Publication in Russian on the Zen blog
https://dzen.ru/a/ZqY1Xb1aml1iXfqZ

Theories and evidence of the economic crisis in Russia. Based on Keynesian, Austrian, classical and generally accepted theories of economic business cycles, the structural weakness of the Russian economy in its current state could lead to a recession, including one sufficient to stop the geopolitical events in Ukraine.

In this post I want to prove my claim that the Russian economy is collapsing. You can claim anything, but you always have to provide evidence that it is true, and whenever you have a hypothesis, you have to test this hypothesis, provide some evidence. The problem is that when thinking about the future, no one can predict this future. I am a skeptic, I am an investigator, I am a researcher. And I do not believe in magical thinking, I do not even believe in econometric forecasts, because I know about endogenous and exogenous variables, there are too many of them. You can make a projection, but you cannot predict the future, because if you could predict, then I would just get some forecast for Google shares, use it to the maximum with options, and call it "forecast of the future", earning a billion dollars in a day. So the future cannot be predicted. And this is a big caveat for me as a skeptic. As a researcher, I have to provide reasonable evidence pointing to the collapse of the Russian economy. And there are several of these vectors. First, let's look at what happened, and try to consider what will happen, because history often repeats itself. I want to draw your attention to the Keynesian collapse, the crisis in Austria, let's call it the institutional collapse of Adam Smith. So, the Keynesian crisis, what is the argument, if you look at the data on Russia, and I do not advise focusing on data from Russia, coming from official banks and agencies of Russia, because it is not true, or because it may not be true, especially aggregated data. And you should always remember that any data in general can be distorted, for example, because bots could get onto the site, replace the information so that Russia looks better than it actually is, and all this should be taken into account. If we look at the quality of life index in Russia, it is between the African country Kenya and the South American country Brazil, and there are not many people there who are happy, jumping and dancing about their economy. The next thing to look at is purchasing power, and this index is between Iraq and the Philippines. And this is based on the average, there is a big difference in the Gini coefficient between the rich and the poor, and this distorts the data if you take the average. We need the most common values ​​for local purchasing power, quality of life and disposable income. And if you compare Russia with an African country or a South American country, it does not mean that this country will necessarily collapse. For example, Cuba is one of the worst countries, and it is not falling apart, there is no revolution there, simply because a Cuban has little disposable income, he is not going to go out on the streets, rot and risk his life, especially if he has been well propagandized. So the statement according to the Keyan model, which means that national income is equal to consumption plus investment plus government spending, where the value of consumption is what people spend in the markets, and that's the main thing. And if your disposable income is more than $500 after taxes, then that's just statistics, not a real value for what we really need. Based on your own needs, you'll say, well, you know, prices are cheaper. But I'll look at the price of eggs and milk and I'll say that's not exactly cheap, and what about a computer, because it's an imported good that can go up in price, if you can even buy a computer and other accessories, or a car. So that $500 figure is the amount that people have to spend their entire lives, and that can go down, for example, because of geopolitical events. I have a friend, whom we'll call Dmitry, he lives in Tver, it's an area between Moscow and St. Petersburg, there's a nice monastery there and a couple of factories. I would say that it is not a remote province somewhere in Siberia, but a real place, close to Europe, close to economic activity. And Dmitry's story is that in the old days, before sanctions and restrictions on visa travel to Europe, people would go, for example, to the Netherlands and work as hostesses, and then bring money or send it to their families. People would get to different countries in Europe or to the United States, not just cross the border, they would fly in, their visas would expire, student or tourist visas, and that was one of the ways to work illegally in Europe and so on. For example, you work in Argentina, and you send the money you earn to your family in Russia. But at a certain point, hard currency money no longer comes into Russia, and that affects disposable income, that informal extra income, and people don't spend money, that's called the multiplier effect, the multiplier effect is just a negative effect, when I don't spend money and I tip the waitress, the waitress can't buy a red lipstick at the beauty store, and then she can't get married, and she spends more, spends more, spends more, but it never happens, because it's not the Keyan multiplier effect, in Russia it's just a negative multiplier effect, which takes away 1 dollar spent by 1 ruble, which means nothing, by that argument, consumption continues, but people can no longer support themselves by their own means, and that's the key point in economics. If we look at the Broken Window Theory fallacy (a metaphor coined by economist Frederic Bastiat in his 1850 essay "On What Is Seen and What Is Not Seen"), where there's this broken window fallacy, where the government pays people to just fix their windows to stimulate the economy because everyone has to play the game of "pay the glazier to fix the windows" - that's a real positive multiplier effect, because the money goes to the glazier, the glazier goes to the restaurant, the restaurant gives a salary, the glazier tips the waitress, the waitress gets money to spend on cosmetics and other things, and maybe she'll meet someone to live happily ever after with. But in Russia, there's no Keyan multiplier effect. In Russia there is a negative multiplier effect, where there is a whole country of people who are vandals breaking windows, who have no idea what capitalism is and free enterprise, free movement of labor and trade thanks to free markets, and in such countries there is a positive multiplier effect and the economy recovers. In Russia, everything is going to hell because of the negative multiplier effect.

Let's go to the Austrian school of economics. In Russia, the natural rate of interest is the same as the bank rate, which is currently 16%. In Russia, they try to control inflation, but it doesn't matter because it's an artificial control. And people in Russia take out mortgages even at 21%. No one in the world would do business using such interest rates, because, without going into details, based on the equilibrium in the money market, it causes a systemic effect in all markets. If the market for eggs or milk is out of equilibrium, what will happen to the price of red lipstick for the waitress, the price will probably go up, and there may even be a shortage. But the thing is, money is a commodity that is traded in every market in every single transaction, you don't exchange red lipstick for milk or eggs, you exchange money for red lipstick. Money is a unique commodity, and if the natural rate and the bank rate are out of equilibrium, it will cause a disequilibrium effect on all markets, which will lead to a massive recession. And this is artificially controlled. If the bank rate, which you see in the bank, and the rate of return, which is a proxy for the natural rate, are out of equilibrium, it will cause a systemic effect similar to the Great Depression in the past, and this is one of the main reasons for explaining the Great Depression. So now we have the Keynesian and the monetarist explanation for the collapse of Russia. These two theories are good evidence based on the data for Russia.

The next point is the orange man vector, in economic terms it is the institutional trading vector. Apparently Trump will lose to Harris, and then everyone will lose, but if Trump wins, then Ukraine will win. Trump meets with Zelensky, and the reality is that Ukraine is standing its ground, Zelensky tells Trump: "Let things go as they are. We are not going to exchange land for peace. Because this is not peace. Exchanging land for peace is a continuation of geopolitical aggression." If this scenario happens, the Russian economy will collapse. And I will tell you why. Because Trump is a supporter of ultra-protectionism. Any type of protectionism leads to massive disruptions in trade. For example, in Sochi I grow oranges and send them to Magadan, in Magadan you grow garlic and send it to Sochi. But if you refuse to do this, then Sochi will have to grow oranges for another city or stop altogether. This means that trade stops. Trump can stop all world trade, acting under his protectionism, which will lead to a global crisis. The price of oil will fall, and if it used to be over $100, now the price fluctuates or falls, alternative energy sources appear, and as a result the price of oil may fall below $50. When the economy goes into decline, no one will consume oil, oil refineries will close, people will not go on holiday to Europe, and this will add fuel to the fire, Russia will go down. If the economy is raw materials-based, like in Russia, the economy depends on the price of oil, and this price falls, then the economy falls. With collapsed prices, which are fundamental to the country's economy, which created an intertemporal connection between consumers and suppliers, the prospect of an economic crisis is emerging.

The next vector for the economy to fall - it must be something harmful and ineffective. Something like the mortgage crisis in the US in 2008, when the pricing mechanism is broken and people lose their jobs. It is difficult to say for sure what is similar for Russia, because the data that comes from Russia, official data, which is in a certain cession, they cannot be trusted and cannot be assessed based on them. But from all this, there is one point - this is a geopolitical event between Russia and Ukraine. When the energy of these countries is directed to hiring legions of people to break windows and destroy things. When you take things from the manufacturing sector, which creates, builds, repairs, rebuilds, and put all this energy into a destructive event that drains the economy, then no economy in the world can withstand this for long, and the Russian economy is very weak, dependent on raw materials, with a fictitious ruble exchange rate, and in this case, the collapse of the Russian economy is again inevitable. I have given four economic factors for the inevitability of economic collapse in Russia. I will give an additional, bonus argument. This is the fifth vector leading to an economic crisis. What if we wake up one morning and find out that someone sent Putin into retirement. Most famous people who retire, they go to some cool place, abroad or any other warm or cool place, but I think he will go to a hotter place for all eternity, after that there are likely to be consequences for Russia, this is a serious struggle for power, this is a period when nothing can be controlled, and this is the time for an economic downturn, and nothing will save from it.

I have given five vectors, how what is happening in Russia will end, you can believe or not that the president will be sent to sing in a very hot place, this cannot be said, because the future cannot be predicted, although a broken clock can show the right time twice a day. But I am a skeptic, I do not believe in this phrase. I support my statements with logical arguments based on historical facts and events from the past, interpreting them for further research, substantiating the statements with arguments that are real for today's world, understanding that there are weak points in the argumentation, but also irrefutable arguments. There is a trend and reasonable arguments in favor of the fact that the Russian economy is declining, and, as in the past many times, will collapse this time too. This will be unexpected for those who say that this will not happen. It will happen like a hurricane, despite the fact that a moment before it was all bright and sunny. Good luck and wisdom to everyone.

The economy is collapsing because no country in the world is willing to use the ruble anymore. The only reason prices are affordable is because of Putin's forced price controls.

For Moscow to focus its economy on aggressive war is like paying people to smash other people's windows. The Russian economy is a kleptocracy, and stealing or destroying assets is not the basis for economic growth. It creates no value and no growth.

Unfortunately, no one can predict the future by definition. The problem with the rebirth of the Russian Federation is that it is a feudal economy stuck in the 18th century, with peasants in the vast plains, and boyars in Muscovy who are suddenly poor and powerless again, having come so close to the European dynamic economy, but are once again outcasts because they cannot play fair, and thus are simply excluded from the playing field and the marketplace again until the boyars come to their senses. Even the Chinese have become better at managing their criminal economy. If only ethnic Russians would stop believing that the rest of the world owes them their lives, and their arrogance would become more like humility, they might be allowed to become part of the human race again. Russians simply cannot accept themselves as part of this world.

Адам Смит - шотландский экономист и философ-этик, один из основоположников экономической теории как науки. Считается основателем классической политэкономии.

Фредерик Бастиа - французский экономист, государственный деятель и публицист, отстаивавший частную собственность, свободные рынки и ограниченное правительство. Он возглавлял движение за свободу торговли во Франции.
Знаменит своими притчами, и некоторые из этих притч входят в современные учебники экономики, например "отрицательная железная дорога", "прошение производителей свечей" и, конечно, знаменитое "разбитое окно".

Author's video content.
In collaboration with CMCproduction & SmartREC video studios
https://www.youtube.com/c/ViolettaWennman
https://ok.ru/shipshard1
https://vk.com/shipshardvk
https://www.pinterest.ca/omegagirs/
https://dzen.ru/shipshard
https://t.me/shipshard

I INVITE YOU TO THE TELEGRAM CHANNEL
UNCENSORED
https://t.me/shipshard

Publication in Russian on the Zen blog
https://dzen.ru/a/ZqY1Xb1aml1iXfqZ

Buy the author some crackers, let him get used to it!