Er... Are you serious, you guys really don't realize that any sanctions on oligarchs and/or government officials only make Putin more popular and stronger? Seems like I spilled a state secret here.
Yes, the Keynesian model for MMT exists, but Keynes could not, and would not, imagine a situation where Russia's access to foreign markets is being effectively strangled, except where foreign buyers have a particular need for Russia's petroleum and natural gas. It is apparent that the Russian economy does not produce sufficient goods and services of acceptable quality on its own to meet demand; and running the ruble printing presses 24/7 is not likely to make what is available, albeit at much higher prices, any more so. Instead, the analogy that most immediately comes to mind is that of a star that exhausts its finite supply of hydrogen. As heavier elements are created, the core heats up until the inevitable explosion occurs. Actually, the star collapses on itself, which renders the simile even more apt.
Similarly, an autarky that Russia aspires to be will soon consume itself, because it lacks the capacity for either domestic or foreign investment. As long as Vladimir Putin has a stranglehold on Russia's statecraft, Russia will be a pariah state no matter what natural resources it currently controls. The world saw what happened when the Soviet Union devolved into a kleptocratic Russia, with its former satellites joining the world of free markets. If Russia is prohibited from marketing its oil and gas abroad, there will be no foreign exchange that represents real value. A fiat currency that is subject to external political pressures such as what occurred in the Rhineland during the 1920s is likely to repeat the experience of the hyperinflation that wiped out the German middle-class.
Banks are printing presses. They lend money against real things - like inventory - so you can spend those real things sooner than you would be able to if you had to sell them first. That’s how capitalism accelerates growth.
MMT is about realising money isn’t the constraining factor and that, if set up properly, the system can be allowed to allocate funds automatically to ensure everything that can be done within a currency area will be done.
We’ve just got rid of international competitors to Russian producers - who will now expand and get better.
Particularly as they can now effectively ignore any Western IP claims.
You must not have been following the news reports. Russia's access to foreign exchange is kaput, the stock market is closed, and the ruble is in free fall. Theory meeting practical consequences equals a head on collision, with whatever might remain of theory a smoking wreck.
Very interesting read. I am not an economist so am not able to follow all the nuances but had what I think is a similar thought, perhaps a little too simplistic. In the most free of circumstances there was very little indication that oligarchs, even collectively, had any control over Putin. Now that the oligarchs are severely weakened by the sanctions, does that reduce their ability to influence Putin even further? I would think yes.
I think this points to what others have already said, what is the likely impact of the sanctions. Will they impact Putin’s regime? I am not so sure. I think it is much more likely Cold War 2, including Iron Curtain 2. Everyone takes their marbles and goes home.
the era when Oligarchs synergized with Russian gov are long over. The power relationship has long been changed. This isn't new Russia...post Yeltsin. This is Putin.
I don't think that's a viable solution given that Putin made it clear that he intends to re-configure the world order, irrespective of whether the countries he requires are NATO members.
In the USSR days, high value "manufactured goods" were manufactured in the West (US, UK, Germany, etc).
Today, most "manufactured goods" actually come from China - only leading edge technology products (e.g. Machine Tools, Jet Engines, etc) and luxury goods (fashion, movies, etc) come from the US/EU.
The thing about technology, with enough determination (and withdrawal from TRIPS), they can build their own. These will lag by a couple of generations (2-5 years), but at this point of technology development a 2-5 year lag is bearable.
With respect to the luxury goods, sure some people will miss their Luis Vuitton and Prada - but not all that much. On the entertainment side, withdrawal from TRIPS would laws to cancel all foreign IP rights, so copies will readily proliferate.
Thus, as long as they retain China's support - they are fine.
On the other hand if you include East Ukraine, they produce:
90% of the world's Neon (critical for lasers and semiconductor manufacturing)
40% of palladium (necessary for catalytic converters)
35-40% of Boeing's titanium and over 50% Airbus’s
That gives them a lot of leverage - TSMC announced that they wont ship semiconductors to Russia. But will they maintain that ban when they run out of Neon?
I think you may have hit the nail on the head here as to why Putin is doing this. He is not mad. He is reordering things and asserting his authority. He is calling out the economic orthodoxies of the post-Soviet era and he will likely change the way we all live and work together because all of the assumptions are collapsing quicker than our economical model told us was possible.
The quicker we realize this and react to what he is doing anticipating the second and third order effects rather than just posturing and congratulating ourselves the better.
I'm not saying this is "why" - the "why" is more complex yet perfectly clear in one looks at the history of NATO and the region.
What I am describing are Putin's possible reasons for thinking he has a chance to change the rules of the game.
I suspect that the reason countries that comprise over 50% of the world's population abstained from the UN vote to censure Russia, and that major states like China, India, Brazil, Pakistan, UAE etc. are refusing to sign up to the sanction regime is that they are also hoping to see a change in the rules.
Will they? Time will tell, but the points made here are not a good sign for the US:
As long as they can trade with China and India, the only "supply constraints" would be on advanced (and only the "most advanced" at that) technology.
Since in most technology areas we are currently on the upper, flat part of the S-Curve, the cost of being 3-5 years behind on tech would be quite low.
In simple metaphor terms, they in most tech they will have difficulty of getting access to iPhone 13 levels of tech, but iPhone X levels will be easily accessible. So (examples), they may not get access to the most advanced AI or battery tech or autonomous driving, but they (and China) have their own AI capabilities, can do mostly do with 10% less compact batteries, stick to human drivers, manufacture replica aircraft parts, etc. Concurrently, they can void/seize all foreign patents and invest in building their own tech industries.
One of the big (prior) constraints on Putin was that he couldn't put too much pressure on the oligarchs because they always had an exit option (fly off to their London estates). That option has been closed (by idiots in Canada/EU/US - in that order), so now THEIR survival depends the survival of Putin and Russia - making them (as in the joke about the chicken and the pig making breakfast for the farmer) "committed".
The sanction game can only be played effectively against when it is new, and the target is generally weak and dependent on you. Once it becomes a widespread addiction, it stops being an effective weapon and gradually becomes more of an "own goal".
You are definitly making too many assumptions (skilled labor supply, high tech machines, etc) and overestimate the predictability of an oligarchic and corrupt economy. Or on the predictability of the development of a society in general. These people know how to extract rent from ressources. And while Russia has a great academic tradition, Putin didnt try to build upon it. I would suggest to look up how much one of ASMLs machine costs and how complex this is. You cant just replicate that.
As for the ASML machine, as I conceded, they couldn't (at least at the moment) replicate a modern one - but a 5 year old one, I expect they could.
You also very much underestimate the quality or Russia's current technological capabilities. They may not be at the bleeding edge in most things, but they're not that far off.
They would also leverage the "expatriate" community that - facing an abusive environment in the EU/US - would have a strong incentive to move back.
I have read it ... I think we will just have to agree to disagree, and since - as I mentioned another post - the sanctions are already collapsing, the issue is increasingly moot.
How do you come to these 5 years? Is this just a random number? ASML puts together the parts of around 2.000 highly specialized firms. From lasers to what not. Good luck replicating that. There is a reason even China is struggeling.
And the expat community flew fromRussia because of a dictatorship and economic hardship. Russia will have an even worse brain drain instead of people going back because of stupid but hopefully minimized "racism"
The reason China and such struggle is that (again, in normal circumstances) they cant just open other people patents and say "Thanks, we will take it from there".
In a war (or sanction) situation, anything goes.
I did pick 5 years as a random number, but also because 5 years represents about 3 generations of technology. China struggles with the LATEST generation or two - something 3 generations ago they are fine with.
By example, between 1940 and 1942, the US built an entire aircraft carrier industry (they were rolling them out at one per month) and the USSR designed, tested, and got into scale production the T34 tank.
Between 1939 and 1945 the US produced two distinct nuclear bomb versions, which involved developing several entirely new technological sectors (including the computer industry).
If you think developing a semiconductor industry is harder than that, well we'll have to agree to disagree.
That is certainly possible, but as I see it I am making only two assumptions:
1. China (and perhaps some others) will stick with them and reject sanctions, thus providing the core manufactured products. If they loose China, then sure it is a completely different scenario.
2. A reasonably capable, educated population facing significant hostility from a foreign power (and having lots of reason to believe that the hostility is endemic) will build the "asabiyyah" to deploy those capabilities effectively. There is nothing that disciplines a corrupt oligarchs as much as the possibility that (to borrow from Samuel Johnson) "he is to be hanged in a fortnight" if he fails to meet the set goals.
+the huge assumptions that all other factors which we dont mention dont matter. We both know what we dont know. But for a lot of stuff we dont know what we dont know^^ a successful modern economy depends on such big and many underlying conditions that I would be very sceptical for them to lay that foundation in a rather quick time, while also absorbing this inital first crisis and dealing with the frictions of transformation of this whole state and economy
Also Maersk (and similar) are AGGREGATORS. Their primary relevance is when many individually small shippers need to combine together to fill a ship. For bulk goods (when an entire ship is being used) or State facilitated trade (where the States can do their own aggregation) they can easily be bypassed.
Having access to the actual ships matters of course, but most ships are registered in Liberia or Panama or such, and can easily be bought and re-flagged. Attacking them thereafter becomes piracy (or possibly war).
You are missing (or ignoring) my point. In a "sanction" environment, the only thing they will be buying is high-value manufactured goods (mostly electronics) from China. These can come by rail.
The only things they will be exporting is bulk commodities (oil, gas, coal, wheat). These travel in bulk carriers (AKA "tankers") not containers. Thus they will need neither Maersk nor "small shippers" - because neither ships bulk goods. They would probably have to acquire some bulk carriers, but once done become self sufficient for transport.
Also, what do they give china in return for the manufactured goods? Their useless Rouble? Or quickly deplete their dwindling currency reserves? China doesnt seem like its interested in putting in extra support to Russia, only to maintain the status quo before the sanctions started
They have no shortage of planes - they just refused to return the 500 or so that were being leased to them - and now have a lot fewer places to fly.
Longer term, remember they have an actual aircraft industry (mostly military) that is a major exporter. Also remember, there is an active JV with China to develop the CRAIC929 as a competitor to the 787 and the A300. Being cut off from key US/EU tech would delay that - but not kill it, as they clearly have the core capabilities even if focused on military at the moment.
As for what they give china - oil, gas, coal, steel, food ... need I go on.
And China, having just experienced 5+ years of growing hostility from the US (remember Huawei?) has lots of interest in supporting Russia - even if only to distract/undermine the US, because they understand perfectly well that if Russia folds, they are next.
What MMT actually says is not that governments that issue their own currency have a choice to either tax, borrow or print but that there is ONLY ONE WAY to spend and that is the last of those three. So there is no way russia or any other state for that matter could "turn to MMT" or "start doing MMT" or something like that. They are all already spending the way MMT describes it and they also did exactly that way in the past and MMT does NOT say "well, you could also start to print more money" at all.
Taxation can not fund spending as you can only tax what was spent first (or borrowed first through the central bank when banks refinance their lending at the central bank). So taxes destroy money that was created by prior spending/borrowing. Also taxes are collected in reserves and when private persons pay taxes the private banks acts as an intermediary so every unit taxed must have come from the central bank to begin with.
Bond issuance does not "fund" spending as well. Bonds are sold to the primary dealers only and in reserves only. The only accounts involved in that are the reserve accounts of the primary dealers and the treasury. No private bank account is touched when bonds are issued. It's just an asset swap (that can be reversed by the central bank through socalled open market operations). And it is done to help the CB maintain the interest rate target.
But after the bond issuance if the government actually spends this is the only point at which private bank accounts are affected. And they are affected by increasing their balances effectively creating new additional money. Taxes on the other hand destroy money by decreasing balances on private bank accounts (and the banks reserve accounts simultaniously).
So it is totally clear that any government spending creates balances in the private sector and taxation destroys them. But the government also never waits for taxes to come in if it wants to spend. If its reserve account does not have enough funds to spend what was decided upon in the budget it simply swaps assets with the banks (bond issuance to primary dealers) and then spends. It doesn't "wait" for "tax income" at all. Anyways the "tax income" isn't even known in advance it is just estimated and depends on how well the economy will perform in that year. Only at the end of the year it will be clear if the budget required deficit spending in aggregate or not.
More and more goods and service are disappearing from Russia as well as human capital does day by day,which run counter to the recommended MMT prescription.
Debt may not be a constraint for Russia in using MMT but inflation and the balance of payments are constraints. On inflation there is already a tension between raising interest rates to increase demand for ruble deposits and making liquidity available to head off bank runs. On the BoP, its very difficult to tell what the post-sanctions BoP will look like, but it would be surprising if Russia had unlimited flexibility. Whether it wants to impress the rest of the world or not, there is still a good case for orthodoxy in macroeconomic policies.
Forgive my ignorance, but surely an aggressive sanctions policy is all about shutting off supply (of goods and hard currency)? No matter how much domestic monetary demand stimulus is or isn’t applied, if the goods aren’t available, economic activity still implodes, unless there exists a domestic substitute.
We’ve just eliminated the competitors to Russian firms, handed them the sales and stolen the foreign savings of the Russian middle class which they used to buy imports.
What is that demand likely to do to Russian firms? Cause them to expand - which can be funded by Russian banks in their own currency until the cows come home.
Isn't the main issue for them things, products and services that cant be delivered due to sanctions. Hence the cash situation is messa relevant than the ability to produce things for the population.
I don't understand how is raising the Rouble rate to 20% supposed to help when ANY TRANSACTION w Russia is verboten? And what good will accumulating forex do when ANY TRANSACTION w Russia is verboten?
Raising interest rates is a stupid idea and confirms that the orthodox beliefs are still in play. The correct approach would be to drop rates to zero, raise taxes in roubles and then freeze all foreign denomination savings. That should bring demand into line with the reduced supply
ah right. it was mentioned in an earlier post here as well....but markets being forward looking....hter's no light visible at the end of the tunnel,....
This is far beyond my understanding of economics, but isn't China the wild card? If imports and exports are further constricted (and this is very much TBD) and China doesn't pick up the slack, will it matter which theory is pursued? Forgive me if this question itself is ignorant.
Ok. So here are three things I'm sure cognoscenti would reaffirm:
1. MMT is an elaborate hoax that only holds when rates are close to zero. It's easy to dismantle it, if one knows that for all relevant intents and purposes its central tenet, i.e. that the CB is part of government, is false. Btw, currently the key rate of the Russian CB is 20%.
2. In a non-zero-rate environment, the CB can buy govt debt only for so long before inflation will eat away the gains at macro level. And the level of gains depends on the quality of fiscal policy. Once inflation is entrenched in expectations, the monetary tightening would have to be disproportionate to break the spiral. This all can take a while under normal circumstances. Given the current external constraints imposed on the Russian economy, however, such effects would be immediate.
3. Given the scale of deployed sanctions (several of which did not even bite yet in full), money becomes quasi-irrelevant. Russia just made a leap towards a fully closed economy, like N-Korea, they just don't know it yet. Why should they start printing money if they can't buy many of the things they would want? – Russia is not a market economy anymore and conventional wisdom doesn't apply.
But what makes you think Putin would care about the state of the Russian economy anyway? – I’d posit that so far all evidence is to the contrary.
Er... Are you serious, you guys really don't realize that any sanctions on oligarchs and/or government officials only make Putin more popular and stronger? Seems like I spilled a state secret here.
Yes, the Keynesian model for MMT exists, but Keynes could not, and would not, imagine a situation where Russia's access to foreign markets is being effectively strangled, except where foreign buyers have a particular need for Russia's petroleum and natural gas. It is apparent that the Russian economy does not produce sufficient goods and services of acceptable quality on its own to meet demand; and running the ruble printing presses 24/7 is not likely to make what is available, albeit at much higher prices, any more so. Instead, the analogy that most immediately comes to mind is that of a star that exhausts its finite supply of hydrogen. As heavier elements are created, the core heats up until the inevitable explosion occurs. Actually, the star collapses on itself, which renders the simile even more apt.
Similarly, an autarky that Russia aspires to be will soon consume itself, because it lacks the capacity for either domestic or foreign investment. As long as Vladimir Putin has a stranglehold on Russia's statecraft, Russia will be a pariah state no matter what natural resources it currently controls. The world saw what happened when the Soviet Union devolved into a kleptocratic Russia, with its former satellites joining the world of free markets. If Russia is prohibited from marketing its oil and gas abroad, there will be no foreign exchange that represents real value. A fiat currency that is subject to external political pressures such as what occurred in the Rhineland during the 1920s is likely to repeat the experience of the hyperinflation that wiped out the German middle-class.
China
Banks are printing presses. They lend money against real things - like inventory - so you can spend those real things sooner than you would be able to if you had to sell them first. That’s how capitalism accelerates growth.
MMT is about realising money isn’t the constraining factor and that, if set up properly, the system can be allowed to allocate funds automatically to ensure everything that can be done within a currency area will be done.
We’ve just got rid of international competitors to Russian producers - who will now expand and get better.
Particularly as they can now effectively ignore any Western IP claims.
You must not have been following the news reports. Russia's access to foreign exchange is kaput, the stock market is closed, and the ruble is in free fall. Theory meeting practical consequences equals a head on collision, with whatever might remain of theory a smoking wreck.
Whoever was sitting around a couple of years ago wishing REALLY HARD for "Interesting Times" has overshot the mark.
Very interesting read. I am not an economist so am not able to follow all the nuances but had what I think is a similar thought, perhaps a little too simplistic. In the most free of circumstances there was very little indication that oligarchs, even collectively, had any control over Putin. Now that the oligarchs are severely weakened by the sanctions, does that reduce their ability to influence Putin even further? I would think yes.
I think this points to what others have already said, what is the likely impact of the sanctions. Will they impact Putin’s regime? I am not so sure. I think it is much more likely Cold War 2, including Iron Curtain 2. Everyone takes their marbles and goes home.
the era when Oligarchs synergized with Russian gov are long over. The power relationship has long been changed. This isn't new Russia...post Yeltsin. This is Putin.
I don't think that's a viable solution given that Putin made it clear that he intends to re-configure the world order, irrespective of whether the countries he requires are NATO members.
Sure he can re configure it. Just like Soviet Union dealt with quite a few countries, just not the West.
You seem oblivious to the elephant in the room.
In the USSR days, high value "manufactured goods" were manufactured in the West (US, UK, Germany, etc).
Today, most "manufactured goods" actually come from China - only leading edge technology products (e.g. Machine Tools, Jet Engines, etc) and luxury goods (fashion, movies, etc) come from the US/EU.
The thing about technology, with enough determination (and withdrawal from TRIPS), they can build their own. These will lag by a couple of generations (2-5 years), but at this point of technology development a 2-5 year lag is bearable.
With respect to the luxury goods, sure some people will miss their Luis Vuitton and Prada - but not all that much. On the entertainment side, withdrawal from TRIPS would laws to cancel all foreign IP rights, so copies will readily proliferate.
Thus, as long as they retain China's support - they are fine.
On the other hand if you include East Ukraine, they produce:
90% of the world's Neon (critical for lasers and semiconductor manufacturing)
40% of palladium (necessary for catalytic converters)
35-40% of Boeing's titanium and over 50% Airbus’s
That gives them a lot of leverage - TSMC announced that they wont ship semiconductors to Russia. But will they maintain that ban when they run out of Neon?
This really isn't 1990.
I think you may have hit the nail on the head here as to why Putin is doing this. He is not mad. He is reordering things and asserting his authority. He is calling out the economic orthodoxies of the post-Soviet era and he will likely change the way we all live and work together because all of the assumptions are collapsing quicker than our economical model told us was possible.
The quicker we realize this and react to what he is doing anticipating the second and third order effects rather than just posturing and congratulating ourselves the better.
I'm not saying this is "why" - the "why" is more complex yet perfectly clear in one looks at the history of NATO and the region.
What I am describing are Putin's possible reasons for thinking he has a chance to change the rules of the game.
I suspect that the reason countries that comprise over 50% of the world's population abstained from the UN vote to censure Russia, and that major states like China, India, Brazil, Pakistan, UAE etc. are refusing to sign up to the sanction regime is that they are also hoping to see a change in the rules.
Will they? Time will tell, but the points made here are not a good sign for the US:
www.wsj.com/articles/if-currency-reserves-arent-really-money-the-world-is-in-for-a-shock-11646311306
Still, we will see what happens.
Im confused, shouldnt there be obvious and huge supply constraints? Or do they just go full Stalin and build a heavy industry?
As long as they can trade with China and India, the only "supply constraints" would be on advanced (and only the "most advanced" at that) technology.
Since in most technology areas we are currently on the upper, flat part of the S-Curve, the cost of being 3-5 years behind on tech would be quite low.
In simple metaphor terms, they in most tech they will have difficulty of getting access to iPhone 13 levels of tech, but iPhone X levels will be easily accessible. So (examples), they may not get access to the most advanced AI or battery tech or autonomous driving, but they (and China) have their own AI capabilities, can do mostly do with 10% less compact batteries, stick to human drivers, manufacture replica aircraft parts, etc. Concurrently, they can void/seize all foreign patents and invest in building their own tech industries.
One of the big (prior) constraints on Putin was that he couldn't put too much pressure on the oligarchs because they always had an exit option (fly off to their London estates). That option has been closed (by idiots in Canada/EU/US - in that order), so now THEIR survival depends the survival of Putin and Russia - making them (as in the joke about the chicken and the pig making breakfast for the farmer) "committed".
The sanction game can only be played effectively against when it is new, and the target is generally weak and dependent on you. Once it becomes a widespread addiction, it stops being an effective weapon and gradually becomes more of an "own goal".
You are definitly making too many assumptions (skilled labor supply, high tech machines, etc) and overestimate the predictability of an oligarchic and corrupt economy. Or on the predictability of the development of a society in general. These people know how to extract rent from ressources. And while Russia has a great academic tradition, Putin didnt try to build upon it. I would suggest to look up how much one of ASMLs machine costs and how complex this is. You cant just replicate that.
As for the ASML machine, as I conceded, they couldn't (at least at the moment) replicate a modern one - but a 5 year old one, I expect they could.
You also very much underestimate the quality or Russia's current technological capabilities. They may not be at the bleeding edge in most things, but they're not that far off.
They would also leverage the "expatriate" community that - facing an abusive environment in the EU/US - would have a strong incentive to move back.
Read Adams "Wages of Destruction", that is what it is going to come to if this situation endures
I have read it ... I think we will just have to agree to disagree, and since - as I mentioned another post - the sanctions are already collapsing, the issue is increasingly moot.
How do you come to these 5 years? Is this just a random number? ASML puts together the parts of around 2.000 highly specialized firms. From lasers to what not. Good luck replicating that. There is a reason even China is struggeling.
And the expat community flew fromRussia because of a dictatorship and economic hardship. Russia will have an even worse brain drain instead of people going back because of stupid but hopefully minimized "racism"
Oh, and I should also note that the expats left for the money not because they were unhappy with Putin. You should update your priors.
Now that they are being EXPLICITLY told that they are not welcome (as they are all over Europe) many will return.
The reason China and such struggle is that (again, in normal circumstances) they cant just open other people patents and say "Thanks, we will take it from there".
In a war (or sanction) situation, anything goes.
I did pick 5 years as a random number, but also because 5 years represents about 3 generations of technology. China struggles with the LATEST generation or two - something 3 generations ago they are fine with.
By example, between 1940 and 1942, the US built an entire aircraft carrier industry (they were rolling them out at one per month) and the USSR designed, tested, and got into scale production the T34 tank.
Between 1939 and 1945 the US produced two distinct nuclear bomb versions, which involved developing several entirely new technological sectors (including the computer industry).
If you think developing a semiconductor industry is harder than that, well we'll have to agree to disagree.
That is certainly possible, but as I see it I am making only two assumptions:
1. China (and perhaps some others) will stick with them and reject sanctions, thus providing the core manufactured products. If they loose China, then sure it is a completely different scenario.
2. A reasonably capable, educated population facing significant hostility from a foreign power (and having lots of reason to believe that the hostility is endemic) will build the "asabiyyah" to deploy those capabilities effectively. There is nothing that disciplines a corrupt oligarchs as much as the possibility that (to borrow from Samuel Johnson) "he is to be hanged in a fortnight" if he fails to meet the set goals.
+the huge assumptions that all other factors which we dont mention dont matter. We both know what we dont know. But for a lot of stuff we dont know what we dont know^^ a successful modern economy depends on such big and many underlying conditions that I would be very sceptical for them to lay that foundation in a rather quick time, while also absorbing this inital first crisis and dealing with the frictions of transformation of this whole state and economy
do you have a source for "apple has re-started sales in moscow"?
Well, here's another external supply constraint,
"Maersk, the world’s biggest shipping firm, has stopped all container movement to and from Russia. . . "---Slate.com
Have you heard of this thing called "rail" ?
Also Maersk (and similar) are AGGREGATORS. Their primary relevance is when many individually small shippers need to combine together to fill a ship. For bulk goods (when an entire ship is being used) or State facilitated trade (where the States can do their own aggregation) they can easily be bypassed.
Having access to the actual ships matters of course, but most ships are registered in Liberia or Panama or such, and can easily be bought and re-flagged. Attacking them thereafter becomes piracy (or possibly war).
Rail still doesn't travel on water.
Russia may be able to find enough small shippers to cooperate. We'll see.
You are missing (or ignoring) my point. In a "sanction" environment, the only thing they will be buying is high-value manufactured goods (mostly electronics) from China. These can come by rail.
The only things they will be exporting is bulk commodities (oil, gas, coal, wheat). These travel in bulk carriers (AKA "tankers") not containers. Thus they will need neither Maersk nor "small shippers" - because neither ships bulk goods. They would probably have to acquire some bulk carriers, but once done become self sufficient for transport.
What about lack of access to planes?
Also, what do they give china in return for the manufactured goods? Their useless Rouble? Or quickly deplete their dwindling currency reserves? China doesnt seem like its interested in putting in extra support to Russia, only to maintain the status quo before the sanctions started
They have no shortage of planes - they just refused to return the 500 or so that were being leased to them - and now have a lot fewer places to fly.
Longer term, remember they have an actual aircraft industry (mostly military) that is a major exporter. Also remember, there is an active JV with China to develop the CRAIC929 as a competitor to the 787 and the A300. Being cut off from key US/EU tech would delay that - but not kill it, as they clearly have the core capabilities even if focused on military at the moment.
As for what they give china - oil, gas, coal, steel, food ... need I go on.
And China, having just experienced 5+ years of growing hostility from the US (remember Huawei?) has lots of interest in supporting Russia - even if only to distract/undermine the US, because they understand perfectly well that if Russia folds, they are next.
I actually hope they try MMT, just so we quicker get to the point where Putin gets killed
China
What MMT actually says is not that governments that issue their own currency have a choice to either tax, borrow or print but that there is ONLY ONE WAY to spend and that is the last of those three. So there is no way russia or any other state for that matter could "turn to MMT" or "start doing MMT" or something like that. They are all already spending the way MMT describes it and they also did exactly that way in the past and MMT does NOT say "well, you could also start to print more money" at all.
Taxation can not fund spending as you can only tax what was spent first (or borrowed first through the central bank when banks refinance their lending at the central bank). So taxes destroy money that was created by prior spending/borrowing. Also taxes are collected in reserves and when private persons pay taxes the private banks acts as an intermediary so every unit taxed must have come from the central bank to begin with.
Bond issuance does not "fund" spending as well. Bonds are sold to the primary dealers only and in reserves only. The only accounts involved in that are the reserve accounts of the primary dealers and the treasury. No private bank account is touched when bonds are issued. It's just an asset swap (that can be reversed by the central bank through socalled open market operations). And it is done to help the CB maintain the interest rate target.
But after the bond issuance if the government actually spends this is the only point at which private bank accounts are affected. And they are affected by increasing their balances effectively creating new additional money. Taxes on the other hand destroy money by decreasing balances on private bank accounts (and the banks reserve accounts simultaniously).
So it is totally clear that any government spending creates balances in the private sector and taxation destroys them. But the government also never waits for taxes to come in if it wants to spend. If its reserve account does not have enough funds to spend what was decided upon in the budget it simply swaps assets with the banks (bond issuance to primary dealers) and then spends. It doesn't "wait" for "tax income" at all. Anyways the "tax income" isn't even known in advance it is just estimated and depends on how well the economy will perform in that year. Only at the end of the year it will be clear if the budget required deficit spending in aggregate or not.
More and more goods and service are disappearing from Russia as well as human capital does day by day,which run counter to the recommended MMT prescription.
Numerous articles on dr google. They raised prices by 50%, but not the point
A bit of a higher order reality that Xi and Putin may have considered in more depth than the hypersanctioning West:
Rail transport via China-Kazakhstan-Russia-Belorus may be more, even much more, secure from attack than ocean shipping.
This may also help explain Putin’s quick response and pulverization of unrest in Kazakhstan.
Debt may not be a constraint for Russia in using MMT but inflation and the balance of payments are constraints. On inflation there is already a tension between raising interest rates to increase demand for ruble deposits and making liquidity available to head off bank runs. On the BoP, its very difficult to tell what the post-sanctions BoP will look like, but it would be surprising if Russia had unlimited flexibility. Whether it wants to impress the rest of the world or not, there is still a good case for orthodoxy in macroeconomic policies.
Forgive my ignorance, but surely an aggressive sanctions policy is all about shutting off supply (of goods and hard currency)? No matter how much domestic monetary demand stimulus is or isn’t applied, if the goods aren’t available, economic activity still implodes, unless there exists a domestic substitute.
We’ve just eliminated the competitors to Russian firms, handed them the sales and stolen the foreign savings of the Russian middle class which they used to buy imports.
What is that demand likely to do to Russian firms? Cause them to expand - which can be funded by Russian banks in their own currency until the cows come home.
Isn't the main issue for them things, products and services that cant be delivered due to sanctions. Hence the cash situation is messa relevant than the ability to produce things for the population.
So I guess we'll see if inflation takes off in Russia.
I don't understand how is raising the Rouble rate to 20% supposed to help when ANY TRANSACTION w Russia is verboten? And what good will accumulating forex do when ANY TRANSACTION w Russia is verboten?
Raising interest rates is a stupid idea and confirms that the orthodox beliefs are still in play. The correct approach would be to drop rates to zero, raise taxes in roubles and then freeze all foreign denomination savings. That should bring demand into line with the reduced supply
Any transaction with a counterparty in EU/UK/US/Japan/etc.
China, India, Pakistan, Brazil, South Africa, etc have not signed on to the sanctions.
ah right. it was mentioned in an earlier post here as well....but markets being forward looking....hter's no light visible at the end of the tunnel,....
there's also this, today: https://www.bloomberg.com/news/articles/2022-03-03/wall-street-is-already-pouncing-on-russia-s-cheap-corporate-debt
This is far beyond my understanding of economics, but isn't China the wild card? If imports and exports are further constricted (and this is very much TBD) and China doesn't pick up the slack, will it matter which theory is pursued? Forgive me if this question itself is ignorant.
Ok. So here are three things I'm sure cognoscenti would reaffirm:
1. MMT is an elaborate hoax that only holds when rates are close to zero. It's easy to dismantle it, if one knows that for all relevant intents and purposes its central tenet, i.e. that the CB is part of government, is false. Btw, currently the key rate of the Russian CB is 20%.
2. In a non-zero-rate environment, the CB can buy govt debt only for so long before inflation will eat away the gains at macro level. And the level of gains depends on the quality of fiscal policy. Once inflation is entrenched in expectations, the monetary tightening would have to be disproportionate to break the spiral. This all can take a while under normal circumstances. Given the current external constraints imposed on the Russian economy, however, such effects would be immediate.
3. Given the scale of deployed sanctions (several of which did not even bite yet in full), money becomes quasi-irrelevant. Russia just made a leap towards a fully closed economy, like N-Korea, they just don't know it yet. Why should they start printing money if they can't buy many of the things they would want? – Russia is not a market economy anymore and conventional wisdom doesn't apply.
But what makes you think Putin would care about the state of the Russian economy anyway? – I’d posit that so far all evidence is to the contrary.
I reject your #1.