This post first appeared on Russia Insider
A new study by Awara Accounting on the Russian economy shows that the country has coped unexpectedly well under the pressure of the US initiated Western sanctions. The more devastating news for the US is that not only has Russia survived the sanctions war but is also perfectly placed to take up the new arms race challenge, and win on that.
Into the fifth year of the sanctions assault, Russia runs what must be deemed as the world’s healthiest macroeconomic balance sheet. Russia has the lowest debt by far of all major countries and is turning up solid foreign trade, current account and budget surpluses while the Western adversaries are kept afloat exclusively by means of massive borrowings.
Russia’s current economic indicators (Q3/2018)
With soaring exports, the country is on track to reach a record trade surplus of $210 billion. The budget surplus presently stands at 3%, something that the US and EU countries have not seen in decades. Russia’s manufacturing grew by 3.7% (10/18) as it turns out new cutting edge technology products in defiance of the Western pundits’ refrain that Russia does not produce anything.
The Hypersonic Empire Strikes Back
The worst shock came with Putin’s announcement back in March in his state of the nation address of Russia’s new hypersonic nuclear arsenal that delivered Russia at one swell swoop military parity with - if not superiority over - the United States. Experts were stunned over the bloodcurdling new Sarmat intercontinental ballistic missile and the whole range of jaw-dropping weapon systems that Putin enumerated: a nuclear powered cruise missile with basically unlimited range; a nuclear powered ultra-high speed submarine drone with intercontinental range with silent propulsion and capability of moving at great depths; the Kinzhal, a Mach 10 hypersonic missile with a 2,000 kilometer range; the Avangard, a new strategic hypersonic missile capable of evading anti-missile defenses as it glides down at targets at Mach 20 velocities; and Star Wars type laser weapons that Putin did not yet even want to expand over.
These weapon systems represent technological feats that a backward country with an “economy in tatters” would hardly be able to pull off. And, in addition to tempering the ambitions of the Western War Party, that was precisely Putin’s message to friends and foes alike.
Russia has also been successfully introducing new technologies in the civilian sphere, arctic drilling and new aircraft standing out among the achievements, something that the US recently targeted with new sanctions under the pretext that they are “dual-use.”
It’s the PPP figures, stupid!
The Awara Accounting report stresses that the key to understanding the true essence of the Russian economy lies in discarding the nominal GDP figures in favor of purchasing power parity adjusted GDP PPP figures. The nominal GDP merely ranks countries in accordance with their level of prices, the more expensive everything is, and the bigger the taxes, the higher the nominal GDP. GDP PPP in turn measures the volume of output of the goods and services produced in a country.
The IMF expects the Russian GDP PPP to grow by 4% and reach $4.2 trillion by end of 2018. By this measure, Russia is still the world’s sixth largest economy practically on par with Germany ($4.4 trillion) and way above the seventh, Indonesia, and more than a third larger than each of the UK and France.
The figures also show that China has now grown to be the by far largest economy ahead of the US by a staggering 25%.
Never mind outspend, outperforming is what counts
The PPP conversion really comes to life when we consider the arms race. Here Trump has threatened to outspend Russia and China, but the Awara report argues that whatever the amount of dollars expended those two will continue to outperform the US. The question is not about who spends the most but what you get for the money. Self-evident. But it seems that sadly President Trump and his advisors have not even started to get it as Trump in his typical casino economy bravado declared: “We have more money than anybody else, by far. We’ll build it up.”
Can it be that Trump and the Deep State regime mandating this spending, actually do not have any clue about the tremendous PPP advantage of Russia and China, as well as their supremacy in military technology? And do they not realize that US debt has already passed such levels that could trigger a financial collapse of epic portions, whereas Russia is virtually debtless and China’s debt being wholly manageable? And what about financing the already gargantuan budget deficits?
Not only do the Russians and Chinese enjoy the benefit of lower production costs due to the PPP advantage, but it is highly likely that the Russian and Chinese military-industrial complexes are much more efficient than the Americans, strange as it might sound especially to those who believe in the charade of liberal economic theory. Then there is the cost of maintaining the huge overseas military empire of the US, not to mention the corruption billions and Deep State rents. A solid portion of the war budget goes directly to line the pockets of the elites (or their offshore bank accounts).
Yes, and then there is the insane cost of the actual wars. The Watson Institute reported in November 2017 that overseas wars have cost the United States more than $4.3 trillion since 2001 and would reach $5.6 trillion by the end of fiscal 2018.
This new arms race could very likely end up being the one event that will kill the US economy and ironically Russia could this time around actually provoke the US to this arms race so as to force America to squander its last resources on that.
Russian economic growth is for real, not debt-fueled illusions as in the US and EU
Comparing with the economies of the US and the EU, the one striking feature about Russia’s economy is that it is growing without massive injections of debt, the way the Western economies are kept barely floating.
In fact, far from being debt-fueled, Russia has actually shed debt in terms of its share of GDP.
Russia recorded a government debt equivalent to 12.6 percent of the country's Gross Domestic Product in 2017. And that is when we measure the debt to the nominal GDP, but as the three times bigger GDP in PPP terms shows the true size of Russia’s economy, we would have good reason to match the debt to this PPP measure, too. This would yield a government debt of 4.5% of the true GDP.
The full Awara Accounting report: Russia’s Economy Strong and Stable – Cold War, Arms Race, Liberals, and Other Challenges can be downloaded here.
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