Month: August 2022

“Never believe that anti-Semites are completely unaware of the
absurdity of their replies. They know that their remarks are frivolous, open to challenge. But they are amusing themselves, for it is their adversary who is obliged to use words responsibly, since he believes in words. The anti-Semites have the right to play. They even like to play with discourse for, by giving ridiculous reasons, they discredit the seriousness of their interlocutors. They delight in acting in bad faith, since they seek not to persuade by sound argument but to intimidate and disconcert. If you press them too closely, they will abruptly fall silent, loftily indicating by some phrase that the time for argument is past.”

Although Russia’s economy seems ok, based on news reports, a paper from the Yale School of Management makes some pretty stark observations and predictions for the Russian economy. :

• Russia’s strategic positioning as a commodities exporter has irrevocably deteriorated, as it now deals from a position of weakness with the loss of its erstwhile main markets, and faces steep challenges executing a “pivot to Asia” with non-fungible exports such as piped gas
  
• Despite some lingering leakiness, Russian imports have largely collapsed, and the country faces stark challenges securing crucial inputs, parts, and technology from hesitant trade partners, leading to widespread supply shortages within its domestic economy
  
• Despite Putin’s delusions of self-sufficiency and import substitution, Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent; the hollowing out of Russia’s domestic innovation and production base has led to soaring prices and consumer angst
  
• As a result of the business retreat, Russia has lost companies representing ~40% of its GDP, reversing nearly all of three decades’ worth of foreign investment and buttressing unprecedented simultaneous capital and population flight in a mass exodus of Russia’s economic base
  
• Putin is resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over these structural economic weaknesses, which has already sent his government budget into deficit for the first time in years and drained his foreign reserves even with high energy prices – and Kremlin finances are in much, much more dire straits than conventionally understood
  
• Russian domestic financial markets, as an indicator of both present conditions and future outlook, are the worst performing markets in the entire world this year despite strict capital controls, and have priced in sustained, persistent weakness within the economy with liquidity and credit contracting – in addition to Russia being substantively cut off from international financial markets, limiting its ability to tap into pools of capital needed for the revitalization of its crippled economy

Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia, and The Kyiv School of Economics and McFaul-Yermak Working Group have led the way in proposing additional sanctions measures.

Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual – the facts are that, by any metric and on any level, the Russian economy is reeling, and now is not the time to step on the brakes.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4167193