The IMF, Rubles and the Russian Economy

[Crezth]

An economic error in this case is destabilizing aggregate supply during a war that requires domestic production of ordnance. Wars are in some ways well measured between opposing economic engines seeing who can put produce, tech, and coordinate. You want to maximize resource employment. It’s the time to eat into all your slack. Maximize aggregate supply. Raising rates causes loans to go bad, people lose their employment, production slows. It has to be met with new financing.

Yes, yes, yes... but as you say, the war requires domestic production of ordnance. It doesn't require domestic production of talking fish-on-the-wall. You can take a hit on big swathes of the economy and make up the difference on the stuff you actually need.

There is an element of war which is that it is an economic contest between opposing powers, and the superior power wants the superior economic might. But even to the extent the solution to that puzzle has been "increase supply across the board," this is accomplished through reorganization of the economy. The main reason is that controlling costs and guaranteeing production minimums is the actual objective of the war economy. Damage that results in the wider economy cannot be avoided because of the bogarted supply. This is all expected to be an investment towards victory and usually the criteria is "how long can we hold on VS them?"

In fact the only kind of geopolitical contest I can think of where the solution was for the victor to increase supply was the Cold War, and the US was going to do that anyway because that's what it was built to do. And it was built to do it using the entire world as fuel, with pretty generous assumptions about market access.

"Just produce more" seems like the winning answer, but my feeling is that that's 20th century brain, and a little bit too much of wanting to have it all. Russia has really not been designed for this.

Finally, if Russia's opponent in this economic contest should be considered as Ukraine, they do actually still have plenty of slack to give.

That new financing has to come from somewhere.

Here are sources of financing:
1) bank loans
2) existing private savings
3) net exports
4) deficit spending

Raising rates makes bank loans more expensive that’s the point. So that’s out. It increases the value of keeping savings savings, so that’s out. It reduces net exports so that’s out.

So you better hope the government spends to make up the difference.

But the government is busy with a war and they get their economic instructions from their experts, many of whom are working in the central bank who presumably believe the problem is inflation and a weak currency.

Well from their point of view those are the problems. They can't magic new loans, savings, or exports into existence. They can lower rates with the hope of getting more of those, yes, but there's no guarantee of that especially when you are talking about sanctions and such as well.

Now, I want you to know that I follow your point and that you're saying this bodes bad for Russia in this war because they're shooting themselves in the foot by sabotaging their own growth. Me, I don't think that growth is necessarily required. I think there's growth that helps the war and growth that moves laterally. I think at some level there has to be financial savvy in the Russian state, which has been investing in "creative financing" for some 25 years now. And at that level, 4) deficit spending will be enough to make up 1, 2, and 3.

 

[Hygro]

Russia's economic opponent is the United States, NATO, and Ukraine. There's no room for error.

I guess what I'm saying is, all the pieces in isolation are looking really incompetent. They're losing a war they never even should have fought. Or considered. So while yes, raising rates could be part of a mastermind strategy to shift investment from one sector to another, there are better ways to do it and no indication any well orchestration is happening.

 

[Crezth]

Russia's economic opponent is the United States, NATO, and Ukraine. There's no room for error.

There is an absolute limit on the amount NATO can pour into this. I understand that is essentially what is happening and that the tap is open and juice is flowing, but you can have all that going for you and still fumble Iraq to the Iranians or lose Afghanistan to the Taliban.

Russia has to cop some lessened indiscriminate growth. Let's grant that. How much entitlement cutting can the EU cop? How much more on weapons can the US swing? We are certainly going to find out.

I guess what I'm saying is, all the pieces in isolation are looking really incompetent. They're losing a war they never even should have fought. Or considered. So while yes, raising rates could be part of a mastermind strategy to shift investment from one sector to another,

Yeah, well, I don't agree they're losing the war, because they're holding the territory they wanted to and controlling the grain shipments. You can measure the amount of slack left by examining where contradictions are sharpening. Ukraine's canceled elections is a big one considering elections are what started this whole damn thing to begin with. The "war score" as we in the armchair generals community say is trickling up.

there are better ways to do it and no indication any well orchestration is happening.

Genuinely interested to hear about even a single one of these better ways. I think each way you can think of could be an enlightening discussion.

 

[Ajidica]

because they're holding the territory they wanted to and controlling the grain shipments

Territory changes by October 2022. I notice a distinct lack of control of Kiev, Kherson, Kharkiv.

(Source CNN)

As far as controlling grain shipments, since Russia pulled out of the Black Sea grain deal and started threatening to sink ships departing Ukranian ports, the price of wheat has seen a substantial decrease. (Hard Red Spring Wheat has shed $1.60 last month, Soft Red Winter fell $1.20 same period). This is coming on a projected large American harvest and large Russian harvest. Russian wheat tends to be low protein (~12.5%), of which there is already a glut of due to growing conditions in America favoring low protein wheat. (Add in a likely record corn and soy crop coming in, elevators look at their wheat stocks and price it to move.)
Most shipping insurance is based out of Europe, and European sanctions makes it tricky for Russia to access those markets. Add in Ukraine's documented ability to sink Russian ships (Hero Cruiser Moskva, Promoted to Submarine!) and use of sea drones, that will drive up Russian shipping insurance costs making their exports less competative.

Ukraine's response, sea-drone attacks on a Russian oil tanker and a warship at its Novorossiysk naval base, next door to a major grain and oil port, has added to these new dangers for transport in the Black Sea.

Eduard Zernin, head of Russia's Union of Grain Exporters, cited a potential aggravation of what he called "hidden sanctions" that "may lead to an increase in freight and insurance costs" for Russia.
This "will be reflected in the price level of wheat and other grains on the world market", Zernin told Reuters.

Even though agriculture exports are not subject to direct European and U.S. sanctions imposed after Russia invaded Ukraine last year, Moscow says restrictions placed on banking and Russian individuals are "hidden sanctions" on the food trade.

The financial and security risks associated with trading with Russia - compounded by the Black Sea corridor collapse - are driving up costs of freight for Moscow and pushing it toward older and smaller vessels run by less established shipping operators, Reuters reporting based on conversations with 10 marine insurers, traders and shipping companies showed
The situation is raising doubts about whether Russia can keep up a record pace of exports and if not resolved could push global wheat prices higher, the sources said.

Already, prior to the expiry of the deal, grain carriers and commodity houses had reduced exposure to Russia.

Global commodity houses are no longer helping Russia with the mechanics of trading its grain. Cargill, Louis Dreyfus and Viterra stopped such work on July 1, adding more pressure on Moscow to handle all aspects of grain deals including transport.


Cargill has said it would continue to ship grain from Russia's ports. It declined further comment.

Dreyfus, Viterra and ADM declined to comment, while another major international group, Bunge, did not respond to a request for comment.

"It is not going to be easy for them (Russia)," said one industry executive with knowledge of grains exports.

Last year, Russia exported a record volume of wheat on ships chartered from international companies and traders. While exports remain strong, in the past few months it has had to source more of its own freight, increasingly relying on a "shadow fleet" of older vessels typically operated by companies based in Turkey and China, three shipping industry sources said.

"There is very little coming out now for international companies", said the executive, who, like other industry sources consulted for this story, asked not to be named because of the sensitivity of the issue. "Most of what is coming out is dealt with by Russian traders using (shadow) fleet ships, which international traders would not touch".

In a sign of Russia's growing hunt for vessels, its requests for charters doubled to 257 in July compared with the same month last year, according to data from maritime platform Shipfix that collates from hundreds of market participants.

The data does not show how many of the requests were fulfilled, or which ship operators were involved.

The requests for ships were up 40% from June, and are likely to climb further as the export season gathers pace.

Denmark's NORDEN and two other Western shipping groups that declined to be named told Reuters they stopped working with Russia after the invasion of Ukraine in February, 2022.

After attacking Ukraine wheat exports, Russia faces own shipping challenge

Russia's lack of ships and Western grain traders' shrinking appetite for business with Moscow are adding to rising costs of moving Russian wheat, at a time when the war in Ukraine has spilled perilously close to vital Black Sea supply routes.

www.reuters.com

It isn't like Russian grain exports are doomed, but with there turning out to be good harvests last year and good harvests this year, grain exports isn't as big a weapon for Russia as they might hope. Russian intransigence is already priced into the market.

 

[Crezth]

Territory changes by October 2022. I notice a distinct lack of control of Kiev, Kherson, Kharkiv.
View attachment 670633
(Source CNN)

Yeah but this war is about "freeing" the regions in red, you know, because of all the fricken industry and grain plantations there. You're like, they don't have Kiev so they're losing? Just lol, dude.

As far as controlling grain shipments, since Russia pulled out of the Black Sea grain deal and started threatening to sink ships departing Ukranian ports, the price of wheat has seen a substantial decrease. (Hard Red Spring Wheat has shed $1.60 last month, Soft Red Winter fell $1.20 same period). This is coming on a projected large American harvest and large Russian harvest. Russian wheat tends to be low protein (~12.5%), of which there is already a glut of due to growing conditions in America favoring low protein wheat. (Add in a likely record corn and soy crop coming in, elevators look at their wheat stocks and price it to move.)
Most shipping insurance is based out of Europe, and European sanctions makes it tricky for Russia to access those markets. Add in Ukraine's documented ability to sink Russian ships (Hero Cruiser Moskva, Promoted to Submarine!) and use of sea drones, that will drive up Russian shipping insurance costs making their exports less competative.

After attacking Ukraine wheat exports, Russia faces own shipping challenge

Russia's lack of ships and Western grain traders' shrinking appetite for business with Moscow are adding to rising costs of moving Russian wheat, at a time when the war in Ukraine has spilled perilously close to vital Black Sea supply routes.

www.reuters.com

It isn't like Russian grain exports are doomed, but with there turning out to be good harvests last year and good harvests this year, grain exports isn't as big a weapon for Russia as they might hope. Russian intransigence is already priced into the market.

Oh great, you have a magic ball. What's the superball numbers?

 

[Verbose]

Yeah but this war is about "freeing" the regions in red, you know, because of all the fricken industry and grain plantations there. You're like, they don't have Kiev so they're losing? Just lol, dude.

Oh great, you have a magic ball. What's the superball numbers?

You mean the international grain market has a magic ball? Or rather they don't – because the salient bit is that the way Russia is currently screwing with grain exports has already been priced in – i.e. everyone already gets to pay what it costs to do without, whether Russia manages to screw up exports or not.

Which means IF Russia manages to screw everyone, nothing changes here. Otoh, if Russia does not manage to screw everyone, international grain prices will go down. So the onus already lands on Russia to screw everyone over good and hard, or there are going to be positive surprises.

It's the same as with energy prices.

 

[Ajidica]

Yeah but this war is about "freeing" the regions in red, you know, because of all the fricken industry and grain plantations there. You're like, they don't have Kiev so they're losing? Just lol, dude.

Considering the Russian war plan has devolved from airborn landings in Kiev and mechanized maneuver warfare around big cities, toward fighting over garbage piles and grain elevators in the towns I'd argue most ukranians hadn't heard of before the war, I'd guess their plan isn't going so hot. Heck, if America invaded Canada with an armored and airborn thrust toward Toronto and Ottawa, but a year later were driven back from those cities and engaged in inconclusive skirmishing around Antelope Park, Saskatchewan, I'd say the war is going poorly.
If Russia was just interested in more land under cultivation and more industry, surely they could have saved money by just investing in new factories and ag infrastructure at home.

Oh great, you have a magic ball. What's the superball numbers?

*shrug* You were the one who said "I don't agree they're losing the war, because they're [...] controlling the grain shipments".
I pointed out how the gain market doesn't view it like that. Russia is a producer and they benefit from higher prices. Prices aren't rising; they're falling. Maybe you could make the argument Russia is controlling the grain market by flooding it, but with Russian grain exporters noting the increasing cost of insurance (due to Russia pulling out of the grain deal and threatening to sink ships) making Russian wheat out of the Black Sea less competitive, it isn't looking like a smart strategy. Non-European shipping insurance firms know they have Russian exporters over a barrel and can basically charge what they want for shipping insurance.
As far as controlling shipments goes, the only shipments Russia clearly controls is their own. Their attacks against Ukrainian grain terminals are too light to knock them out and Russia has notably held back from sinking ships leaving Ukranian ports. Meanwhile, Ukraine has demonstrated it can sink or heavily damage Russian warships with cruise missiles and drones; the message toward cargo ships is clear.

 

[Crezth]

Considering the Russian war plan has devolved from airborn landings in Kiev and mechanized maneuver warfare around big cities, toward fighting over garbage piles and grain elevators in the towns I'd argue most ukranians hadn't heard of before the war, I'd guess their plan isn't going so hot. Heck, if America invaded Canada with an armored and airborn thrust toward Toronto and Ottawa, but a year later were driven back from those cities and engaged in inconclusive skirmishing around Antelope Park, Saskatchewan, I'd say the war is going poorly.
If Russia was just interested in more land under cultivation and more industry, surely they could have saved money by just investing in new factories and ag infrastructure at home.

No, to put it simply. You’re like “most Ukrainians haven’t heard of this” but Donbas is actually a major industrial region that IS being held. This is all a drain on Ukraine as well as it is Russia and it’s a major lever for Russia to crowbar their influence in the Ukrainian economy. It’s working like a goddamn charm.

*shrug* You were the one who said "I don't agree they're losing the war, because they're [...] controlling the grain shipments".
I pointed out how the gain market doesn't view it like that. Russia is a producer and they benefit from higher prices. Prices aren't rising; they're falling. Maybe you could make the argument Russia is controlling the grain market by flooding it, but with Russian grain exporters noting the increasing cost of insurance (due to Russia pulling out of the grain deal and threatening to sink ships) making Russian wheat out of the Black Sea less competitive, it isn't looking like a smart strategy. Non-European shipping insurance firms know they have Russian exporters over a barrel and can basically charge what they want for shipping insurance.
As far as controlling shipments goes, the only shipments Russia clearly controls is their own. Their attacks against Ukrainian grain terminals are too light to knock them out and Russia has notably held back from sinking ships leaving Ukranian ports. Meanwhile, Ukraine has demonstrated it can sink or heavily damage Russian warships with cruise missiles and drones; the message toward cargo ships is clear.

The actual point is that controlling those territories and the grain is in my view the major point of contention of this war. I’m sure it would have been great for Russia if they could have taken Kiev, a stretch goal if you will, but if you look at what they entered this war for, it was extending the previous policy of insisting that eastern Ukraine should form new separatist republics. It was the grain shipments and control of the industrial Donbas that has driven this conflict onwards and it is control of those resources that have motivated Russia to act.

Considering these are both the most important resources under contention and the most vulnerable Ukrainian territories for staging separatist puppets, that makes controlling those territories a serious and persistent undermining of Ukrainian political authority.

It is exactly because these are both the most vulnerable and in some ways the most valuable territories of Ukraine that it’s reasonable to assume the war was launched with the ambition of gaining control of “just” these territories. The thrust on Kiev, whether it was a feint or not, was definitely an effective screen for major offensive actions in the south and East that have allowed Russia to adopt a defensive posture that have turned the front into a slaughterhouse.

Russia could still lose but there’s no way to interpret the current situation as bad for Russia per se. Bad for Russia would be if they couldn’t hold anything. But they’re knee deep in their separatist puppets now.

Grain prices going down is irrelevant. It’s just about controlling the production and supply for Russia. Profits can come later; at this stage it’s most important you take over management.

 

[Farm Boy]

Murderous imperial profiteers. It's a solid argument.

It's a depressing one. That type usually only listens to being killed.

 

[Crezth]

Agreed, it's not a pretty picture. It's a hard truth I think we have to accept before we pursue what would have to be apocalyptic war.

 

[Lexicus]

we

Who's "we" tho? The more bloodthirsty CFC posters aren't making US policy. Most of them aren't even US voters.

 

[Crezth]

Who's "we" tho? The more bloodthirsty CFC posters aren't making US policy. Most of them aren't even US voters.

We westerners, really, We NATO folks. We who stand in the west among its legions of en-briefcased middlemen, baristas, and sundry. But you're right that "we" are mostly pretty helpless here, except to either repeat the propaganda pushed down on us by our elites - or challenge it, and review it critically, and attempt to gain the bigger picture.

And then, of course, there is the practical question of what is to be done when it comes to the actual threat of World War 3. But there's no way to answer that question before the People are having that question put to them in screws.

 

[Akka]

The actual point is that controlling those territories and the grain is in my view the major point of contention of this war. I’m sure it would have been great for Russia if they could have taken Kiev, a stretch goal if you will, but if you look at what they entered this war for, it was extending the previous policy of insisting that eastern Ukraine should form new separatist republics. It was the grain shipments and control of the industrial Donbas that has driven this conflict onwards and it is control of those resources that have motivated Russia to act.

If you completely ignore every fact on the ground which happened, I guess it is.
On the other hand, if you live in the real world, it's complete BS, as can be very easily saw by the, I don't know, main offensive in the war being directed at Kiev, the entire war happening because Russia wanted to conquer Ukraine, the pre-written article describing how Ukraine is "back into Russia", etc.

Basically it's the very opposite of your rambling, the actual goal was to subjugate the entirety of Ukraine, falling back to just Donbass is what Russia is trying now that it can't reach it's actual goal.

 

[Farm Boy]

Agreed, it's not a pretty picture. It's a hard truth I think we have to accept before we pursue what would have to be apocalyptic war.

Slaves are made by not opposing the wars of empire. They only listen to killing, and they will come.

 

[Crezth]

If you completely ignore every fact on the ground which happened, I guess it is.
On the other hand, if you live in the real world, it's complete BS, as can be very easily saw by the, I don't know, main offensive in the war being directed at Kiev, the entire war happening because Russia wanted to conquer Ukraine, the pre-written article describing how Ukraine is "back into Russia", etc.

Basically it's the very opposite of your rambling, the actual goal was to subjugate the entirety of Ukraine, falling back to just Donbass is what Russia is trying now that it can't reach it's actual goal.

Yeah, homie, I laid it out. I made a good case for it. I explained how striking at Kiev was a great screen for securing the south and east. And you're saying because Putin said this war was about conquering Ukraine that they're losing. Dude, listen or not, but this is basic stuff. There's material reality and there's propaganda.

I like to imagine you could have been a local genius in Chongqing in 1943 talking about how Japan was losing the war because "they said they wanted to bring ALL of China into the co-prosperity sphere but they don't even control all of Hubei huehuehue."

Slaves are made by not opposing the wars of empire. They only listen to killing, and they will come.

This kind of appeal is meaningless to janissaries, isn't it?

 

[Remorseless1]

Yeah, homie, I laid it out. I made a good case for it. I explained how striking at Kiev was a great screen for securing the south and east. And you're saying because Putin said this war was about conquering Ukraine that they're losing. Dude, listen or not, but this is basic stuff. There's material reality and there's propaganda.

I like to imagine you could have been a local genius in Chongqing in 1943 talking about how Japan was losing the war because "they said they wanted to bring ALL of China into the co-prosperity sphere but they don't even control all of Hubei huehuehue."

This kind of appeal is meaningless to janissaries, isn't it?

By 1943, Japan had already lost the war.

You mentioned a "finite" level of support from NATO and the US. True, there are !imits, but they far exceed the industrial and manufacturing infrastructure possessed by Russia. Russia's economy is almost solely based on exporting oil and grain. It's telling that Russia is using 50-year-old T-55s on the battlefield, while the Ukrainian are getting much more modern tanks from NATO. NATO countries are also subsidising Ukraine's government and private businesses.

The Russian economy is teetering on Hot War levels, and yet it is still contracting. NATO countries are still in comfortably Cold War mode.

 

[Lexicus]

I like to imagine you could have been a local genius in Chongqing in 1943 talking about how Japan was losing the war because "they said they wanted to bring ALL of China into the co-prosperity sphere but they don't even control all of Hubei huehuehue."

Honestly kind of amazing that you're using this example to support your point when the person saying Japan is losing the war in 1943 was right and someone saying "they already won" in, say, 1939 would have been wrong.

 

[Crezth]

By 1943, Japan had already lost the war.

Honestly kind of amazing that you're using this example to support your point when the person saying Japan is losing the war in 1943 was right and someone saying "they already won" in, say, 1939 would have been wrong.

Yeah, tell that to the guys who died fighting them in 1944 and 1945 (or let alone were killed by Kempeitai). Patton slapped dudes for stuff like this.

You mentioned a "finite" level of support from NATO and the US. True, there are !imits, but they far exceed the industrial and manufacturing infrastructure possessed by Russia.

It's less the industrial and manufacturing might of Russia per se as it is the financial ability to support this war. There, Russia and NATO are on a much more even playing field. It's true NATO has a lot of resources, but the vast bulk of that is already earmarked, and if you spend any time in the Defense industry all you ever hear from military guys is how they still don't have enough stuff. Still, there's a lot of gas in the tank for both sides.

Part of the reason the actual capacity isn't so important is because of Russia's export relationships. It can export to the west for plenty of western currency reserve, and then use that to buy Chinese goods at a serious premium. This is the true character of this war and it's why Russia can stay in the game.

 

[Hygro]

I'm going to be charitable here, by financial ability do you mean political will?

 

[Akka]

There's material reality and there's propaganda.

The irony is palpable.
I also laid out my case, and it fits MUCH better the actual facts in actual reality about what actually happened than your delusions.