 1980’s. As i do remember it took late 1980’s when first time new measurement called gross domestic product based on purchasing power parity (GDP PPP) was used. This underlines that GDP itself no longer told much of economy.
PPP basis is arguably more useful when comparing differences in living standards between nations. A haircut in New York is more expensive than in Lima; the price of a taxi ride of the same distance is higher in Paris than in Tunis, and a ticket to a cricket game costs more in London than in Lahore. PPP is an exchange rate at which one country’s currency is converted into that of the second country to purchase the same volume of goods and services in both countries. If a hamburger is selling in London for £2 and in New York for $4, this will imply a PPP exchange rate of 1 pound to 2 U.S. dollars. PPP exchange rates are relatively stable over time. The drawback of PPP is that PPP is harder to measure than nominal.
When it comes to GDP PPP it too is not good enough measurement especially for real economy. We should think how important for real economy is for instance real estate and other “speculating business”. Do they really add value? Do they increase “common good”?
We should seriously think is our standard of living really now 3-4 times higher (or even more closely: better) than 40-50 years ago? My intuition: yes it’s higher and likely even better but not near as much as those GDP/GDP PPP figures are suggesting. You may use test: think average working/middle class western people trying to survive with 67-75% lower incomes now. They won’t survive. They won’t live half year even if reducing all luxury.
In early 1970’s western world was full of ordinary families with 3-5 kids and only father working and earning. They lived relatively good safe living and kids getting good education. Now we see WOKE folks whining how they have no chance to build family (index family now: girl looking woman, not so man looking man and 2 dogs). It seems to be that whole bubble is based on DINK (double incomes no kids). But what’s there below the last line: demographic winter and the end of so called culture.
50 years ago western people after all had more optimistic outlook. Hardly now. Let’s see how Gail Tverberg is seeing our future:
“About all we can do is enjoy each day we have and try not to be disturbed by the increasing conflict around us. It becomes clear that many of us will not live as long or well as we previously expected, regardless of savings or supposed government programs. There is no real way to fix this issue, except perhaps to make religion and the possibility of life after death more of a focus.”
My thoughts:
Michael Hudson constantly points out that US GDP calculates ‘financial services’ and ‘rent’ as additions to GDP instead of subtrahends. Take bank charges. These account for millions of dollars and instead of being subtracted from GDP as costs, are added. The same is true of rents, whether for land and buildings or intellectual property. These cost an economy, but increase GDP. I suspect that neither China nor Russia has the same value of costs in these areas.
As for the “Big Mac” hypothesis, my experience was a bowl of noodles. When I taught in China in 1999, a good bowl of noodles cost 5 yuan. When I was back in the States, I had to pay 5 dollars for the same bowl. Even then, Chinese economy was vastly underrated.
Perhaps Nabiullina was setting a trap for the West. Since the world took little notice of the seizure of Venezuela’s gold and petroleum assets, then paid more attention to the seizing of Afghanistan’s assets, no one could avoid the West’s seizing of Russian assets. Collectively, these events weakened faith in the global dollar financial system. Or, she just blundered, as many say she is intellectually wedded to the neoliberal economics of the West. Russia has an MMT finance guy, I cannot remember the name, and hopefully a better financial steward will take control.
Incredibly strange how Russia is still a raw resource export heavy economy. Any European with those resources would’ve been more developed and rich.
That’s an interesting point, but does it overlook the fact that huge resources require huge tracts of land, the administration and development of which are a huge cost.
It could be that most countries in Europe are at or near their full potential, while Russia can develop for decades or longer.
Not strange at all, true value is in resources and energies. Russia does not invest lot of efforts into fridges and iPhones, but into energy, resources and exploration (space, Arctic, etc). The world will always need resources, pull copper or lithium from the ground and can sell it 100yrs from now, but manufacture a fridge a next year is unsell-able.
Russia’s greatest strength is her huge size, Russia’s greatest weakness is her huge size! That is the historical riddle which I have studied for 45 years!
I guess this is wrong. Russia will overtake Germany already in the end of 2022. This is because Germany does not have export plus anymore. The economy is decreasing massively if you take the inflation into account (which is nearly 14% in real).
Countries must not b e compared in US$ but in Gold nowadays. The US$ is in a tremendous downfall and the USA will go totally bankrupt soon. I am not putting my money into anything that is based on US$ anymore. The stinky finger in New York (world trade center) will have a future fate that is directly lead to from the stinky moral that broke down the previous one to create a war against civilists. Pfui Obama, pfui Bush I and II, pfui Trump, pfui debile Biden. It’s a shame with all this gender shit from there – but maybe they are able to get a women as president in the end that was a man before? He is a women, she is a man (The Scorpions sang this song – in the last century).
Historically, there is an extremely high correlation between world energy consumption and the total quantity of goods and services produced by the world economy. Purchasing Power Parity (PPP) GDP because it is not distorted by the rise and fall of the US dollar relative to other currencies is good way to measure this correlation.
The reason such a high correlation exists is because it takes energy to perform each activity that contributes to GDP (PPP), such as lighting a room or transporting goods. Energy consumption which is cheap to produce and growing rapidly in quantity is ideal for increasing energy productivity, since it allows factories to be built cheaply and raw materials and finished goods to be transported at low cost.
Also historically world economic growth has been slightly higher than the growth in energy consumption (gap around on average 1-1.5%). This growth in energy consumption is based on total consumption of fossil fuels and renewables.
What happened when there is actually less energy available (or it is too expensive)? Minus 1% energy actually will cause more than 1% decline in real economic growth what ever fake GDP is telling. It’s very hard to find stability where both producers get cheap enough energy and energy producers high enough price of energy. It’s easy to find common interests with Saudi Arabia and Russia (and Iran, even in some degree USA too). In the other hand rivals are China/India and Europe. Who will get energy, especially cheaper enough.
In this very crucial moment of history Russia is playing extremely important role. There is not cheap enough energy for all. But for some will be. Are these “some” countries like China, India and those integrating with BRICS? During really hard times US certainly will secure its own energy/raw material supplies. For Europe – their cards in game are looking pretty awful especially after all pro Ukraine bullshit. Only very expensive energy available for Europe (if even it?).
I still believe that $284B foreign currencies deposits Russia left for West to capture, was a “bait”
As all things, mostly artificially made, counterfeit, in the USA, the GDP is the main side-kick of the fiat US Dollar, that the Germans tried & begged for almost half a century to “reajust” & “realign” with no avail. With Monopoly money & Monopoly assets the USA wants to live at the expense of the rest “productive” world.
I have to ‘jump’ onto that word you use : “counterfeit” …That indeed is another aspect to consider. I recall concerns by the USA that it was known that Iran had counterfeited US Dollars. Estimates at the time were around $2bn. The counterfeited funds would normally create inflationary pressures, particularly if officially recognized or a large sum but the US decided to turn a blind eye so as not to upset the role of the Dollar in the financial markets.. I read at the time that the Iranian counterfeits were of a high quality and often could not be spotted so easily using methods existing then..I recall it mentioned that Iran was able to buy a vast quantity of military hardware with its counterfeit Dollars.. So Iran was able to make use of the dollars role as the primary currency… A State counterfeiting large amounts of Dollars could thus easily destabilize the US economy?.Maybe someone has more info about this. i recall only from memory…
“And I still do not understand why E. Nabiullina, Russia’s Central Bank Governor, was not fired on March 18, 2022 for dereliction of duty or at least for incompetence.”
I personally think that explains whyt Russian are VERY good at chess.
Agreed. If the Russians had sold or moved all their forex NATO/US would immediately have realised what was going to happen next. It is also a question of letting the West make a grave mistake and lose financial credibility worldwide. Finally it looks like, with one thing and another, the net financial situation favours Russia and it is still possible that a lot of the forex will eventually be unfrozen.
Really good stuff! This discussion needed to be had.
The greatest problem of GDP within a domestic economy is that it doesn’t address the inequality of income amongst sectors of an economy.
At the end of the Second War there was an ‘unwritten understanding’ that the GDP of Western nations would be split 50% – 50% between the owners of capital & the labor force.
These days, the split is approx. 55%- 45% in capital’s favor. As there are more workers in societies now than at WWII”s end, that means each individual worker is materially worse off than workers 70+ years ago.
The US is a classic example. In the 50’s a tradesman could pay off his home loan, the kids’ education, run a car, feed the family and afford an annual vacation on one wage.
Flash forward 70 years & its almost impossible to do all of that on two wages – with the spouse working.
So GDP data might indicate that an economy is going ‘gang-busters’ but if the vast majority of that $ value is going to the owners of capital i.e. production, distribution & exchange – are the working families of that country really any better off?
This centralization of money-power “the rich get richer and the poor get the picture” is one of the contradictions that will eventually result in the downfall of capitalism, which, by the way, was identified by Marx more than 170 years ago.
I raise this question as the whole point of the study of economics (which seems to me has been long forgotten) is creating the conditions for the greatest happiness for the maximum number of citizens.
Hence the need for a better indicator, e.g. a measure called Gross National Happiness (GNH). I believe Nepal uses it.
Agreed that inequality (distribution as opposed to aggregates) is what’s frequently missing from the analysis.
But I would push a little on the capital vs. labor framing. The core distributional issue is that some workers earn a lot more than others. It’s the distribution, in other words, within labor that leads to so much waste and corruption as people attempt to squeeze into one of the fewer and fewer slots as you go up the rungs of the ladder.
To use a concrete example, Bill Gates isn’t obscenely rich and powerful because he invested an inheritance in Microsoft. Rather, it’s because he was paid an enormous amount in total compensation – far beyond the actual productive value of his work. It’s why the ruling class has worked so hard to gut progressive income taxation. It’s income inequality, rather than capital vs. labor, that is the main story. Food for thought. I’d be curious if you see it differently.
And a word on currency speculation:
“Also opportunistic and shameless speculators always try to make a bundle attacking weak countries (G.Soros and the £UK’s Black Wednesday on September 16, 1992)
In addition he did the same thing to a basket of Asian currencies in the Asian Financial Crisis (1997). As a result ~400million Asians – Thais, Malaysians, etc, were thrown back into poverty.
When asked why he did this, the Hungarian jew, Soros, replied [quote] “because I can”.