The current crisis in the US does not surprise me. But the problems that Russia is having do.
This may surprise those people who know that I have long said that the Russian state is doomed to catastrophic failure. But I figured that Russia’s problems were a couple of years away from being really serious. And maybe 5 to 10 years away from being catastrophic.
The reason I thought this is that Russia built up huge reserves when oil prices where high. Moreover, oil prices are still pretty high by historical standards. Now I figured that oil prices would fall with the US economy. But I thought those huge reserves would keep Russia from having big problems for a bit. But that does not seem to be the case. From the The Financial Times…..
Banks across Russia have faced a rise in outflows as depositors have begun to lose trust in all but the biggest state banks, VTB and Sberbank, which have received most of the government’s liquidity support.
Tatyana Sadovskaya, the director of a branch of Khnati Mansisk Bank in the city of Nizhnevartovsk, on Wednesday told Interfax news agency that in response to rumours of her bank’s insolvency: “People have formed long lines at cashiers and at bankomats, people are taking their deposits and closing their accounts.”
Natalia Elisseva, vice-president for financial development at the Bank Nizhni Novgorod, based in the city of the same name, said the number of clients closing accounts had risen. “If there is something that can sink the banks, it is panic amongst the population . . . If there is a panic, not one bank will stand, regardless of state support.”
These problems are in spite of the fact that the Russian government has sett aside 200 billion dollars to bail the banks out. That 200 billion dollar figure is bigger relative to the size of the Russian economy than 700 billion dollars is relative to the US economy. I am a little bit shocked that there was so little effect from this amount of money.
And there is this from Bloomberg…
The government is set to collect less money as revenue from energy exports grows at a slower pace and the central bank continues to spend its reserves to prop up the ruble amid global financial turmoil. Energy, including crude oil and natural gas, accounted for 73 percent of all exports to the Baltics and countries outside of the former Soviet Union through August.
“If the price keeps going down they will have to send the budget back to parliament looking for spending cuts,” said Vladimir Tikhomirov, the chief economist at UralSib Financial Corp. in Moscow, in a phone interview today. “Even in September the budget was still in surplus, so I don’t think there is a really big threat in the next three months.”
Given that we as Americans are used to running a deficit this might seem like nothing. But it is a stunning fall in government revenues in a short amount of time. This is far faster then seems justified by the drop in oil prices. I think the Russians must be hit hard by a production drop off as well as the falling prices. It is the only way I can account for how fast the government’s revenues are falling off the cliff.
These days it seems like history is moving too fast.