A Second Hand Conjecture

From the comments at Financial Times:

Nov. 13 (Bloomberg) — In a surprise move today, Whoopee Cushions Inc was approved bank holding company status by the Fed to enable the company access to the recently revised TURD scheme.

Imported far-eastern whoopee cushions have decimated the domestic industry over the past two decades, leaving former giants of the industry controlling a mere 0.1% of the domestic market. Some observers point to the poor reliability and high labor costs of domestic products as a defining factor in the industry’s demise, but it appears the government are prepared to spend now and ask questions later.

Chairman and CEO, Chuck Chuckles said “It is vital that the government recognises the role we play in the modern US economy. Whoopee Cushions Inc has been the backbone of US manufacturing for over 400 years and if we were to go under it would mean 100,000 people needing to learn new skills and find work in more productive industries. I think you will agree, that is something nobody wants to see happen”.

Finance Director Mr Magoo, 12, added “Whoopee! I’m off to structure some whoopee cushion backed securities to sell to the government at inflated prices”. At time of going to press it is not known whether the pun was intended.

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After forcefully savaging the Russian invasion of Georgia, controversial Swedish economist Anders Aslund lays out ten reasons he expects an impending economic collapse in Russia. Each point is sound, although some are more problematic than others.

Particularly cogent are the following Aslund points IMO:

4. Renationalization is continuing and leading to a decline in economic efficiency. When Putin publicly attacked Mechel, investors presumed that he had decided to nationalize the company. Thus, they rushed to dump their stock in Mechel, having seen what happened to Yukos, Russneft, United Heavy Machineries and VSMP-Avisma, to name a few. In a note to investors, UBS explains diplomatically that an old paradigm of higher political risk has returned to Russia, so it has reduced its price targets by an average of 20 percent, or a market value of $300 billion. Unpredictable economic crime is bad for growth.

5. The most successful transition countries have investment ratios exceeding 30 percent of GDP, as is also the case in East Asia. But in Russia, it is only 20 percent of GDP, and it is likely to fall in the current business environment. That means that bottlenecks will grow worse.

6. An immediate consequence of Russia’s transformation into a rogue state is that membership in the World Trade Organization is out of reach. World Bank and Economic Development Ministry assessments have put the value of WTO membership at an additional growth of 0.5 to 1 percentage points a year for the next five years. Now, a similar deterioration is likely because of increased protectionism, especially in agriculture and finance.

[...]

8. Oil and commodity prices can only go down, and energy production is stagnant, which means that Russia’s external accounts are bound to deteriorate quickly.

9. Because Russia’s banking system is dominated by five state banks, it is inefficient and unreliable, and the national cost of a poor banking system rises over time.
(Moscow Times via Robert Amsterdam)

As for all this leading to a Russian economic apocalypse, it should be noted that the accuracy of Aslund’s predictive powers leaves more than a little to be desired. I note that we’re still waiting for his prediction of a military coup against Medvedev to come true.

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The IMF has come through for Georgia in an enormous way, approving a $750 million credit line for the beleaguered republic. Beyond the much needed aid, it’s a powerful political reminder for Russia of the gargantuan economic advantage the West maintains.

But in that article notice the black banner in the feature photograph. It’s a promotional piece for the slick SOSGeorgia site, written in very literate English and produced by a Georgian IT firm. Have you noticed how much better the Georgians are at appealing to world opinion than the Russians? Granted, theirs is the far more sympathetic cause, but there is some native skill involved in the marketing that may have something to do with the country’s cultural, political and commercial orientation toward the West. I hate to speculate too deeply on it, but it’s possible that disconnection from the West simply leads to bad public relations strategy. At least when you need to persuade the West, as both the Russians and Georgians do.

(more…)

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