Joseph Wang’s Post

TANKS INSTEAD OF BUTTER? Good and valid point made in one of the comments: “Putin can neither walk on water nor on the bloodbath of his own making.” Russia's war-driven economic boom is unsustainable. Pumping up military spending at the expense of healthcare, infrastructure and investment in civilian economy is not a viable model. It leads to structural deformities and eventually to declining living standards. Western sanctions, tightened and expanded, including those targeting moscow’s main revenue sources, oil and gas, could sooner or later seriously worsen the situation. Choosing tanks over butter creates economic distortions and social instability. Russian history abounds with examples when “butter” shortages led to bloody riots and revolutions. Putin may risk being ousted by those on whose shoulders his rule rests if he too much prioritises war and austerity over people’s “fridges”, vested interests of moscow power brokers and corrupt regional elites. Meanwhile, the West's unprecedented buildup of military capabilities, similar to the Cold War arms race that broke the USSR’s “back”, will eventually deplete the coffers and exhaust the economic enthusiasm. Despite “rosy” appearances and propaganda “trumpets”, russia faces destabilising times ahead. What do you think?

Is Russia’s economy addicted to military spending? Alexander Kolyandr and I try to figure it out. Russia currently spends 1/3 of its budget on military/security. In 2024 alone, it plans to spend $57 billion—up 60% from 2023 & 3x pre-war levels. This spending may not slow anytime soon. Last year drafts of the 2025 budget showed hopes for reduced spending, but Putin's priorities remain military. Even if the war ends, rebuilding Russia’s military will take up to 8 years, suggests Dara Massicot. This means military expenses remain elevated. The Kremlin has announced plans to increase its armed forces to 2.39 million people, adding 180,000 more soldiers. Achieving this requires doubling Russia's military infrastructure, which will keep spending high. Where will the money come from? Russia has options: Tax hikes Cutting other spending (like infrastructure) Raising economic growth But these plans are risky & depend on oil prices, China relations, and Western sanctions. Potential paths ahead according to a new research by Dara Massicot: Rapid Military Buildup: More civilian resources directed to the military. High inflation & interest rates, possible economic stagnation. Slower Rebuild: Focus on stability. But Russia would have to accept a smaller military force. If Russia chooses slow rebuilding, military spending may stabilize at 7% of GDP. This could help moderate inflation and reduce interest rates—but it means fewer resources for geopolitical confrontation. The bottom line is that potential peace doesn't mean Russian demilitarization. Military rebuilding choices could push the Kremlin to unpleasant trade-offs. For now, signs point to Putin doubling down on the military.

Putin doubles down on war as Russia plans to spend over £100bn on its military next year Russia's draft budget for the next year appears to dismiss any hopes for a ceasefire in Ukraine. By Oli Smith, News Reporter, 12:06, Thu, Sep 26, 2024 Vladimir Putin is set to ramp up military spending next year, according to a draft economic budget for the Russian government. The Russian leader will preside over a historic high in military spending, with more than £106 billion going towards the country's military. This amounts to a significant rise of £22 billion from the £84 billion spent on Russia's military over the past year. Boris Grozovsky, an expert on Russia's economy from the Wilson Center think tank, told Newsweek: "The main thing that the draft Russian budget shows is this - Putin has no intention of stopping the war. He is determined to continue and believes he will win in a war of attrition." The record-high military spending appears to dismiss any faint Western hopes of a ceasefire in Ukraine. It comes as Ukrainian President Volodymyr Zelensky is in the US touting a 'victory plan', telling US journalists that the end of the war is closer than many people think. The huge Russian military investment will take up more than 40 percent of the government's total budget expenditure. This means that more money will go towards Russian military forces than the combined spending on education, health, social policy, and the national economy in the country, according to Bloomberg. Nearly one-third of the budget - £104 billion - is classified. The rise in military spending will be covered by a growth in revenues from oil, gas, VAT, import duties, and taxation of personal and corporate incomes, according to Mr Grozovsky. The economic expert said that Russia had economic advantages over Ukraine, which heavily relies on Western allies to provide an essential level of weapons. Mr Grozovsky said: "Putin has no such constraints. The Finance Ministry expects the 2025 budget to be almost deficit-free, despite a 27 percent increase in military spending." In 2026 and 2027, Russia plans to decrease defence spending slightly, by 5.6 percent in 2026 and 5.1 percent of GDP in 2027, respectively. However, spending on security and defence would remain higher than current levels, and several times higher than pre-war levels, suggesting that Putin is locked into a war that could drag on for years. Last week, he listed defence spending and the integration of occupied Ukrainian territories among the government’s top priorities for the upcoming draft budget. Meanwhile, the US has announced a new military aid package for Ukraine. The US secretary of state, Antony Blinken, confirmed $375m (£280m) in military aid on Wednesday, in a package that includes Himars precision rocket launchers, cluster munitions and light tactical vehicles. He said: "The United States is committed to Ukraine’s defence against Russia’s brutal aggression."

Throughout history most major wars are won or lost on the back of strong economies. Economic strength is essential to fund the war effort, keep the population on side and forestall the need to resort to money printing. Current perceptions are that Russia’s war economy is solid. Despite some pain from sanctions at the start of the war, officials are talking up Russia’s ability to keep financing the war, highlighting: Low unemployment (currently 2.5%); low public debt to GDP (of just 20%); and 5.5% annualised real GDP growth last quarter. In contrast, US support for the war in Ukraine is under pressure. The Republican-controlled House is blocking the latest funding round (approx. $60 billion). As a result, Ukrainian forces are short of ammunition and “struggling to hold defensive positions” in key cities, Elsewhere, support from other Western powers, whilst increasing, remains modest compared to the level of potential US support. But is all that it seems? Is the Russian economy really that strong? How much staying power does it have (economically) in this war? In our latest ‘(Long)view from London’ analysis, Bradley Waddington, CFA (commodity specialist) supported by our economics team, digs into the detail of Russia’s fiscal position and the real underlying strength of its economy. For now, one-off fiscal boosts are doing much of the heavy lifting of subsidising Russia’s war effort, and whilst oil revenues are holding up reasonably well, Brad’s analysis highlights the significant reduction in gas revenues. Overall, therefore, the outlook is challenging. In that respect, the currency is the key gauge to watch, as the ultimate arbiter of the ongoing strength, or more likely emerging weakness, of the Russian economy. The full report is available on Substack: https://lnkd.in/d8j--DX3 #russia #ukrainewar #russiaeconomy #economics #rouble #wareconomy

Russia’s Economy Overheats: What It Means for the U.S. #russia’s economy, despite facing the severe strains of war and international sanctions, continues to exhibit signs of #growth. This paradoxical situation raises questions about the underlying factors driving this growth and the potential challenges that lie ahead. The dynamics of Russia’s wartime #Economy, the impact of increased military spending, and the potential repercussions for global markets, particularly the #UnitedStates. #thinktankjournal #thinktankproduction #thinktank #research #news #newsupdate #newsfeed

Booming Industrial Development: The West Envies Russian Regions According to the Financial Times , the conflict in Ukraine is contributing to the economic growth of Russia's industrial regions. The country's economy is receiving massive injections of funding thanks to government orders for weapons, fuel, food, and clothing to meet the military's needs. Contrary to expectations of a painful blow from Western sanctions, there has been an economic boom instead: forecasts predict Russia's economy will grow by 3% this year, which is significantly higher than the figures for the United States and most European countries. This effect is most noticeable in former industrial regions, such as the Republic of #Chuvashia, where Soviet-era factories have been revived and put on a round-the-clock work schedule. Workers' salaries have increased several times, and people say they feel in high demand, with management trying hard to retain valuable employees. #russia #economy

CHINA IS TURNING TO DEFENSE SPENDING IN ITS ELUSIVE QUEST FOR GROWTH China is living through a post-boom period in which its domestic real estate and finance sectors are burdened by excess debt and deflation, ghost cities and bridges to nowhere. It is turning to the military for economic growth. Xi Jinping's government said overnight that China’s economy would grow 5% this year, which means it will NOT grow 5% this year, however the government will spend a great deal of money and a great deal of effort fudging its numbers while trying. China’s household sector -- burdened by debt, deflating property holdings and high youth unemployment -- is in no position to spend aggressively. During periods of debt deflation like this, the conventional macroeconomic playbook is government spending or tax cuts. Chinese authorities favor spending. Having tapped out real estate and public infrastructure, Chinese authorities said they’d increase military expenditures by 7.2%, the largest increase in five years. (China's spending of $231 billion is still just about a quarter of the $886 billion U.S. defense spending tab.) China now has the world’s largest navy by number of ships, though the U.S. has a larger fleet by tonnage. Juxtaposed against China’s naval fleet is Taiwan, its estranged island-sister, the world’s largest producer of semiconductors. This is a dangerous combination, a clear vulnerability in global supply chains for pretty much everything. (This explains why the Biden administration passed the CHIPS act subsidizing U.S. chip production with bipartisan support in Congress.) The other lever Chinese authorities have to pull in their quest for growth is trade – gradual depreciation of the Yuan and profit margin contraction for private and state enterprises to export the economy to growth. This pushes down globally traded goods prices and restrains U.S. inflation (a silver lining for U.S. consumers strained by a high cost of living.) It also makes the Chinese and Hong Kong stock markets unappetizing places to put your money. China’s growth conundrum raises geopolitical questions: Will Xi Jinping’s flexing of defense and export muscles worsen tensions with the United States and its regional allies? Will Xi threaten Taiwan, or worse, blockade or invade it? Alternatively, will Xi seek to calm tensions with the West to encourage badly needed foreign investment and exports? Will he put more eggs in the defense basket to build and exert his own power in a time of domestic unhappiness? How will Xi project military power beyond Taiwan in the Middle East, Europe, Korea, Russia's eastern border? What’s the fate of poor Hong Kong, trapped by a slow-growing patron in China and a currency impossibly pegged to the U.S. dollar? There's a great deal of tension embedded in China's growth predicament. Preciously few people can grasp how Xi will react, perhaps not even Xi himself.

Provoking war is antics of Russia-Ukraine - where does China stand? It's been over two years since the Ukraine-Russia war commenced. War over money and expansion is commonly a sight that neighbours fight neighbours on until one country capitulates over military spending detraction. Now, if Donald Trump is voted US President, Russian President Vladimir Putin has a crony. Mr Putin is blaming Ukraine for the recent terrorist attack in Moscow killing 140 people and injuring over 100. Interestingly, Moscow and China are fiscally closer as a result of the Ukraine-Russia war. This is the same China that wants a stable Federal Government commitment of importing iron ore from us. When China can't rely on Brazil for iron ore. Pro-China former Prime Minister Paul Keating met Chinese foreign minister Wang Yi in Australia in March. Several current Cabinet ministers including Treasurer Jim Chalmers hold Mr Keating in high opinion. The investment setting in Australia is open to more investment. On business and economic fortitude, China sought to solidify relations with Foreign Minister Penny Wong and Prime Minister Anthony Albanese in Canberra and Sydney. "Commercial cooperation" was the successful rhetoric from business leaders in Australia that followed this gathering of Mr Yi and Australia China Business Council here. Australia doesn't have the finances but to be a bit-player in NATO and that role serves China's business trade interests in this country. The Australian economy is ripe for a boom in job numbers and an annual inflation rate that remains steady. Mr Trump seems to admire Mr Putin's Federal Security Service, Russia's intelligence service, and the continual monetary top up by Russia to retain top conduct. But the US remains the premier military power in the world, and Ukraine allies know it's a bad sight if the US pushes Ukraine allies for equal military spending from them. Defence contractors together are earning into the hundreds of billions to even half trillion dollars are being talked of in supplying weapons to both sides. Ukraine is however a European country and the second-largest European country after Russia, so ownership of the border is a fiscal issue. Paying for sufficient military weapons could grind Ukraine's war efforts to barely standing. It is held that NATO, siding with Ukraine, agreed to a war that chose to fiercely cut off trade between Russia and Europe. Russia had earlier relied, for centuries, on Europe as a major market to trade with. Funding of Ukraine has the upper shot that a collapsed USSR will not be easily restored in 2024. Mr Putin wants to lead Ukraine and NATO doesn't want that. Mr Putin is held in Western talk as involved with the jail death of Russian opposition leader and anti-corruption activist Alexei Navalny. Mrs Navalny says her husband was murdered. Mr Putin comes from a period where poisoning and murders of political opponents is permitted behaviour from Russian Government circles. YouTube @Bloomberg

This article is a bit jolly given interest rates and levels of foreign debt in Russia. Particularly given Russia's strategic partnership is with China which is in turn dependent on stimulus. Would highlight: "At some point, people may get angry about the cost of living. And Mr Putin cannot run budget deficits for ever: at current rates, Russia’s reserves will be gone in five years or so." https://lnkd.in/geX_H22f #Russia #Economy