Russian Economy General News: #1

Austin wrote:Yes but to a point , the imports will get expensive which means they will have to spend more $$$

Yes but to a point , the imports will get expensive which means they will have to spend more $$$

Stock market bubbles of historic proportions are developing in the US and UK markets. With policymakers unwilling to introduce tough regulation, we're heading for trouble

According to the stock market, the UK economy is in a boom. Not just any old boom, but a historic one. On 28 October 2013, the FTSE 100 index hit 6,734, breaching the level achieved at the height of the economic boom before the 2008 global financial crisis (that was 6,730, recorded in October 2007).

Since then, it has had ups and downs, but on 21 February 2014 the FTSE 100 climbed to a new height of 6,838. At this rate, it may soon surpass the highest ever level reached since the index began in 1984 – that was 6,930, recorded in December 1999, during the heady days of the dotcom bubble.

The current levels of share prices are extraordinary considering the UK economy has not yet recovered the ground lost since the 2008 crash; per capita income in the UK today is still lower than it was in 2007. And let us not forget that share prices back in 2007 were themselves definitely in bubble territory of the first order.

The situation is even more worrying in the US. In March 2013, the Standard & Poor 500 stock market index reached the highest ever level, surpassing the 2007 peak (which was higher than the peak during the dotcom boom), despite the fact that the country's per capita income had not yet recovered to its 2007 level. Since then, the index has risen about 20%, although the US per capita income has not increased even by 2% during the same period. This is definitely the biggest stock market bubble in modern history.

Even more extraordinary than the inflated prices is that, unlike in the two previous share price booms, no one is offering a plausible narrative explaining why the evidently unsustainable levels of share prices are actually justified.

During the dotcom bubble, the predominant view was that the new information technology was about to completely revolutionise our economies for good. Given this, it was argued, stock markets would keep rising (possibly forever) and reach unprecedented levels. The title of the book, Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market, published in the autumn of 1999 when the Dow Jones index was not even 10,000, very well sums up the spirit of the time.

Similarly, in the runup to the 2008 crisis, inflated asset prices were justified in terms of the supposed progresses in financial innovation and in the techniques of economic policy.

It was argued that financial innovation – manifested in the alphabet soup of derivatives and structured financial assets, such as MBS, CDO, and CDS – had vastly improved the ability of financial markets to "price" risk correctly, eliminating the possibility of irrational bubbles. On this belief, at the height of the US housing market bubble in 2005, both Alan Greenspan (the then chairman of the Federal Reserve Board) and Ben Bernanke (the then chairman of the Council of Economic Advisers to the President and later Greenspan's successor) publicly denied the existence of a housing market bubble – perhaps except for some "froth" in a few localities, according to Greenspan.

At the same time, better economic theory – and thus better techniques of economic policy – was argued to have allowed policymakers to iron out those few wrinkles that markets themselves cannot eliminate. Robert Lucas, the leading free-market economist and winner of the 1995 Nobel prize in economics, proudly declared in 2003 that "the problem of depression prevention has been solved". In 2004, Ben Bernanke (yes, it's him again) argued that, probably thanks to better theory of monetary policy, the world had entered the era of "great moderation", in which the volatility of prices and outputs is minimised.

This time around, no one is offering a new narrative justifying the new bubbles because, well, there isn't any plausible story. Those stories that are generated to encourage the share price to climb to the next level have been decidedly unambitious in scale and ephemeral in nature: higher-than-expected growth rates or number of new jobs created; brighter-than-expected outlook in Japan, China, or wherever; the arrival of the "super-dove" Janet Yellen as the new chair of the Fed; or, indeed, anything else that may suggest the world is not going to end tomorrow.

Few stock market investors really believe in these stories. Most investors know that current levels of share prices are unsustainable; it is said that George Soros has already started betting against the US stock market. They are aware that share prices are high mainly because of the huge amount of money sloshing around thanks to quantitative easing (QE), not because of the strength of the underlying real economy. This is why they react so nervously to any slight sign that QE may be wound down on a significant scale.

However, stock market investors pretend to believe – or even have to pretend to believe – in those feeble and ephemeral stories because they need those stories to justify (to themselves and their clients) staying in the stock market, given the low returns everywhere else.

The result, unfortunately, is that stock market bubbles of historic proportion are developing in the US and the UK, the two most important stock markets in the world, threatening to create yet another financial crash. One obvious way of dealing with these bubbles is to take the excessive liquidity that is inflating them out of the system through a combination of tighter monetary policy and better financial regulation against stock market speculation (such as a ban on shorting or restrictions on high-frequency trading). Of course, the danger here is that these policies may prick the bubble and create a mess.

In the longer run, however, the best way to deal with these bubbles is to revive the real economy; after all, "bubble" is a relative concept and even a very high price can be justified if it is based on a strong economy. This will require a more sustainable increase in consumption based on rising wages rather than debts, greater productive investments that will expand the economy's ability to produce, and the introduction of financial regulation that will make banks lend more to productive enterprises than to consumers. Unfortunately, these are exactly the things that the current policymakers in the US and the UK don't want to do.

We are heading for trouble.

Russia in the case of sanctions by the United States will be forced to go into other currencies, create a cash-payment system, said Tuesday in an interview with RIA Novosti Presidential Aide Sergei Glazyev.


"We will have to go into other currencies, create a cash-payment system. We have excellent trade relations with our partners in the East and the South, and we will find a way to not only zeroed our financial dependence on the U.S., but will come out of these sanctions with great advantage for themselves, "- said the eye.

Trying to announce sanctions against Russia will turn to the collapse of the U.S. financial system, which will entail termination of U.S. dominance in the global financial system. If sanctions are applied against state structures, we will be forced to actually recognize the impossibility of return of those loans that were given to the Russian structures by U.S. banks. Indeed sanctions - a double-edged weapon, and if the United States were frozen our assets, that, accordingly, liabilities of our organizations in the U.S. will also be frozen. This means that our banks and businesses will not return U.S. Loans partners ", - said the eye.

"The Americans threaten Russia with sanctions and involve the EU in economic and trade war with Russia. Regarding the possible effects of these sanctions can say the following: most of sanctions against Russia will suffer the U.S. itself, because if we talk about trade relations with America, we did them not depend. Treasuries We keep a decent amount - more than $ 200 billion, and if the United States against us dare to apply sanctions to freeze accounts of Russian enterprises and citizens, we can no longer view America as a reliable partner and we encourage all to dump U.S. Treasuries , dump the dollar as the currency in which we can not be sure and leave the U.S. market. "

flamming_python wrote:Ruble went up today too
Meanwhile the Dollar and Euro went down.
Looks like the shock is being recovered from.

TR1 wrote:You best be joking Python.

Obama is doing 100% the right thing. Not escalating the situation and getting America involved in something it has no interest in.

flamming_python wrote:

TR1 wrote:You best be joking Python.

Obama is doing 100% the right thing. Not escalating the situation and getting America involved in something it has no interest in.

Of course he's doing the right thing, otherwise we could be in WW3.

But what I'm trying to say is that when you have the balls to go funding some putschists in a country right next to Russia (granted, it all slipped out of everyone's control towards the end anyway), then you best have the balls to follow it through to the end.

Obama should have have had the wisdom not to meddle in the first place, if he wasn't ready for the consequences.

Werewolf wrote:

TR1 wrote:You best be joking Python.

Obama is doing 100% the right thing. Not escalating the situation and getting America involved in something it has no interest in.

Not involved? 5 Bln USD for another "revolution" is hardly some you can call "not involved".

TR1 wrote:

That is to be expected, no matter what Pres is in the White House.

But a Republican candidate would have very different rhetoric right now, I can guarantee you that.