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Kremlin ‘Silent’ as Economy Collapses Around It

Rogue Valley

Lead or get out of the way
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3.11.22
On Thursday, President Vladimir Putin ordered his cabinet to “act decisively” against the swathes of foreign companies leaving the Russian market following Moscow’s invasion of Ukraine and imposition of sweeping sanctions. “In no case should we allow damage to local suppliers. It is necessary to introduce external management, and transfer the enterprises to those who want to work. We have enough legal tools to do so,” Putin said. The president’s plan would amount to nationalization — the single economic policy proposal to have stirred the Kremlin and Russia’s economic policymakers as they stand on the brink of an unprecedented economic crisis. With few tools at their disposal and a national economy disintegrating almost before their eyes, the Russian government has appeared paralyzed, analysts say, lurching for Soviet-era policies — like nationalization, currency controls and price caps — in an attempt to soften the blow. “In terms of the government, the problem is that they’re silent about the economy,” said Ruben Enikolopov, an economist and rector of Moscow’s New Economics School. “The first reaction for many of them — because they grew up in the Soviet Union, so that’s the mentality they have — is price controls and things like that. They might work temporarily, but in the long-run it’s a disaster for the economy.”

While Russia’s Central Bank quickly sprung into firefighting mode — drastic interest rate hikes, closing the stock market, providing unlimited liquidity to banks and corralling exporters to sell their hard currency earnings — the Kremlin has offered little beyond rhetoric in terms of how it intends to fight an economic slump economists expect will comfortably exceed a 10% fall in GDP this year. “Different members of the government, including Putin, have said that the situation will be managed and that Russia will survive. But what they’ve implemented so far are things like tax breaks, credit holidays, and some financial support to large businesses. This will not be sufficient at all.” Economists say it is not just a lack of ideas that has restrained the Russian government from responding more decisively to the looming recession. “It’s really hard to even imagine what the government can do. In some senses they’re hostage to this situation,” said Enikolopov. “All the main events are completely unrelated to the government’s decisions.” "Back in the 1990s there was some international support coming to Russia’s aid during this time of crisis,” said Bikarski. “This will not be happening right now. Russia will have virtually no access to any international financing or support.” “More extreme measures, such as default on company debt or nationalization of property of foreign investors, will create damage that might last years — possibly decades.”


Except for China, there is no external power that can help keep Russia's economy afloat. China is reluctant to assist Moscow because (1) They are global competitors at many levels and (2) Beijing fears that Western businesses may leave China if Beijing throws Moscow a lifeline.

Watch what Beijing does, not what it says.
 


Except for China, there is no external power that can help keep Russia's economy afloat. China is reluctant to assist Moscow because (1) They are global competitors at many levels and (2) Beijing fears that Western businesses may leave China if Beijing throws Moscow a lifeline.

Watch what Beijing does, not what it says.

Very interesting article. Russia's experience with market based economic systems is only 30 years old, at best. Russians over 45 or 50 years of age were indoctrinated and educated under the Soviet Union, its modern economists being much younger. No doubt they cling to the bromides of the totalitarian era, one of "orders" and "decrees" to the long-term tides of the market ... almost always a failure (see Venezuela).

Still, one wonders how long will economic pain take to seriously impact the morale of the deluded Russian citizens? Putin seems stubbornly unwilling to compromise, and is throwing into the battle everything but the Kitchen sink. He sees that NATO has been intimidated by his bellicosity, and that Nato's commitments to military supply limited by its own fears. My bet is that Putin will never give in as long as his forces are not thrown into some kind of retreat. Absent a coup or popular revolution, Putin believes time is on his side.

The window for NATO to make a decisive contribution to Ukraine is slowly closing; its only a matter of time before Putin moves on the western portion of Ukraine that receives those supplies. At the moment, convoys into Ukraine are unmolested. The moment the Russians show up I suspect NATO will fold and evacuate.

If Biden does not use the CIA and other black ops groups to quietly ship in larger weapons systems, I fear Ukraine will fall in the next 3 to 4 weeks. And we could have done something about it and didn't have the courage to do so.
 
Washington is kowtowing to Putin's "red lines".

A US strategic mistake in which Ukraine is paying the heavy price.
 
Except for China, there is no external power that can help keep Russia's economy afloat. China is reluctant to assist Moscow because (1) They are global competitors at many levels and (2) Beijing fears that Western businesses may leave China if Beijing throws Moscow a lifeline.

Watch what Beijing does, not what it says.
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