Friday, January 29, 2016

Alexander Mercouris — In Upbeat Mood, Putin Reviews the Economy with his Team


More upside in the ruble than downside? Mercouris thinks so.
In the past I have speculated that the point when the rouble will start to decouple from oil prices will be when the total foreign debt that is actually due falls below the amount of Russia’s foreign exchange reserves held by the Central Bank (currently roughly $370 billion).

All the evidence suggests that that point is fast approaching, and if is true that only half of the nominal amount of $515 billion of foreign debt is debt that is actually due, then that point may already have been passed - even it is not yet visible in the published figures.

Given that that is so, since it is very much in Russia’s interests to keep the rouble low in line with oil prices - to choke off imports to support to agriculture and industry and to keep the external trade balance in surplus at a time of low oil prices - I have come round to Jon Hellevig’s view that the Central Bank should cut interest rates without further delay.
Inflation is falling fast and - as Jon Hellevig says - in Russia it is not primarily a monetary phenomenon anyway.

Since inflation is falling fast and since there is no need to support the rouble - on the contrary an excessive rise in the rouble like the one last spring would actually do harm - there is no reason to keep interest rates high. All the high interest rates are now doing is prolonging the recession.
Unfortunately, if recent history is a guide, the Central Bank will once again err on the side of caution, and - spooked by the recent fall in the rouble and worries about further interest rate rises in the US - will decide to keep interest rates high at its next scheduled meeting at the end of January.
The day when interest rates are cut cannot however now be far off. Beyond a certain point not just economic logic but political pressure from business, the Duma and the government will make an interest rate cut inevitable.
Russia Insider
In Upbeat Mood, Putin Reviews the Economy with his Team
Alexander Mercouris

18 comments:

NeilW said...

"In the past I have speculated that the point when the rouble will start to decouple from oil prices will be when the total foreign debt that is actually due falls below the amount of Russia’s foreign exchange reserves held by the Central Bank (currently roughly $370 billion)."

The question is why is the 'amount due in dollars' by private companies anything to do with the Central Bank? It shouldn't be. If firms borrowing in dollars can't get the dollars *they should go bust - which writes out the dollar debt*.

It really is time for an economy to show that it is prepared to run firms with unpayable foreign loans through administration and send home the losses to where they belong.

In fact it should be a policy of the central bank that if the currency declines it *will* force firms with foreign loans through administration to convert them to domestic loans.

Matt Franko said...

Well Neil the loans cant be made in the roubles....

iow if Siemens gets a big deal to sell some Russian entity some control systems then Siemens wants to be paid in EUR they dont take roubles... so the loan is done in EUR and then the bank looks at the Russians running a BIIIIG EUR surplus so that would be the ultimate source for the EUR to pay back the EUR loan for the Siemens control systems...

So the Russian entity using the control systems has to have a revenue stream in roubles which they can exchange for EUR balances with a Russian bank (as the nation of Russia runs a huge EUR surplus with the oil at high prices in EUR) and then pay the EUR loan back...

the exchange rate would reflect the relative terms of trade between Russia and EZ based on the relative prices between oil/Siemens controllers...

The system would work flawlessly if prices for things were never changed...



Matt Franko said...

"run firms with unpayable foreign loans through administration and send home the losses to where they belong. "

well why do the loan in the first place then? you know it is going to fail so why do it?

Why lend Greece more EUR now? You know they're going to default so why do it?

Why not modify the system so that it works?

Ignacio said...

Lol Matt, the work of the politicians is not creating systems that work, is creating problems, then pretend they got the solution to achieve power, and then do nothing.

Maybe we should start to inspect the traits of the people involved in positions of authority, extreme narcissism and practical incompetence do not go well together when you have to take decisions and be practical.

Instead of obsessing over minor monetary techno-babble we should seek to reform our systems of governance and promotion. OFC this is what you get when you run an OLYGARCHY, a dysfunctional self-serving system, all well documented by Aristotle thousands of years ago.

To keep seeking technocratic solutions to social problems is pure denial.

Matt Franko said...

But there are no competent technocrats applied to the issue here...

Where is the competent technocracy? Missing from the scene.

Incompetent technocracy is creating the social problems.. then the social problems are often addressed thru warfare, etc...

We've had a surplus society since after the flood we just dont know how technically to arrange the distribution of it ... for instance monetarists would say, "you want to increase distribution, then lower interest rates!" which is manifestly technically wrong, etc..

"we're out of money!" is NOT a social problem its a technical problem and even the MMT top-enders are treating it as a social problem so they continue to get NOWHERE...

Ignacio said...

When people claims "we are out of money" they make it real, is a social problem of understanding and incompetence.

You are trying to "fix stuff" when people does not want your solutions because they don't agree with them. That's the definition of a social problem! if we collectively decide that governments can go broke and that we should run the economy on a gold standard "because reasons" that's a social problem, not a "technocratic problem".

Matt Franko said...

" they don't agree with them"

They dont UNDERSTAND them... they are not technically competent/qualified... they dont understand the source component in systems theory...

They just want to go to work and make enough munnie to go to the store with enough munnie to purchase their provisions they dont want to have to understand all how it got there or how the numismatic system technically operates... that should be left to COMPETENT technocrats...

To make myself clear here imo even the MMT top-enders are NOT competent to provide the correct information (knowledge communicated) that is widely needed at this time... them saying "we need higher deficits!" is about as useful as a monetarist saying "implement QE!" or "lower interest rates!"...

its not working because it is not a technically competent statement...

Ignacio said...

Yes usually lack of agreement is because lack of understanding. Is how humans work Matt, nothing new here. this is why we have politics, because people disagree and don't understand each other points, if we did we all would be exact clones of each other, we are not.

"NOT competent to provide the correct information (knowledge communicated) that is widely needed at this time" -> definition of social problem. How do you appoint the proper "technocrats"? What's the process? Who decides what? Policies cannot be proved before the fact (factually), you have to convince someone that what you say is "the truth" so you will be able to implement those policies.

As I said a couple weeks ago in other post: Eccles was able to do something because he was appointed by someone who trusted/believed what he said. He didn't magically appear there. It's a social (and thereby political) problem. Unless you come with a system where theoretically 'competent technocrats' people automatically fall in place in positions of authority without input from other human beings this ain't a 'technocratic problem' in any form or shape.

So? How are you gonna do it? If it's a lack of understanding, it's a lack of education, which is, by definition, a social problem. Just going in circles here Matt. "Technocracy" is a chimera.

Matt Franko said...

You start by exposing the incompetence...

Look at Trump he is running away with it over here running on a platform of simply pointing out the incompetence of his rivals and further the incompetence of the incumbent parties... he isnt really even providing any details of his own...

He's not running on "my opponents are trying to screw you all!" or "its a neo-liberal conspiracy against all others!!!!!" or "vote for me and I'll kill all the neo-liberals!!!!" he's running on simply an anti-incompetence platform and people are responding because IT IS TRUE.... Mike talks about this all the time its easier to sell people on something they are already knowing instead of trying to change their minds 180 on something...

People already can observe that they are incompetent they just dont fully understand it... and they dont have to imo...

Ignacio said...

That's the 'politics of the discontent', people support outsiders of the establishment when they are angry and in a bad situation. Trump does not have a magic aura, this is old as shit and does not necessarily drive to better or worst outcomes (more often than not is the later lol), neither means the outsider has some exceptional insight (they usually don't).

Pointing fingers, calling other morons, etc. is not difficult or requires an special insight. Getting others to agree with you, get you in a position of authority, allow you to do what you want, etc. is a different thing. Anyway, he is out of paradigm anyway too.

Matt Franko said...

He's not getting others to agree with him he is telling them what they already know... he's not turning them around 180...

The fist step logically HAS to be exposing the incompetence...

Its not 'politics of discontent' that would be just saying "I have a better way than my opponents!" (that is Bernie's schtick) then when that fails too, there is no accountability..

Trump is saying "they are incompetent! (fire them)" and "I am competent! (hire me)" its different... he's looking for results not a different methodology...

Bernie is part of the establishment he cant say 'they' are incompetent he is one of 'they'....

Tom Hickey said...

Some press people need to ask Trump exactly who is going to hire and fire, and what the changes will be.

His answer will be that he has not decided on a roster yet, so he doesn't know the specific yet. It will just be different.

That will be good enough for most people that want to throw the bums out.

Random said...

Matt,

"well why do the loan in the first place then? you know it is going to fail so why do it?"

That's the point! If the CB doesn't intervene nobody (or firms take into account risk) will take out foreign currency loans and it won't be a problem.

Matt Franko said...

If you dont do the loans, then how will Russians get the electrical controllers they need from Siemens?

Let them remain in the stone ages with matches and candles?

Tom Hickey said...

If you dont do the loans, then how will Russians get the electrical controllers they need from Siemens?

Make them.

They have the human and natural resources to do whatever they want.

They just think they lack the munnie.

Import substitution forced by the current political and economic situation as a boon, as Putin has said.

The just need to wake up and realize they have a printing press.

Matt Franko said...

What if the Siemens controllers are better?

Tom Hickey said...

What if the Siemens controllers are better?

You make do and continue to improve and innovate.

The USSR did a pretty good job of it in building a military deterrent that was strong enough. The Russian military is doing it again.

Russia has a reason now to substitute and they should take advantage of it. It they did it would reverse the brain drain too but creating more high quality jobs there.

Ryan Harris said...
This comment has been removed by the author.