Resurgent Russia Discharging Dollars

RUSSIA IS MASSIVE BUT DISAPPEARING

Russia with 6,592,800 square miles (17,075,400 square kilometers) spanning 11 time zones is easily the largest country in the world covering about 1/8th of its landmass. The BRIC economies, Brazil, Russia, India and China are both similar and different. With only about 142 million people, tremendous natural resources and about 8 million unemployed Russia is more akin to Brazil than the population behemoths.

Russia’s total fertility rate is only 1.3 births per woman where 2.1 is required to maintain a stable population. The death rate of 15 per 1,000 people per year is 66% above the world’s average of 9. With neither a rising generation nor much immigration and rapid deaths the Russian population is disappearing.

WANING OLIGARCHS

The collapse of the Soviet Union resulted in massive chaos. Three wings, the siloviki, ‘The Family’ and the ogligarchs frantically grabbed power, resources, companies and wealth. Into the KGB Putin brought the siloviki, mostly former KGB and other security contractors, and ‘The Family’, Yeltsin’s relatives who burrowed into business and government to keep him in power along with the technocracy aligned with Western interests that kept foreign direct investment funds flowing on Russia’s terms.

The billionaire oligarchs were allowed to keep their fortunes so long as they did not play politics. For example, Mikhail Khodorkovsky the owner of oil super-major Yukos decided to play politics and succeed Putin as President. Mr. Khodorkovsky is still in a freezing Siberian oubliette.

The credit crisis in 2008 has decimated most of the oligarchs. With gigantic debts, declining revenues, access to very little credit and dissipating companies the oligarchs found that their business empires had rapidly evaporated. For example, the Forbes billionaire list saw Russians disappear from from 87 in 2008 to 32 in 2009.

REGENERATING KREMLIN

The real power elite in Russia are both siloviki and oligarch as they infest both corporate boardrooms and the Kremlin. Like the politically connected in America they make the ‘bailout cut’. The Kremlin is able to determine which oligarchs survive. Government power is consolidating in financial, economic, business, social and political spheres.

Out of the G-20 party came pressures on tax havens. Obama and the US government led the charge. Likewise, the Russian government struck deals such as with Cyprus and Deloitte reported, “one of the most favourable treaties the Russian Federation has concluded”. It is getting increasingly difficult for those trying to figure out how to vanish.

THE AGE OF REAL THINGS

Ironically, during the Information Age there is a return to all things real. Immediate worldwide communication overextends and will eventually decimate the inherently unsound, unstable and immoral financial and monetary system.

The Internet is quickly aligning perception with reality. Monstrous malinvestment is being liquidated and the costumed criminal clowns in Washington DC and St. Petersburg are intentionally exacerbating the greater depression. As the tide goes out it is increasingly apparent which wealth is real and which was illusory.

Russia does have a real economy built by real labor that grows, produces or builds real things and generates real wealth. Nevertheless, as Russia Today reports, “Russia’s economy is contracting at the fastest pace in 15 years”. Meanwhile, the ruble has lost about 40% of its value in the past year and yet Putin praises the central bank. Russia may not have anything to worry about.

ANOTHER ATTACK ON FRN$ HEGEMONY

The Gold Anti-Trust Action Committee, GATA, held the Gold Rush 21 Conference 7-9 August 2005 in Dawson City, Yukon, Canada and had an extremely interesting visitor: Andrey Bykov a highly regarded economic advisor to Vladimir Putin.

Gold was trading at $436 at the time and two days later the gold market broke traditional trading norms and a bull upleg started that eventually took gold to new highs. On 22 November 2005 Vladimir Putin said, “The central bank should review its gold and forex reserves policy in favor of increasing the weighting of gold.” Putin is learning where and how to buy gold bars in his hot little hand.

On 19 May 2009 the FRN$ stopped being Russia’s reserve currency with 47.5% of currency assets in the Euro, 41.5% in the FRN$ and about 500 tons of officially reported gold or about 2%.

Likewise, Russia has begun asserting economic and military ambitions in its region - there was the Georgia skirmish with the US in August 2008. On 26 May 2009 the Civil Georgia reported that protesters of United States puppet President Saakashvili filled the 55,000 seat in Tbilisi’s national stadium. Also, Russia has offered Azerbaijan assistance in building a nuclear plant.

Russia has agreed to pay Ukraine to run military drills over the Crimean Peninsula. Of particular interest though is that while the American government says this ‘could prove provocative and destabilizing’, on 15 May 2009 Vladimir Putin met with Sergey Bagapsh, leader of the Georgian breakaway region Abkhazia, and agreed to sign an agreement for Russian military bases in Abkhazia where Russian troops will be stationed for at least 49 years.

CONCLUSION

Russia is a regional powerhouse but disappearing because of demographic factors. The oligarch’s power and influence is waning as the Kremlin reasserts its dominant role in finance, economics and politics. The Great Credit Contraction grinds on and real things are becoming increasingly sought after.

Resurgent Russia is discharging dollars like refuse through a garbage disposal. This challenge of FRN$ hegemony with its world reserve status along with United States dominance both economically, diplomatically and militarily will have significant geo-political and geo-strategic implications. As a result, the FRN$ will be impacted negatively while gold will be a prime beneficiary of this change.

Disclosures: Long physical gold and silver, no problematic GLD or SLV ETFs and no TLT.

Comments

[likbez:]

Beware. This article demostrates a very naive, extremely weak understanding of the Russia and the region. For example most of Russia landmass are semi-inhabited areas with permafrost and population density lower then Alaska.

As for population, there is a significant influx of migrants from nearby states as pay in Russia is much better.

Jun 03 11:14 AM

[Gtarras:]

This article is not about Russia. Its about why dollar (the POS currency) will crash, and gold will shine. Just one more gold bug peddling his book in their usual fashion: take a thesis and massage the facts to fit them into the thesis.

Nothing new in the article about the country, but i agree, some facts are off. For example, the one the whole thing was written for: the Central Bank of Russia reported that the dollar is still its main holding, and the reports that it is being replaced by euro were erroneous.

The more stuff like this I see, the more I want to short gold.


On Jun 03 11:14 AM likbez wrote:

> Beware. This article demostrates a very naive, extremely weak understanding
> of the Russia and the region. For example most of Russia landmass
> are semi-inhabited areas with permafrost and population density lower
> then Alaska.
>
> As for population, there is a significant influx of migrants from
> nearby states as pay in Russia is much better.

Jun 03 11:38 AM

[HaavBline:]

If you read through to the last paragraph, you realize you have been had. The only purpose is to justify buying gold.

If Russia is just the opposite of everything described in the article, the conclusion would be exactly the same. Buy gold.

Jun 03 11:52 AM

[Jasper M:]

The "power" in that house is one of the things that's disappearing.
Russia is a resource play. A worldwide depression will kill demand, and if they don't get bailed out by a fortuitously scary Gulf hurricane this year, oil is going to plummet come fall, leaving them squarely on the road that will returning them to their rightful place as merely the largest remaining piece of wreckage of the Soviet Empire.

And I have no particular problem with that.

Jun 03 12:00 PM

[Market Sniper:]

Strange article. On the one hand, the Russian military (with the exception of their missile forces) is a total joke. But they do have a demographic problem, in many ways, similar to Japan and the rest of Europe. They are losing the birth rate war. The absolute numbers of ethnic Russians is dwindling. Yes, they have relatively plentiful resources. Their oil production continues to drop, however. Basically a "thugocracy" run by ex-KGB operatives, Russia may never be able to integrate with western Europe. Due to resources, Russia maybe the eventual salvation of Europe. The rest of Europe may well be Russia's salvation as well.

Jun 03 12:30 PM

[Alex Filonov:]

Russian economy is real? Not exactly. Some of it definitely is. Most of it is virtual: "you pretend to pay us, we pretend to work". Agriculture doesn't work. Most of old plants can't produce any competitive product. Most of managers and almost all workforce don't understand elementary economics. There aren't many competitive products from Russia, with exception of raw materials, mostly oil and gas. Brain drain in the last 20 years doesn't help. I can't blame those leaving, I am one of them, but the fact that best brains are leaving Russia doesn't help its economy.

Russian "economy" right now mostly depends on price of oil. If you read Russian press, you wouldn't have any doubts about it. It even doesn't matter what kind of press you read, pro-government or opposing the government, they all agree about oil and gas dependence. And Russian ability to throw dollars to affect international events depends on the oil price. If price of oil goes down, there would be no dollars soon. Even at current price of oil, Russia will have to borrow dozens of billions dollars this year.

Jun 03 01:46 PM

[conceptwizard:]

Russia became one of the largest creditors of the US administration last year, the US Department of the Treasury said. Russia increased its investments in the debt securities of the US Treasury from $32.7 billion as of December 2007 to $116.4 billion as of December 2008.
The investments of the Bank of Russia in state securities of foreign issuers have been considerably increased. About a third of Russia’s international reserves are based on US Treasury bonds.

The US dollar is not Russia’s basic reserve currency anymore. The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent.

Jun 03 02:54 PM

[Booba:]

Just one comment.
"With neither a rising generation nor much immigration and rapid deaths the Russian population is disappearing."
"Russia is a regional powerhouse but disappearing because of demographic factors. "

Where did the author find this information?
Russian is the SECOND biggest immigrant's nation in the world!
en.wikipedia.org/wiki/...
Only America has more immigrants than Russia!
Besides, Russian Government recently passed a law that encourage birth rate by giving families significant financial and other perks, and some data indicates it started working.

Jun 03 05:17 PM

[fxmaven:]

1. Immigrants to Russia from CIS countries are treated like slave labor, not allowed legal residency, often not paid for their work. So nothing has changed since the Soviet Union. Russia is again the master and treats ethnic non-Russians miserably.
2. Russian govt has money but corporates, banks and individuals are highly leveraged, and there is little "risk management".Big defaults upcoming.
3. Russia produces little of value and 50% of the food in Moscow is imported.
4. Oil production is declining, and there is a low level of drilling and engineering technology.
5. There is a very weak accounting, legal and tax regime which depends more on political connections than proper administration.
6. Educated people in general look to leave the country due to high level of corruption, poor educational systems, and high cost of living.

In sum, Russia is like Nigeria - a potentially rich but deeply flawed country. I don't see much changing, its current state is just a stabilization from chaos through the temporary strong leadership and high oil price.

Jun 04 12:42 AM

[BPYHO:]

Yes, but to get those bonuses for having kids you have to know people and bribe the hospital. Russia's whole system is jacked and regardless of whether the author is pushing gold he is right about the demographic problem. No one is having kids over there. Yes, they have many immigrants from China and the 'stans but their population is STILL decreasing. Rampant drug/alchohol abuse, AIDS, ect is taking their toll on the population. THe Russian population is the largest consumer of heroin in the world. MOST of the people were better off when it was communist.

On Jun 03 05:17 PM Booba wrote:

> Just one comment.
> "With neither a rising generation nor much immigration and rapid
> deaths the Russian population is disappearing."
> "Russia is a regional powerhouse but disappearing because of demographic
> factors. "
>
> Where did the author find this information?
> Russian is the SECOND biggest immigrant's nation in the world! <br/>en.wikipedia.org/wiki/...
>
> Only America has more immigrants than Russia!
> Besides, Russian Government recently passed a law that encourage
> birth rate by giving families significant financial and other perks,
> and some data indicates it started working.

Jun 04 02:27 PM

[White Shield:]

An "update"...sorta. What does it mean that the US President (legitimate or not, he is still the functioning POTUS) spent "Independence Day" in Moscow, rather than at "home"?

I speculate that some deal-making to prop up the US Dollar (the only "real" function of the POTUS since FDR) is needed, quick, fast and in a hurry, as they say.

Sending Billary to China, did nothing. Sending "Money Elf" Geithner to China produced nothing (but laughter - deservingly so). The next move? Barry goes to Moscow.

If nothing else, this ought to signifiy that the "sole superpower" label is a joke and the US is in deep trouble, along with it's fiat POS currency...panhandling for takers (turning debt into equity as "The Black Swan" says).

Jul 05 10:52 PM