Azath Vitr (D, on 09 October 2024 - 06:09 PM, said:
In the New Statesman today:
Here's hoping that they're wrong... for EU countries already implementing austerity additional austerity (ultra-austerity?) to provide far more funding for Ukraine may be very difficult...
I'm a bit concerned about this guy's basic economic illiteracy.
During a military conflict, you can boom the economy by spending massively internally and, as he says, controlling your own currency gives you wide abilities to do this in the short term. But this is not a blank cheque. You're basically printing money out of thin air to fund your war, and you can do that for a while as long as you can also back that up with actual, proper economic measures, even if later on. You're basically making money now on a promise to do stuff elsewhere.
But this has extreme limits. During WWII, Britain and its Empire, one of the world's leading economic superpowers (in real terms, behind only the United States and Soviet Union, and far ahead of Germany and Japan), was initially able to fund its enormous war effort through internal spending and basically drawing on a promise to exploit the resources of the Empire later on. But that faltered within about 3-4 years and the country became dependent on massive lend-lease efforts from the United States (as did the Soviet Union).
But nobody - not even China or Iran - wants to lend Russia money. Russia has massive natural resources it can sell, but only India and China can afford to buy in bulk and they've cut such savagely exploitative deals with Russia that its gas and oil income has collapsed. Russia's infrastructure has not had proper investment spent on it since the Soviet era, and was largely reliant on technical support from countries that have cut it off: Japanese engineers and engineering equipment was keeping its railways running (with some German support) and then only barley, and they've since told Russia to F off, leaving its railway on the edge of total collapse (as the head of Russian Railways said several months ago).
If nobody wants to lend Russia money and it can't sell its stuff for anything like it was getting before the war started, and it's currency reserves have been 50% frozen and the rese have almost run out, then it's main alternative is printing money. Which they've been doing for a while now, with inflation officially at just below 10%. But Russia has had to keep hiking its interest rates, the last hike to 19% and the next will carry it over 20%. That's led to overseas analysts to conclude the Russia's real inflation rate is significantly higher than what's been reported, and that's going to carry massive consequences on just about everything moving forwards.
I'm also not sure what the guy was smoking when he said the currency was doing well. It is not. Since the start of the Ukrainian intervention in 2014 it has lost half of its overall value, and there was a mini-financial crisis just two months ago, including a small run on the banks, that the Russian Central Bank was just able to avert through emergency taxes and other action. But that led to a partial collapse of the Moscow stock market and the re-pegging of Russia's overseas currency to the yuan, not the dollar, which Russia really did not want to do because they know that the Chinese economy is also not great and that Beijing will ruthlessly exploit that as much as they can (a lot of Russia's diplomatic make-nice with North Korea is a cautionary nod towards China as it is towards the United States and Japan). Nobody on Earth wants to buy, trade in or use the rouble, certainly not anyone in Russia itself (where a lot of cash transactions use dollars).
In short, Russia has done a monumental job in keeping its economic plates spinning but it can only do so for so long before getting into real trouble, and we've started seeing the real signs of them hitting those problems. Can it keep the plates spinning until 2026 or 2027? A long shot, but not impossible. Everyone is expecting the wheels to start flying off next year some time. That's why Putin is watching the US election like a hawk. If Trump gets in and cuts a deal unfavourable to Ukraine, Russia can sell it as a massive victory, rather than what it would be, the jammiest outcome possible for them.