The Lies of a Dying Russia

It never ceases to amaze me how even the supposedly most even-handed people will spout off nonsense to make a rhetorical point, or further a particular agenda.

I don’t like it when Democrats demagogue an issue like gun control or immigration.  But, I especially dislike it when people who should know better and, frankly, don’t need to do so, do.

This morning’s blog over at Armstroneconomics.com about Russia is a perfect example of a salient point supported by an outright lie.  Martin’s main point is to highlight the difference between China’s embracing capitalism after ditching communism and Russia’s more tortured path to its present economic stability, however unremarkable.

China moved to Capitalism directly from Communism and we see the difference with China poised to surpass the US economy by 2032 and is already the second largest economy in the world. Russia, on the other hand, simply moved from state-controlled economic system to one where political friends became Oligarchs and prevented a free market economy. Russia economically ranks 12th in the world behind the USA, China, Japan, Germany, France, United Kingdom, India, Brazil, Italy, Canada, and South Korea.

Let’s leave aside the basic point that China did this a half a generation before the Russians did.  So what? Cycles don’t matter now?

On this basic point I won’t disagree with Mr. Armstrong.  However, and he’s smart enough to know this, China was allowed by the U.S. to develop economically as a dumping ground for our excess capital via the use of cheap labor while Russia was actively being strip-mined by U.S. and European oligarchs under Yeltsin.

The cultural and geopolitical imperatives of the two countries could not be more different.  Putin took over when the Russian society was on the verge of total collapse.  Just two years removed from the Ruble crisis of 1998.

It was a third world country with a first world military.

Armstrong’s implication is that Putin allowed this new oligarchy to rise and approved of it rather than made the best of a terrible situation by favoring a new oligarch class more loyal to Russia than what was in power under Yeltsin.

Putin makes this point rather clearly in his interviews with Oliver Stone.

It’s a neat comparison but one that requires more analysis of the details.

But, that said, Russia and Putin would likely have been quicker to rebuild to its current state had they embraced more free market principles faster.  But, again, given the active hostility of the U.S. because of geography and foreign policy imperatives, China and Russia are different stories.

Why Lie?

However, on his next point is where Martin simply lies to continue making a point he didn’t need to make.  And it is this kind of clueless arrogance that mars otherwise cogent, if superficial, analysis.

The population of Russia peaked at 148,689,000 back in 1991, just before the breakup of the Soviet Union. Ever since the collapse of Communism, people realize that the State will not simply take care of them. As a direct result, the birth rates have been steadily dropping and there have been abnormally high death rates in Russia as well among the elderly. Russia’s population has been declining at an annual rate of 0.5%, or about 750,000 to 800,000 people per year since 1991. Add to this figure, the migration of Russian women looking for Western men, and you have a crisis brewing in the decline of population in Russia that threatens its long-term viability.

This is simply not true.

As in blatantly NOT TRUE.

According to Rosstat, and I challenge Mr. Armstrong to provide numbers to the contrary if he has them tucked away in his computer, Russia’s population cratered to around 142 million in 2006 and has been rising ever since.

The big bump in 2014 was the reunification with Crimea which added over 1 million people to the official figures.  But, the reality is that the population implosion story for Russia is old news.

2006 in fact. And since this is 2018 I’m having a hard time reconciling this assertion that Russia is headed to the ashbin of history, demographically.

Next up is the assertion that the population is falling at 850,000 or so per year.

Note in 2005, yes, deaths outpaced births by nearly 850,000.  This is a function of the size of the collapsing birth rate throughout the Yeltsin years.  So few children survived from that period to start having children that the older generation, much larger in size, was dying off much faster than these young’ins were replacing them.

But, that has since changed. The numbers now are cautiously optimistic. And Russians have Putin to thank for that.  His role was to simply, at first, stabilize the collapse and give people some hope.

You see that all through the demographic statistics published by Rosstat.  As incomes rose, birth rates rose.  They are still not good.  But, they are no longer terminal.  Infant mortality, deaths by alcohol poisoning, suicides, murders and heart disease all dropped, some spectacularly so.

Take five minutes and peruse the data and see the turn around for yourself (see link above).  It’s astounding.  Moreover, he neglects to say that Russia’s economy moved from just under $250 billion a year in GDP to over $2 trillion in 2015.

Defining Growth

Like Putin or not, that’s a pretty remarkable figure.

GDP itself is useless.  It’s Gross National Spending.  Nothing is measured about the quality or the sustainability of that spending.  It’s just spending.

If I have to pimp a statistic, per capita PPP GDP is far more indicative of the quality of life and real growth in a country.  It does a far better job of answering the fundamental questions that economics is supposed to answer:

“How much better are the lives of the people in that society?”  

“How far does their earnings go in comparison to their trading partners?”

For Russians?  That number since 1998 has more than doubled.  For China that number is even better, nearly quadrupling.

Russians have moved from poverty to middle class.  The quality of life statistics, including birth rate bear this out.  China has moved from peasantry to just above where Russia was when Putin took over.

There is, however, a lot more work to be done.  And that was Putin’s point in his speech.  Now the economy is stable, the country has savings.  It’s currency floats freely and is now an asset rather than a liability to be maintained, like the Yuan.

Russia is somewhat financially independent while still having to maintain a war footing thanks to U.S. hostility.

Now is the time to open up the floodgates to sustainable growth.  Russia under Putin has pursued a different strategy than China.  China ran a mercantilist system which the U.S. happily subsidized for short-term economic and political gains.

Does Martin Armstrong really think that the U.S. was ever going to move its manufacturing to a beaten Russia?  Really?

The Paradox of Debt

No.  Russia was to be beaten, dragged through the mud and left for dead.  Putin said no, and we have been at war with him ever since.

In the process of running his mercantilist scam which the globalists in the U.S. used to further entrench their power China blew a debt and credit bubble the likes of which the world has never seen.

It, likely, has the economy to absorb the bursting of that credit bubble and will because, as Martin constantly points out and rightly so, the U.S. economy will collapse over the next fifteen years as it’s political system deteriorates and is hollowed out by unsustainable debt and broken promises.

That will subsidize China’s rise as the safe-haven place for capital to flow to next decade.  But, don’t think Putin is not hip to where this ends.  Russia’s goals aren’t the same as China’s.

The Russians rebuilt their society along less inflationary lines.  Preferring national savings and building a pool of real savings to finance its growth at what looks like more subdued levels.

Leveraging a massive pool of savings which has no liabilities against it is real wealth creation.  It’s rare to see at the national level in today’s world.  But, this was Russia’s response to the U.S.’s latest financial attack — the Ruble crisis of 2014/5.

The Russians are not only a net creditor nation but have the liquid wealth to pay off all the debts of the entire country public and private.  So, once we see the Bank of Russia bring interest rates down to be in line with short-term funding needs, the virtuous part of the credit cycle will explode within the Russian economy, regardless of U.S. and/or European Union sanctions.

And then we’ll see who is and who is not truly dying off.

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