Super-sanctioned Russia: Economic crisis averted?
A very spicy topic right now. A few observations from our perch in Moscow
Recently there has been much animated discussion about who is winning the Economic War. Will barely cognizant Joe Biden press the wrong red button and literally nuke the US economy? Will the gold-pegged ruble, which does not exist, not even a little bit, allow Moscow to bypass sanctions when selling clot-shots to Iran? These are very important questions.
At the end of May we typed up a blog post highlighting the practical challenges of import substitution and nationalization following the mass exodus of western firms from Russia.
In this installment we would like to focus more on general indicators in hopes of injecting a bit of nuance into an increasingly slogan-dominated debate about Russia’s short-to-medium-term economic outlook.
At the end of this internet article we will also share a few anecdotes and observations about how things have changed (and not changed) over the past three months in our quiet Moscow suburb.
The ruble: beautiful but misunderstood
The ruble is looking like the prettiest girl at the debutant ball. Remember when you had to fork over 120 rubles to acquire one greasy United States dollar (which was actually rather difficult to do in Russia, because of massive currency controls, but that’s a story for another time)? Now it’s around 60 rubles for one American clam. Very impressive.
However, as your humble Moscow correspondent noted back in April, the exchange rate is not really a reliable way to gauge economic fortitude and also doesn’t necessarily reflect actual purchasing power. We know that sounds weird but it’s true; we’ll explain soon.
First of all, let’s not forget that for the last eight years, Putin and many other senior decision-makers have argued that a “weak” ruble has advantages and is even desirable:
The pros and cons of a “strong” ruble are often viewed through the lens of energy exports but it’s a much broader issue. At the end of May, minister of economic development Maxim Reshetnikov called for a return to a “normal” and “equilibrium” exchange rate, since 60 rubles for 1 USD had created serious problems for Russian exporters. As an example, the Russian Steel Association recently announced that selling certain products to Asia had become unprofitable.
There’s probably no magic number: the important thing is stability. The end goal is to stop the ruble from bouncing around, to make it chill out so business-oriented people can do their ruble-making calculations without having to worry all the time about a potential flash-crash or a 30% jump that carpet-bombs their mail-order pelmeni operation.
But surely a “strong” ruble is good for consumers? In the land of gold-pegged rubles, perhaps. But we live in a different land, a land that actually exists, and therefore things are a bit more complicated.
Komsomolskaya Pravda recently published an excellent Explainer about this frustrating phenomenon, so we will just copy-paste what they said:
[According to Mikhail Belyaev, an analyst at the Russian Institute for Strategic Studies,] prices in stores are set by people seeking to maximize profits. And the idea that the prices in the shop windows should go down after the decrease in purchase prices for imported goods is wrong.
According to the expert, the situation is obvious. The market has fixed prices for goods, people buy them at this price. So why lower the cost? Well, maybe a little to sell stocks.
“Of course, if we start asking questions to sellers, they will refer to difficulties with delivery, or offsetting earlier purchase prices,” Belyaev noted.
By the way, about the purchase prices. If you try to buy any product in a foreign online store, you will make an amazing discovery. The exchange rate of the ruble - even against the dollar, even against the euro, even against the Zambian kwacha - will be recalculated for you not at all according to the quotes of the Russian Central Bank. But at the current market rate. That is, they will count from 80 to 100 rubles per dollar.
And in the “domestic market” the dollar is so cheap because of the severe restrictions that the Central Bank introduced this spring. In particular, Russians were forbidden to withdraw from their accounts more than $10,000 in foreign currency, in fact, forbidding them to take ownership of their own money. If you want to buy cash currency, then you are allowed to purchase only those dollars and euros that came to the cash desks of banks after April 9th. How many naïve people do you know who will exchange dollars for rubles at such a rate? In general, it’s easier to say that you can't buy them. Therefore, it is impossible to take seriously all these “dollars at 57 and euros at 59”. What difference does it make how many rubles per dollar the Central Bank will decide on today, if you still can’t buy it.
We also thought this article from early May was quite enlightening:
“It is important to understand what is happening with the dollar in Russia,” notes Sergey Khestanov [, some kind of Russian economics nerd]. “The way we used to interpret [the valuation of the ruble in USD terms] is not entirely effective now. Since the end of February, the Central Bank of the Russian Federation has significantly changed the regulation of the circulation of foreign currencies in Russia. In fact, the free conversion of the ruble into foreign currencies has been partially abolished. A lot of complex currency restrictions have been introduced. The consequence of this was a strong change in the country’s foreign exchange market.” […]
“[A] dollar at 66 rubles does not mean at all that in a month iPhones and other equipment will fall back in price in our stores,” Khestanov noted. “The old patterns that linked the exchange rate of the dollar and the ruble with prices, they are broken. And new ones are just starting to form.”
Although some currency restrictions are being gradually eased, basically all of the above still holds true.
Inflation: It’s what everyone craves!
Sometimes, for reasons which escape us, we browse The Twitter. Recently there has been a huge amount of smugness on social media about the dilapidated state of the Eurozone economy. In particular, the bloc’s record-breaking inflation:
Yes it’s true: annual inflation (the percent change of the Consumer Price Index compared to the same month of the previous year) in the Eurozone is currently at an eye-watering 8.1%.
Meanwhile in Russia, annual inflation receded—checkmate!—in the last week of May, from 17.5% on May 20, to 17.35% on May 27. C’mon, now.
And there’s more good news: the Bank of Russia says this inflationary “slow-down” is not sustainable:
Unlike the “official” ruble/USD exchange rate—which for many Russians is basically meaningless—the level of inflation is a really big deal. Especially when it affects the prices of basic staples. And, unfortunately, it has.
So much so in fact that Communist Party leader Gennady Zyuganov published a Telegram-rant in which he demanded the introduction of government price controls. He wrote on May 29:
Bread continues to rise in price in Russia. The cost of a loaf has increased by 20% since the beginning of the year. At the same time, according to experts, in the near future the price tag will increase by another 25%. And this forecast is considered optimistic.
An absolutely unacceptable situation! Especially when, against the background of rising prices for bread in the domestic market, there is an increase in grain exports.
‼️ Once again I have to talk about the need to introduce state regulation of prices. Especially for essential goods. We have already seen enough of the “invisible hand” of the market over these 30 years. Enough! It's time for the state to take up regulation and bear responsibility for it!
The major takeaway here is: very high inflation is everywhere and let’s not gloat about other peoples’ inflationary troubles, please. Clocking in at 20.1%, Estonia is currently leading the Eurozone in inflation-pain. We don’t take any joy in that. No one should. We are all serfs. Don’t forget that.
Bank of Russia: a den of doomers?
When reading the Incredulous 5D Russia Blogs, one gets the impression that Moscow did a double-backflip over western sanctions and is now days away from delivering the knock-out blow to George Soros. Maybe? But the Bank of Russia is saying the exact opposite:
The situation is so not-okay that the Bank of Russia is openly talking about how it will take several years to make the economy work properly again:
According to the regulator, the Russian economy needs to go through two stages in order to adapt. The first phase has already begun and may take 1.5–2 years. During this period, the Central Bank will maintain price stability. The second phase will begin immediately after the first, during this period the stabilization of the economy will begin.
Yes, we already know what you’re thinking.
“The Bank of Russia is a counter-gang psyop.”
Okay, but Putin endorsed Elvira Nabiullina for another five-year term so………….?
Life in the suburbs
Very briefly we would just like to add a few observations about life in our suburb 25-ish kilometers outside of Moscow.
Apart from a very brief run on sugar, we have not noticed any empty shelves in shops or grocery stores. In fact, a lovely little market selling fish and fruits opened recently near Edward HQ.
But the inflation spike is a real issue and it’s clearly taking a toll on the most vulnerable members of society. We’ve noticed a worrying increase in elderly beggars near the train station. Worrying because there were none a few weeks ago. It’s a very sad thing, to see someone who looks like your grandmother ask for money. And this is coming from someone who grew up in southern California, the homeless capital of America, where drug-addicted Vietnam veterans live in cardboard boxes 1000 meters from gilded beachside McMansions. It’s very sad. All of it. What have they done to us?
The whitepill
If the Russian government can manage to be semi-competent, there is reason for hope, long-term.
“Strengthening Russia's economic sovereignty is another area of the work of the Security Council. Within its framework, the tasks of improving the quality of life of Russian citizens, ensuring macroeconomic stability and balanced territorial development of the country are being solved,” security council secretary Nikolai Patrushev said earlier this week.
Of course, in a few years all people of the world will be living under the CBDC Yoke, but, uh, at least your inflation will be lower than the bad peoples’ inflation?
Anyway.
We wish you Promising Economic Indicators and Success in Money-Making.
Remember: buy high, sell low.
Then use your profits to treat yourself to a paid subscription to Edward Slavsquat. You’ve earned it!
Perfect Girl, pretty good track. Hey Ed, i love ur blogs, u crack me up. in an insane clown human world, you make gettin up an readin an email fun an full of gallows humour.. - lee in taiwan
<<Yes, we already know what you’re thinking.
“The Bank of Russia is a counter-gang psyop.”
Okay, but Putin endorsed Elvira Nabiullina for another five-year term so………….?>>
Those who observed Russian politics for a long time, like I did, know that Putin has never appointed a non-liberal to a position in the financial/economic government block. Even the ever prominent academician Sergey Glaz'yev that has advocated economic sovereignty for Russia for the past two decades was only appointed as a general advisor to president Putin, not an economic one. He since was moved to a position in the EurAsian Economic Union (EAEU) overseeing integration processes there. People that know how things are done in Russia know perfectly well that finance and economic ministers have ignored Putin's direct orders like "May's Edicts" (Майские Указы) two times in a row in 2012 and 2018 with no consequences for themselves. All this independence of financiers and other shakers and movers of Russian economy stems from the arrangement that brought back in 1998 at the time "unknown dark horse" called Vladimir Putin to the top power in Russia. He and his group called "Siloviki" (Sila translates as Power) were given armed forces, the law enforcement agencies, the foreign policy and the patriotic facade for the people, but he was strictly forbidden from interfering in the core economic and financial decisions. And Vladimir Vladimirovich is adhering to these rules until now, as we can see from his reappointment of the criminally guilty according to Russian laws Elvira Nabiullina as a head of the Russian CB. However what the start of this special military operation did, it turned the table, where instead of Putin fighting the fifth economic column inside of Russia, this is now done by the West itself! Just as one example, the most pro-Western and integrated into the Western economy and even civilization are Russian oligarchs. They spent decades benefiting from Russian resources and taking their money (cumulatively 2.5 trillion dollars), their families, their interests and their hearts to the West. Yet, who was made the biggest scapegoat in this fallout between Russia and the West? West's most ardent supporters in Russia, Russian oligarchs and even people of lesser means that have chosen to connect their lives with the West but made a stupid mistake of keeping their Russian passports! So overall it looks like the "special military operation" wasn't as dumb of a move as I personally thought it was at the beginning. On one hand Putin played into the hands of the globalist elites and his old buddy Klaus Schwab, accelerating the coming of economic crisis of unheard of proportions, but on the other hand he delivered as strong of a blow as he could to the fifth column inside the country, the move that he is banned from doing directly by the 23 year old power sharing agreement. This push toward sovereignty against the wishes of many, but by far not all, of Russian elites gives Russia a fighting chance to survive and find its place in the coming NWO. To evaluate actions of Putin we have to go back to a Russian philosopher Alexander Dugin that once written: "Putin is like a twilight star - he gives a glimmer of hope and then he goes dark again. With Putin no one really knows, is his glass half empty or is it half full", I quoted Dugin by memory, but pretty close to the meaning.