Ruble & Oil in Freefall, Putin’s War Economy COOKED!

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October 19, 2024

Video Summary

I’ve been following a recent opinion piece written by three economists, all of whom have impressive credentials, including a Harvard-trained economist. According to their analysis, Russia’s economy is actually in danger of imminent collapse. I’d like to explore some of their key points with you. When you look at the data, you’ll see that Russia’s public face says its economy is humming along, but the truth is far from that. The reported 9% inflation rate is actually much higher, around 27% in real terms. This is a huge problem, especially for the average Russian, who’s experiencing a much higher rate of inflation.

One of the main issues is that Russia’s war chest of foreign reserves, built up over 20 years, is being depleted quickly. In fact, about half of its reserves have already been seized and are being held in Western accounts, with the interest being donated to Ukraine. Additionally, Putin’s plan to rely on China’s Central Bank for a War chest has hit a snag, as it’s unclear if China would be willing to hand over the funds, especially not on the cheap.

The oil and gas sector is another area of concern. Russia claims that its revenues have never been higher, but if the real inflation rate is closer to 24%, as these economists argue, then the increasing taxes on liquid natural gas producers and gas pump operators aren’t actually generating more revenue. The problem is that, like people in the grocery store, they’re just shifting their spending patterns, and nothing’s changing significantly.

The economists also point out that Russia’s War economy is cannibalizing productive assets to fund the military machine. This is a serious problem, as it’s unsustainable in the long run. They argue that Russia’s entire War economy is based on this principle, which isn’t viable. The example they use is when the government takes a chunk of the consumer spending for social welfare payments to families of fallen soldiers, pensioners, and military personnel, which is a significant 4% of all consumer spending in Russia. This is a red flag, indicating a broken economy that’s spending way more than it’s making.

Furthermore, Russia is experiencing a massive brain drain, with highly trained doctors, including those in the medical field, leaving the country in droves. The salaries, which should be high given the shortages, are actually insufficient to meet basic needs. In fact, 60% of Russian doctors report that their salaries are insufficient, while 80% work multiple jobs just to make ends meet. This is a serious issue, as the salaries for doctors, in particular, should be higher.

The exchange rate is another area of concern, with the ruble surging from 84 to 97 against the dollar, and then dropping back down before surging again. This volatility is unsustainable, making it difficult for the Russian Central Bank to support the ruble. The real question is, how long can they keep this up?

The economists also explore the role of oil in sustaining Russia’s economy. Russia needs to maintain high oil prices to generate revenue, but with the global price of oil now at $69 a barrel, it’s a significant problem. The European Union and other countries are reducing their oil imports, and the US is increasing its oil production, further pressuring Russia’s oil revenues.

In conclusion, the data paints a bleak picture of Russia’s economy, with warnings signs flashing all over the place. The collapse is imminent, and it’s not hard to see why. The brain drain, oil price fluctuations, and lack of economic sustainability will all contribute to Russia’s downfall.