Thursday, October 9, 2014

Russia is an Economic Mess

It is interesting that the Western countries have blinked in the face of Russian policy toward the Ukraine.  Fearing a shutdown of oil and gas from Russia to both the Ukraine and to Western Europe, the NATO alliance essentially backed down in the face of Russia's aggressive actions toward the Ukraine.

What would Russia do without it's oil and gas exports?  They have to sell it.  If not to Western Europe, then they would have to scramble to sell it elsewhere.  If that happens, since oil and gas is pretty much fungible globally, there would be plenty of oil and gas for Western Europe and for the Ukraine in time.  The "in time" is simply a reflection that temporarily oil and gas might have to be brought in from other sources.  These sources are available in abundance at the present time.  The world is overflowing with available oil and gas and the global market prices for oil and gas have been plunging for quite a while, reflective of that relative surplus.

Russia actually is an economic pigmy.  Capital imports into Russia have ground to a halt as Putin has, more or less, annihilated what little free-market activity occurs in Russia. Russia is gradually headed back to the old Soviet model -- the government dictates and the people suffer.   The winners are those in power and the oligarchs that Putin favors.  This is not a recipe for economic strength.  It is a recipe for weakness.

Anytime you see folks claiming to be fighting for the working classes, watch out.  The end result is, in every case, a pure dictatorship where the spoils are dished out to family and friends.  Think about that when you hear the current cries about inequality in the US.  Those who shout the loudest are likely hopeful that they and their allies will be able to decide who gets what.  Once you replace the free market, then it just becomes a power game and the winner puts his family and his friends in the drivers seat.  Putin probably laughs at our current concerns with inequality.  He knows where that is headed.

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