Russia Cannot Afford Putin's Ambitions

The Jaded Consumer doesn't want to amplify economic nonsense by linking to it, but the international news sources that uncritically publish economic numbers approved by authoritarian regimes aren't doing the public any favors in understanding the impact of nations' military and economic policies and appreciating the prices caused by their conflicts. This note is intended to provide an evidence-based view of the global conflict underway between expansionist tyrannies and the more democratic nations authoritarians have targeted.

Russia claimed to have bulletproofed itself against sanctions in order to enjoy normalcy as it prosecutes ongoing war against Ukraine. Claims that Russia thrives while democratic adversaries suffer economically are undermined greatly by the data. Russia's central bank's announced interest rate is worse than I've paid on credit cards. At the time of this writing the rate has been raised to 21%. Russian propagandists had been trying to convince democratic nations that imposing sanctions on Russia injured free people more than the subjects of what's left of the Russian empire. The claim Russia's economy is strong has two basic problems. First, Russia's auto industry is now wholly dependent on manufactured goods from China, and Russians buy these with funds obtained selling raw materials to China (primarily unrefined energy products). If acting as a source of raw materials while buying finished goods from one's sponsor state sounds to you like the role of a colony, you've figured out that Russia is now a de facto colony of China. The second problem is that even suffering the colonization sucks: unlike the U.S., which has got inflation in the low single digits and is close enough to its ultimate target inflation rate that the federal reserve bank is cutting interest rates to avoid allowing inflation to fall too much, Russia still has an official inflation rate that is in the high single-digits (and a real inflation rate estimated at 27%). It might be worse, but a lot of what Russians want to buy isn't available at any price. Whoops.

Russia isn't alone in living in a fantasy land. China has been making public policy on the basis of fictitious population data, and that's going to cost it. The longer China can get cheap fuel from Russia to prop it up from collapse, the longer the West has to reconfigure supply chains so as to avoid dependence on authoritarian regimes and the legal quicksand the tyranny there imposes on all who do business there.

Russia is dependent on North Korea and Iran for weapons and is burning cash while it goes all-in on Putin's dream of re-establishing the lost empire of the Russia of his imagination, with Soviet-era borders. Unless some outsider throws Putin a lifeline, he's going to drive himself and his government into the same kind of bankruptcy-driven collapse that put an end to the Soviet Union. China will just take the eastern territories Russia continues to occupy but hasn't anyone there to defend it. China has already updated its maps of Russian territory with its preferred Chinese names.

Productivity (or not) in Russia

After reading an American business article breathlessly gushing about the supposed strength of Russia's economy, with such details as a high employment rate under 3%, it seems worthwhile to draw attention to facts known about the topic.

More than 40% of the enterprises in Russia – including both civilian business and firms dedicated to military production – are shorthanded. Want to expand your business, or buy a house? The Bank of Russia has set its benchmark rate at 16% and still expects inflation not to fall quickly. A commercial loan isn't going to be made at the bank benchmark rate.

The same article that celebrated Russia's economic "strength" reported that Russia's employment situation benefitted from Russia's "voluntary" military recruitment model. Sure, there are some Russians who signed contracts to kill Ukrainians for $2,000 per month; that's true. But there's also a regularly scheduled conscription system that pulls several hundred thousand young Russians into the military each conscription cycle and, despite Russian law that states conscripts cannot be sent abroad to war, they've been sent to Ukraine from the very start of the war. These hundreds of thousands of men haven't had an easy time of it; Western estimates put the number of dead and wounded over 400,000. Few of them will work normal jobs again. More workers have fled Russia to avoid conscription – the UK Ministry of Defense estimated fleeing Russians numbered 1,300,000 in 2022 alone. Many of the fleeing Russians have been the most employable: young people in technology work who left because it was easy to do their work abroad.

That full-employment picture looks less cheery when one considers how many Russians fled the country or were sent to Ukraine to die, to get Russia to its low unemployment rate. And those who are working are being courted by military supply firms to lure them from economy segments that sustain and improve Russians' quality of life. Inflation is a direct result of military suppliers outbidding civilian employers to satisfy Russia's demand for weapons and ammunition.

When calculating GDP in Russia, translation into dollars is tough: selling rubles for dollars is illegal, so there is no market value for rubles. The rate of exchange for rubles is a government-promulgated fiction. Who knows what it'd be worth.

Russia is still in the war in Ukraine for the simple reason that enemies of the democratic West – primarily China, Iran, and North Korea – are showering Russia with supplies from which to make war materiel. It should be no surprise that Ukraine requires support itself. Like the Cold War ended when Russia bankrupted itself in an arms race against the so-called "Star Wars" (technically the Strategic Defense Initiative) defense programs, the conflict with fascist dictatorships allied against the West may be won luring them into an escalation of commitment to an unwinnable fight to expand Russia's borders.

And the more Russia embarrasses itself failing to defeat Ukraine, the more Russia's neighbors will be emboldened to reach out to make alliances with the capacity to support them in improving their quality of life.

Trump's Civil Trouble

An unsuccessful defendant who wants to stop collection a judgment's enforcement for he duration of an appeal is generally allowed to halt enforcement by posting a supersedeaas bond, which assures the court that delay won't prejudice collection because the amount due is available to pay the winner if the appeal fails. The bond isn't required to pursue the appeal, just to halt enforcement. Concerns about how fair this procedure is can appreciate the problem best by considering the alternative: should an aggrieved public bear the risk of delay and the possibility that deception or other creditors render a defendant judgment-proof during appeal? The bond is the compromise.

Lat month Mr. Trump induced the major insurer Chubb to underwrite the supersedeas bond to stay execution of a January judgment for his longtime defamation victim E. Jean Carroll. Chubb's CEO gave interviews explaining its position had been fully secured and that its terms with Trump were no special favor: the terms were meant to earn a return for investors. The bond was less than a hundred million dollars.

Donald J. Trump is no stranger to the courts, but he's no longer allowed to harm victims with impunity as when he bullied suppliers out of payment when he was setting up his long-failed casino in Atlantic City. the economic impact of his lies has grown. He's being sued, and successfully, in the communities upon which he's preyed. Now Mr. trump hopes to forestall execution of New York's judgment, awarded when New York proved that Mr. Trump and his co-defendants fraudulently misrepresented assets and collateral to obtain loan terms and outsized profits not available in the market. Disgorgement of profit from fraud in this one New York case amounts to nearly a half-billion dollars. Trump has been unable to get a surety to stand for him to make a supersedeas bond in New York, and he hasn't got the cash to post himself.

Newsweek published a list of properties subject to execution to cover the defendant's debt to New York from his financial frauds. While it may look impressive, the debts secured by these properties make clear that the properties are not all equity; Mr. Trump doesn't actually own them outright, and what he owes his creditors significantly erodes the equity in them.

Mr. Trump faces another deception case next month involving his treatment of a personal hush-money payment as if it were a business expense in order to cheat the government out of tax revenue.

The son of one of Mr. Trump's scam victims, a contractor Trump cheated out of his final payment for woodworking that had been completed and accepted as good work by Mr. Trump's own general contractor, said of his now-deceased father "He would be embarrassed that Donald Trump is actually going to be the nominee for president for the Republican Party in 2016." 

He hasn't apparently become any more reliable.

Russia Handling Sanctions Worse Than It Pretends

 The cost of shipping energy products to more distant customers, the loss of workers to frontline duty and to international flight, and the inability to tap foreign resources to support local operations have left Russia in an economic crisis that its propaganda efforts and international denials cannot hide. The price of eggs increased 18% last month (December 2023) in that one month alone. The Russian Federation has been propping up the economy by directing long-husbanded resources into military-oriented manufacturing, but causing an explosion in Ukraine does nothing for quality of life within Russia; the transformation of Russia into a wartime economy currently directs a third of the federation's national expenditures into the military. 

While Putin claims in his speeches that Russia's economy thrives despite foreign barriers to trade with most of the free world, much of the nation's current production does nothing for Russians: rockets aren't infrastructure, they destroy infrastructure. This game of economic chicken is profitable only if Russia ultimately seizes Ukraine and its natural resources and can compel the service of its millions of inhabitants. Forcing people to serve Russia's tyrants isn't a particularly efficient way to build national wealth, but it's all tyrants know. And they're used to the inefficiency: per-capita GDP within the Russia's empire is so small that despite having many times the population of Texas, the empire's overall GDP was lower even before sanctions cost Russia all the foreign expertise that had kept its energy industry in business. GDP per capita in Russia has been on par with China, at a fraction of GDPs typical of democracies in Europe or Asia.

If nobody throws the Russian tyranny a lifeline, it will likely digest itself trying to threaten neighbors into surrendering to Russia's appetite for geographic expansion. 

Halting Russia's advances into Ukraine has been an efficient investment for the United States. For only a few percent of the existing US defense budget, the United States has created a state of emergency in its most aggressive international adversary which is spending not just a third of its military budget, but a third of its entire national budget, to hand onto its untenable position. Especially since Ukraine is willing to contribute all the combat personnel, supplying them with equipment to test and improve American tactics and methods against Russia's current best technology and electronic systems is a fantastic investment in the future of our defense of American interests and the interests of democratic trading partners around the world.