Russian Economy General News: #4

I dunno about that.

Greece, much like most EU and US are fudging their numbers to make it look like they are growing economically (Greece had a GDP growth apparently) but a growing nation does not suppose to have those issues that a growing nation has, and it is a worst part of what Russia has - a growing number of people not paying their taxes and a black economy.  IMF debt is never going to be paid as it is always increasing more than their incomes, but if they keep this same mentality onwards to BRICS, then it will be a problem for BRICS.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOTizH719nB4

If these numbers are true in Russia in terms of Shadow economy, then they really need to fix this issue.

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I was thinking on what can Russia do about its economy?  What can they do to give this perception of growth?  What are the tricks and secrets?  How come Russia can have nearly every sector covered in terms of both manufacturing and development/banking, while England does not have any at all of making an end product, yet has growth and Russia does not?

I mean, if they rely on their own people, they will have a smaller economy.  If they rely on selling outside, they are at the whim of other countries, even if they diversified their exports (which they have).  If they fudge their numbers, they may get away with it but it will be a forever problem.  So what can Russia do?  It is one of the few most honest economies that exist in our world, while UK, US, etc add in Drugs, prostitution and other illegal activities towards GDP numbers.  Should Russia simply just disband from the GDP calculation method?  Should they start a different method through the BRICS bank?  I fear Russia has this ideal of being something grand through these western institutions and rating agencies, when it will never be that case.  So what should they do?  Going back to the barter system wont work.  Gold value?  Dunno.  That would make it even more honest but that would work against them in a dishonest world.  They could be dishonest, but that could create more rot at the core like it is here.

What could they do in order to get people spending again?  One thing people dont seem to realise, is that when they hoard, they are preventing the flow of the cash and that means it will hurt them in the end and the money they are hoarding.  So how do we break that from people?  How do we get them to start spending?  Cheap credit will create a problem more so than anything as people will spend more than they make and rack up credit they may not be able to pay off.  So what else?  Control the value of goods and take control of the main enterprises?  That will hurt competition, which competition helps lower prices and increase flow of goods (but could cause over production which is another major issue).

Does anyone have any good ideas they would like to share?

That Bloomberg piece is total trash. One can't even get all the relevant numbers from it.

Also, the article is from 2010.

The shadow economy was 50% around 1999. It is one of the slower declining components of the Russian economy.
The figure of 20% in 2010 is actually in line with its slow decline. It never hit zero between 1999 and 2010.

Russia’s economy, which last year contracted the most since the collapse of the Soviet Union in 1991, saw the unemploymentrate jump from 7.6 percent in September to a four-month high of 8.1 percent in November.

Need I really explain what a load of excrement this claim is? Russia's GDP contracted the most in 1998.
He is also comparing to 1991. Russia's GDP fell by 40-50% between 1991 and 2000.

BTW, even with the recent collapse of the ruble exchange in 2014 it grew 0.6% (http://www.tradingeconomics.com/russia/gdp-growth-annual).

Considering that Russia's GDP shrank quite a bit in 2009 due to the 2008 financial crisis, an increase
in shadow economy activity is to be expected. The shadow economy is induced by economic stress.

This article has no relevance for 2015 since Russia's GDP will not experience the decline it did in 2008-2009.

OK, fair enough. I seen other ones dated from last year about how shadow economy or people being paid under the table constituted something ridiculous like $90B in lost tax money. Russia is no different technically to that of Italy and Greece with similar issues.

But since I got your attention KVS, what do you think should be the steps taken and what should be concentrated on? I tend to like your opinions so I would like to hear on this from you.

sepheronx wrote:OK, fair enough.  I seen other ones dated from last year about how shadow economy or people being paid under the table constituted something ridiculous like $90B in lost tax money.  Russia is no different technically to that of Italy and Greece with similar issues.

But since I got your attention KVS, what do you think should be the steps taken and what should be concentrated on?  I tend to like your opinions so I would like to hear on this from you.

The shadow economy is not the same thing as corruption.  I see it here in Canada where you can pay someone for contract work or
goods in cash to avoid paying taxes.   So it will never be zero, especially not in Russia.   In my view its natural level is around
10% of the GDP.   Many articles on the subject ladle on the political bias of the journalist and the rag they work for.   Any sort of
shadow economy and corruption in Russia is used as a pretext for denigration and moral pontification.   The exact same conditions
in the west are totally ignored.  

I do not find the $90 billion in lost tax money estimate to be credible.   That's like 50% of the federal tax revenue level.  I think it
scales with the GDP fraction.  So the real amount is 20% as of 2010 and less today.   I really would be more worried about the
legal tax evasion that is rampant in the west also being the case in Russia.  Since Russia likes to import western myths and tries
to make them reality.

For example, the case of GE.  

http://www.huffingtonpost.com/2013/03/11/general-electric-taxes_n_2852094.html

http://www.nydailynews.com/opinion/pay-taxes-ge-article-1.1061158

I can see that the sort of under the table tax evasion I have seen in Canada would be larger in Russia due to economic stress
and cultural issues (i.e. people lost respect for many things under communism and the Yeltsin era was in many ways the coup
de grace).   But this is peanuts compared to the shenanigans of corporations who shuffle their incomes through offshore banks.

I have not seen anything that indicates the shadow economy is some crisis for Russia.  It is a slowly disappearing feature which
cannot be removed by edict and prosecution unless we want a return to authoritarianism.   Frankly, it does not merit the amount
of attention it is being given.   The key thing for Russia is to facilitate economic growth.   The monetarist clowns in the system
are actually a bigger threat.

kvs wrote:

sepheronx wrote:OK, fair enough.  I seen other ones dated from last year about how shadow economy or people being paid under the table constituted something ridiculous like $90B in lost tax money.  Russia is no different technically to that of Italy and Greece with similar issues.

But since I got your attention KVS, what do you think should be the steps taken and what should be concentrated on?  I tend to like your opinions so I would like to hear on this from you.

The shadow economy is not the same thing as corruption.  I see it here in Canada where you can pay someone for contract work or
goods in cash to avoid paying taxes.   So it will never be zero, especially not in Russia.   In my view its natural level is around
10% of the GDP.   Many articles on the subject ladle on the political bias of the journalist and the rag they work for.   Any sort of
shadow economy and corruption in Russia is used as a pretext for denigration and moral pontification.   The exact same conditions
in the west are totally ignored.  

I do not find the $90 billion in lost tax money estimate to be credible.   That's like 50% of the federal tax revenue level.  I think it
scales with the GDP fraction.  So the real amount is 20% as of 2010 and less today.   I really would be more worried about the
legal tax evasion that is rampant in the west also being the case in Russia.  Since Russia likes to import western myths and tries
to make them reality.

For example, the case of GE.  

http://www.huffingtonpost.com/2013/03/11/general-electric-taxes_n_2852094.html

http://www.nydailynews.com/opinion/pay-taxes-ge-article-1.1061158

I can see that the sort of under the table tax evasion I have seen in Canada would be larger in Russia due to economic stress
and cultural issues (i.e. people lost respect for many things under communism and the Yeltsin era was in many ways the coup
de grace).   But this is peanuts compared to the shenanigans of corporations who shuffle their incomes through offshore banks.

I have not seen anything that indicates the shadow economy is some crisis for Russia.  It is a slowly disappearing feature which
cannot be removed by edict and prosecution unless we want a return to authoritarianism.   Frankly, it does not merit the amount
of attention it is being given.   The key thing for Russia is to facilitate economic growth.   The monetarist clowns in the system
are actually a bigger threat.

OK Fine, but what do you think are areas Russia should concentrate on and what do you think will help with its growth? I still think a more solid method is relying on domestic demands and tailoring your countries development specifically to the needs of your people, that includes basic civil goods. It wont make Russia massive rich by any accounts or make it look like some banking power that lies and fudges numbers to make it look like you are growing, but it will make Russia a very honest economy. Add to that, they could increase service sector greatly too. Companies can offer healthier, tastier and cheap fast food options. Rusburger cannot do it alone.

The number one priority should be to reduce interest rates to 5% or less. The CBR and its evaluation of
Russian inflation are simply detached from reality. It is actually possible to have more inflation with
anti-inflationary monetarist policies. This paradox is something monetarists cannot understand.

We have already seen that stopping the rot at the top leads to a vast improvement in the whole
political and economic climate of the country. A clean regulatory policy and no lobbying loop holes
should be the priority. If laws are enforced fairly and consistently the gain legitimacy and respect
and slowly society starts "behaving". This is a multi-decade process.

In the short run a low interest rate policy would reduce the ruble to 60:1 to the dollar and kill two birds
with one stone. Create conditions for proper business activity (formation and growth) in Russia and
reduce domestic production killing imports. I would say about 50% of this is already in place. But
the CBR needs to be cleaned out along with the Ministry of Finance and their loopy interest rates should
be thrown in the trash bin.

It is clear already that there is enough adaptation capacity in Russia and the sanctions are ineffective.
Now it is time to capitalize on this moment.

Kamaz more than likely to open up a plant in China. They already have a plant in India.

http://tass.ru/en/economy/794741

Forecasted industrial decline signals underuse of innovations — Russian parliament speaker

Not good. You would think that with import substitution, industrial production would be much higher, rather than being reduced. Something is off of course. Maybe due to lack of domestic purchasing, and thus industrial production sites have to reduce production or close shop. Who knows.

Werewolf wrote:As long such indexes are made by people with agendas to boost themselfs there is no point even using such indexes. The best example is the world corruption index, Germany and US should be among top 10 but of course they are not.

The problem with all measurement index is what you said. Even using GDP numbers has recently been under scruiteny (Specifically GDP Nominal) because lots of countries are either outright lying about their performances (USA with Military Hardware purchasing added in and debt) or incorporating illegal and none taxable income from drug dealings and prostitution (Spain, UK, US, Italy, etc).

I read on zerohedge: http://www.zerohedge.com/news/2015-05-14/ray-dalio-if-you-dont-own-gold-you-either-dont-know-history-or-economics

I would say, gold, silver, Paladium and Platinum are true currency holders and people should be investing in them. I have already invested in silver and my understanding is that silver has increased in price already.

max steel wrote:

higurashihougi wrote:Not really relevant but...

http://sputniknews.com/business/20150514/1022132502.html

Russia advanced to 26th place in the Human Capital Report 2015 index, beating out South Korea overall and Japan among 15-25 year olds.

According to that same report Ukraine jumped from 86th to 31st place , so either this report is inadequate or rest of the world's rankings got worse .

Are you on faqcebook higure ?

@Sepheronx  by what name you're commenting on zerohedge ?

I don't comment. I simply read.

http://www.zerohedge.com/news/2015-05-15/dear-bureau-labor-statistics-about-those-plunging-gasoline-prices



In the US the inflation rate is adjusted away as above. In Russia you have the exact opposite. The CBR sees inflation
where there is none.

Apparently gas prices didn't change in Russia as Gazprom, Rosneft, Bashneft and others were starting to export their petrol at high costs and making good money. Government stepped in and told them that they need to concentrate on domestic sales to reduce overall prices.

Dunno if that changed anything though.

Karl Haushofer wrote:

Viktor wrote:A bit smaller drop than expected  

Russia's GDP fell by two percent

Earlier, Minister of Economic Development of Russia Alexei Ulyukayev estimated decline in the Russian economy in January-March at 2.2 percent.

Do you think Russia can return to growth later this year?

Only in 4th quarter I would gather. Next year is where the growth will happen.