Russia in the Year of Corona. What to Expect of the Economy — Jon Hellevig

Russia’s economy proves strong in a global comparison

With the corona crisis taking its toll around the world, Russia’s economy looks relatively strong in a global comparison. This should not come as a surprise to anybody who has been following our Awara reports on the Russian and global economies. In a seminal report with the ominous title With Global Recession Looming, Russia Looks Strong — which garnered across various platforms over a quarter of a million readers last August – we at Awara predicted the global crisis. Everything pointed to it even before corona.

The meltdown we are seeing in some of the Western countries is entirely due to the dreadful shape of those economies, which has been becoming increasingly evident. Only massive amounts of QE cash injections and central bank bond purchasing at zero or negative rates kept the economies superficially afloat.

In this report, we also pointed out all the relative strengths the Russian economy possessed and which would help to mitigate the effects of the global crisis on the Russian economy....

Like Michael Hudson, Jon Hellevig distinguishes between productive and non-productive debt, which can be compared to "good deficits" versus "bad deficits."

Most importantly, these [global GDP] figures show a trend, which cannot be denied. Note, these are not adjusted for debt levels. If we would do that – reduce the artificial GDP portion achieved through wasteful (non-productive) debt – then Russia would come out even far better. Actually, we have earlier done such an exercise on reducing debt from countries’ GDP and the results were shocking. You can access that report here.

A fundamental assumption of capitalism is that investment funds consumption based on income from productive activity. The purpose of debt is to provide seed money for capital reproduction and expansion. A properly running economy needs minimal debt other than from revolving credit that enables drawing in future income and is paid down regularly instead of expanding. 

Evidence of expanding non-productive debt reveals a system that is underperforming. If the situation is not corrected the system will eventually face a debt crisis. 

In addition, if debt is used productively, then increasing purchasing power is unlikely to lead to inflation since increased purchasing  power is matched by an increase in quantity of goods.

The financial correlate is Minsky's financial instability hypothesis. Debt level is controlled by the lenders and regulators, and credit extension depends not only on demand for credit but also on credit standards and collateral requirements.

Jon Hellevig argues that Russia now has a pretty well-tuned economy relatively. An important component of this is national economic self-sufficiency (but not autarky). Putin credits the sanctions for making this possible politically as a strategic necessity.
  Awara

Russia in the Year of Corona. What to Expect of the Economy

Jon Hellevig