In response to Putins speech today, I just explained on Press TV that in talking about Russian economic news, its easy to lose sight of some important facts. The fundamentals of the Russian economy are sound 1. Russia is still has the 8th highest nominal GDP in the world - 2. Russia has the 5th largest Gold reserves, surpassing Switzerland and China this year - its important in looking at the real strength of a currency to see what precious metal it has behind it. These Reserves are now back to Soviet era levels, before 1993 when Yelstin nearly destroyed all of Russia and his policies depleted gold reserves - 3. Putins speech today saying that it will be 2 years before the Russian economy returns to normal, I was asked if this is optimistic, I said its conservative. Putin actually said it could be one year, if external factors change (this includes oil price, I think they could, see below) - 4. I emphasized that Putins call for diversification of the economy is realistic - pressed as to whether this was optimistic, I responded no, its realistic. - In fact a weakened ruble and higher interest rates are compatible with developing Import Substitution (which means industrialization, or ISI). It protects savers and workers, and reduces speculators in sectors outside of the national economy. The weakened ruble promotes exports (didnt have time to drive that last point home. Khazakis and Chinese are already rushing to buy Russian goods right now) - 5. Whatever number the ruble stabilizes at is not as important as that it does stabilize. Eliminating volatility is more important than a number. A national economy (especially in light of ISI) can adjust its own costs and prices to meet the needs of consumers, production, and the economy in general. The more a country is internally producing, the less the number (vs. the dollar or euro) is important. - 6. I confirmed that Putin accurately states the origin of the weakened Ruble being in low oil prices. But its also the product of sanctions from the US and EU. This effects the banking sector, and will force Russia to change the role of its own central bank - this last point I did not have time to drive home. But I did have time to say that while the the price of oil per barrel is down from $100 to $55 (for Brent Crude), that this low oil price cant be the norm forever, and that they are conservatively estimated to rise by this time next year to about $65 and as much as $70. The ruble will strengthen in relation to this. - Not a lot of time to discuss a complex subject, but still happy with what I was able to hammer a few points home (a few times).
Posted on: Thu, 18 Dec 2014 16:29:31 +0000
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