I understand the metaphor and your hunch but I would like to see it broken down, because I don't believe it. These are not competent political actors, why should we give them the benefit of the doubt in matters of economics? Loads of countries are making economic errors all the time, with better governments.
The question is "what is an economic error?" You see we have this assumption that the way successful countries do things is so successful because it's a superior system for procedural or mechanical reasons. Our production methods are superior because of the superior motivations spurred on by capitalist productivity, or our markets allow goods to reach the greatest number of people possible in the shortest time possible, or - and this is the relevant one here - our interest rates are low enough to allow new economic activity to be continuously generated by fresh investments. But the problem is that these dogmas are not actually particularly useful in and of themselves. If low interest rates are always good, why ever raise them? Shouldn't you always want them to be zero, or as near-zero as is sustainable?
This is the thought process because the expectation is that all new or re-investment is useful. But here's the thing: it really isn't. Let's say you know that the economy needs an additional 5 million bushels of grain, but since you're price controlling or rationing, grain is not actually the most profitable new investment. Private investors are not going to make up that difference for you unless you incentivize them. But how do you incentivize them?
Well you can offer rate cuts for grain businesses specifically or structure your subsidies so that they attract new investment and incentivize additional production. But let's also say that your money situation is not great, and the bean counters tell you that the grain subsidies you want are too complex and be more expensive than they're worth. Let's also say there's about thirty other major goods you need to try to plan for or control. Let's say that your foreign investment rates haven't been that good anyway, even though your trade with China has increased like a hundred times. And finally let's say you expect that activity with China to continue, because you're able to underwrite almost everything with your energy exports to the west anyway.
With energy exports, you're covered for western currency reserves. With higher interest rates, you're taking control of the money supply. And with trade with China, you're still covering your deficits, and Chinese stuff is cheaper than the stuff you've replaced with it.
All this is "bad" for the economy to the ambiguous Western Investment Clubs (the ones that aren't Putin's fanclubs), but on a macro level it's completely manageable.
No, most statesmen are generally not great economic geniuses, but there's not a lot here to be "genius" at. States have very, very few levers to really control the economy. Usually states raise interest rates because they have to for money supply reasons. Most activity is out of their hands anyway. And true enough, they can easily lose control and spiral out. But part of the reason for that
is because money policy is kind of the only real lever here. The other lever is hurting people and pillaging.
The other reason is they're trying to signal overheating, following on the heels of their super aggressive growth projections for next year. Raised rates is a totally reasonable response to this pathology. Even if the underlying assumptions can be questioned, who can really say for sure?
Higher rates also attract foreign capital that wants more interest income. With US rates going up, some EU nations want to raise rates to keep EU money in the EU. Higher rates in Russia will not likely attract western capital though.
Yeah, well, the only reason that happens is because the US issues new bonds. So you're right that this could be the strategy, because these interest rates are the exact mechanism Russia can use to extract capital from its "orbit."
