Saturday, January 24, 2015

Comparative Economic Policy Outcomes

Tom Hickey links to Russia 'Capital Outflow' Is Actually Companies Reducing Debt at Russia Insider:

Due to sanctions instead of rolling over their debt like everyone else does Russian companies are forced to repay it. Also means that unlike everyone else they're going to have very little debt.

And from the article:
Central Bank of Russia released full-year 2014 capital outflows figures, prompting cheerful chatter from the US officials and academics gleefully loading the demise of the Russian economy...

In simple terms ... USD 118 billion or 78 percent of the catastrophic capital flight out of Russia in 2014 was down [due] to debt redemptions in banking and corporate sectors. Not 'investors fleeing' or depositors 'taking a run', but partially forced debt repayments.

[M]ost of the capital flight that Western analysts decry goes to improve Russian balance sheets and reduce Russian external debt. That can't be too bad, right?

Not too bad.

I don't know why... Hey, external debt can be a problem, sure. Any debt can be a problem, if there's too much of it. But I don't know why the emphasis is always on external debt, or government debt, and never on private debt. Never on the big one.

Tom's link caught my eye. Just the other day I made a prediction:

The first of the great powers to reduce private debt will be the world's next hegemon.

Could it be Russia?

Don't laugh. I know you want to laugh. It's a natural response, given the cheerful chatter and the gleeful gloating we've been exposed to from the idiots in our idiot boxes. Just remember it. Remember: you want to laugh at the thought that Russia could be the world's next hegemon.

See where China is today? Remember where China was when Nixon decided to be friends? It would be like taking candy from a baby, doing business with China.

Not any more.

Russia? I don't know. I don't make predictions. I never make predictions. That was a fluke, that one. (Anyway, it wasn't so much a prediction as a way to present a concept.)

Maybe the Russian economy will get bogged down in its own internal debt, as we have, as Japan did, as China yet may. It's a very common fate. Maybe Russia will be crushed by debt.

Maybe they won't.

You want to know who will be the hegemon. I want you to know that it depends on comparative policy outcomes and debt minimization. The first to reduce private debt becomes the first that is ready for vigorous growth.


Greg said...

"But I don't know why the emphasis is always on external debt, or government debt, and never on private debt. Never on the big one."

Sure you do. You know exactly why. Those that are making the proclamations are doing so because they are either 1) politicians being bought by the banking cartel or 2) Wall St denizens of the banking cartel .... and all of their bread is buttered with private debt. Asking them to call for a reduction in private debt is like asking a surgeon to lobby for non surgical solutions to medical problems.

The Arthurian said...

Now I know... :)

Greg said...

Funny thing is Art, when it comes to the public debt what is really wanted, it seems, is slightly lower nominal amount (especially relative to GDP) but with a much higher interest rate. "They" would rather see our debt shrink from 16T at 2% to say 10 or 12T at 5-6%. The debt holders want higher cash flows on lower stocks of debt..... they think they have earned it or deserve it.