Wednesday, January 28, 2015

Russia raids infrastructure fund to save the banks

I have never seen such disastrous, ill-conceived policy. (Well, maybe with the exception of the Eurozone austerity, but we know that is solely to benefit the plutocrats.)

Russia is taking money away from infrastructure investments and giving it to the banks to "save" them.

First of all the banks don't need to be saved. They can still function in the role of clearing and settlement as long as the central bank makes sure their liabilities are met. No problem there--the libabilities are in rubles.

Did anyone over there ever have a look at Japan? Those banks have been zombies for decades thanks to loads of really bad investments, but no problem...people deposit money, checks get cashed, cleared...all the usual banking stuff happens without a hitch. They even make loans; the ones that are solvent at least.

Russia's in dire need of infrastructure investment. In fact that would be a great way to immunize the entire Russian economy against Western sanctions: boost infrastructure investment, massively.

But instead their new finance minister (excuse me, I meant to say, finance idiot) is imposing austerity as a way to "fix" the economy. Russia apparently ran out of rubles(?) and the ones they got left they're giving to the banks? Why this is happening I am not sure? I can only chalk it up to idiocy at the top levels of leadership.

I was bullish on Russia. I even bought some Russian ETF's recently. But now I think it's a dumb move. So much stupidity going on. So much. I really feel bad for the Russian people. They're good people. They deserve better.

7 comments:

Павел said...

Hello Mike! From time to time i'am reading your blog and watch your videos. Thank you for your job!
But i wanted to warn you about any king of investments in Russia. And i'am saying it as russian. Maybe you have some problems with idiots in government in the US, but it's not even close to russian idiocy. Literally there is nothing sane here, only corruption and false patriotic madness with propaganda about evil americans. For example, even with simple things like when i was getting my driver license i have got to pay bribe.
All i wanted to say that don't even think about investing your money in russia. Just friends advice.

Michael Norman said...

I see it, man. I see it. (And I'm probably just seeing the tip of the iceberg. Thanks for your comments. Stay in touch.

Unknown said...

And this is different than the US funding TARP and not infrastructure exactly how? We didn't "take it" from some arbitrary fund. We just didn't invest it ... seems like the same thing to me.

Michael Norman said...

We don't have any policy geniuses here either, believe me. I've been extremely vocal about the stupidity here. Obama says, "We're out of money" all the time. It's ridiculous.

And to be sure, the Fed lent trillions to the banks and Wall Street. That is well documented. Homeowners and the jobless got very little from the government by comparison.

However, when Congress passed TARP there wasn't any "taking from some other fund or spending program." It was pure deficit spending, which is exactly what Russia can do as well.

I will admit that TARP contributed to a general mentality that we can't spend anymore; that we've spent too much already and we haven't the funds to spend any more.

One could argue that the 2009 stimulus was way too light on actual spending for things like infrastructure precisely because of attitudes generated by TARP.

The public had such a case of sticker shock at the $700 billion that it created a lot of political resistance. Remember, TARP didn't pass on the first try.

The irony is that the same thing could have been achieved by simple, regulatory forbearance; suspending mark-to-market accounting rules, etc. Many people suggested that at the time.

Russia is frozen in a gold-standard mentality. Putin's even been crazily buying gold (a direct subsidy to his own mining industry). If he can waste money on gold he can certainly spend on infrastructure.

As for the banks, the ones that made bad loans should be liquidated. And like I said, there needn't be any disruption to the payments system.

It's pure, wrong thinking that you gotta pump money into bad banks. (And yes, we did it here.)

Marcel Salikhov said...

Hi Mike! The idea is that banks (main benefeciaries are stated ones) will be obliged to provide credit for infrastructure projects. So it's kind of supporting banks' solvency and support for infrastructure at the same time. More disturbing and worrying fact is a overall ban on any investment spending from the budget that was not yet started. So they plan is to finish already started projects and forbid any news. That stupid policy.

Keith Johnson said...

Pootin and Piglet [Поросята и медведи не могут быть друзьями]


Поросята и медведи не могут быть друзьями [[Piglets and Bears can't be friends?]


The Russian bear so huge and wild

Will so devour a piglet mild

The porky child is scarce aware

It’s been chewed on by the bear.



The bear loves berries, fat and honey

Rolling itself in oil and money -

And prone to ripping fences down

To raid the farms that border town.



Chasing wild pigs through the trees

Is sore paw work like robbing bees -

Better ransack farmyard trash and grease

And hope the peasants opt for peace -



If not trapped and staked and chained

Defanged, declawed - its ambit waned.

So it fears the hunters and the net

Yet dreams of powers it can’t forget.



Pity then a stuffed bear toy named Pooh

Is happier by far than you

And Piglet is his greatest friend

Among the firs where rainbows end



There the forest creatures live in peace

In quiet joys that never cease

Cares and tears cannot taint the years

That bears and piglets claim as peers.

Alexander Martynenko said...

Hello, Mike. Russia can't afford it now: infrastructure projects along with pumping in additional rubble liquidity in the banking system. Otherwise rubble depreciation will cause further instability and even social unrest. The government freezes the new infrastructure projects and bets to stop rubble from further depreciation. We had plenty of infrastructure projects here. These were projects aimed at extensive growth of the economy. Now there is no need for such projects - the infrastructure system is not even close to full capacity. There are some worthwhile infrastructure projects which could enhance efficiency, reduce local bottlenecks, like smart grids or railways in the Far East. Either extremely costly or not technically feasibly to realise alone at current level of technological advancement. But on a national wide level we don't need more roads, ports, railroads to increase the throughput of commodities - a fair decision given the commodities prices. And we don't need another bridge to Russkii island. Russia needs investment in manufacturing, in services. Supporting banks, backed with the reduction in the key rate today, will keep the banking system working. I wouldn't even discuss it in the context of the limitation on infrastructure spending. It is fair to reduce traditional infrastructure investment (roads, bridges, ports, etc) at current prospects for commodity markets and considering the threat of rubble depreciation.