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Thread: What is the Genius of Anders Aslund?

  1. #1
    Carbo Guest

    What is the Genius of Anders Aslund?

    Please find quoted below Anders Aslund's latest column for the Moscow Times, along with my commentary/translation.

    These are frightful times. The U.S. financial crisis is clearly the worst since the Great Depression. New York University Professor Nouriel Roubini has long forewarned that this crisis was under way.

    Subprime mortgages were a sham from the outset, and the government should have regulated them -- and the derivatives on which they were based -- more closely. Moreover, the U.S. Federal Reserve maintained excessively low interest rates for too long, leading to an excessive monetary expansion.
    This disjointed start is oh so wise after the event. I must have missed the columns of 18 months or two years ago in which Aslund warned of the ominous portents eminating from subprime mortgages, complex derivatives and the over-leveraged state of the Western finances. Hasn’t this maven of uber-liberal free-marketism been saying just the opposite since his days advising Yeltsin on how to send an economy down the plughole in the name of the liberal capitalism? Amazing that the has the brass neck to take this tone.
    The U.S. financial system had too little capital for the large credits it issued, especially the ones issued by government-sponsored Freddie Mac and Fannie Mae. The economic boom was too long and magnificent to believe. Booms breed corruption, while recessions strengthen morals. Now, we are waiting for the next shoe to fall. Surprisingly, no hedge-fund failure has been truly spectacular as yet, but some private equity funds are bound to be hit.

    Amazingly, forecasts for the U.S. economy for next year are still suggesting growth of 2 percent. That is not likely, however, since the current financial turmoil will inevitably hit the real economy. Both investment and consumption are bound to be constrained as U.S. consumers will try to restore a normal savings ratio, and this will make the economy slump further. A number of large companies in sensitive, cyclical industries such as automobile manufacturing, aviation and construction will probably go under.
    So, you mean to say, Anders, that if banks go under and stop providing credit for people to buy houses, cars and consumer items, and, more importantly, for businesses to invest to grow, the economy will be hit? No. Freeggin. Way.
    On March 26, I wrote a column in this newspaper arguing that Russia was likely to be the safest haven in the event that "the United States approaches a 1929-like depression." Well, now we are there, but I am no longer convinced that "Russia will most likely suffer the least" from the turmoil.


    The first reason is that the financial crisis is so violent.
    Hang on a second. Everybody outta the pool! Was the 1929 Wall Street Crash and ensuing depression not a violent financial storm? It lasted, like, 15 years, and the trading volumes of the day of the crash weren't matched until the mid-sixties. Stock plummeted so low that you had to wait till the mi-fifties until the shares you bought on the eve of the crash were so highly valued again. But that wasn’t a violent crisis. Noooo.

    And again, Aslund uses the 20-20 vision of hindsight and passes it off as genuine commentary. He says here, in effect, that he thought Russia was going to be a safe haven, but now, after seeing the bond market have a heart attack and fail to respond to several attempts to defibrillate it, inter-bank lending stop, banks having to be bailed out by rich oligarchs or by proxy by the government and equities lose over half their value in a couple of months, he has changed his mind. And in doing so, is passing it off as serious-mined analysis. Is this man for real?
    Only people with extremely strong nerves are prepared to invest in the current market volatility, which might be the greatest the world has ever experienced. Admittedly, Russian investors have strong nerves, but the volatility on the RTS and the MICEX seems to be the greatest in the world.
    Seems to be? Actually, it is the worst performing market in the world. So, it’s pretty impressive that you have got that hint, or your analysis suggested as such (as would be indicated by “seems”)
    Clearly, the current U.S. administration does not know how to resolve the crisis. Instead, it is adopting one desperate ad hoc measure after another. Activity is better than passivity, but the lack of a long-term strategy for recovery is worrisome and likely to undermine public confidence.
    They're doing pretty well – far better than the Hoover administration did in the late 20s. The problem is, the situation is changing so rapidly on a daily basis that they are forced to make ever changing spot judgments in a volatile and fluid environment on what is best for the market. As the FT said over the weekend, the long term these days is after the weekend. Presumably, though, brave reformer and democrat Boris Yeltsin would know what to do. He did brilliantly, with Aslund by his side as an adviser, to steer the Russian economy toward long term prosperity and growth, and skillfully avoid potential crashes along the way, didn't he?
    Another factor undermining the Russian economy is that international investors withdraw their funds during a severe crisis to their home base. There was some speculation that it might be different this time with booming economies in BRIC countries, but recently the old pattern has reemerged. When the United States catches a cold, the emerging economies contract pneumonia.
    “My name is Anders Aslund and I don't know what to write. I can't immidiately think of a clever analogy, and certainly can't be bothered to try hard to do so because the Moscow Times will accept any old drivel, so I'll just steal a hackneyed, overused one and dress it up with posh words to make it sound original.”
    The oil price has fallen sharply from its peak in July. As investors run for safety, commodities may appear to be a safe haven, but that is hardly likely to be true in a serious economic slowdown, which the world is clearly facing today. The rebounding oil price reflects a lack of confidence in the U.S. government's economic policy. Since oil and gas contributed roughly 60 percent of Russia's export revenues and half of the government's revenues last year, falling oil prices will force the government to tighten its belt.

    One of the worst results for Russia has been a capital outflow of about $40 billion in six weeks. Although this is little in comparison with the total international currency reserves of $600 billion at the end of July, it is a large sum when it is put against the backdrop of a feeble Russian banking system.

    Russia's stock values have dropped to extremely low levels. Even if most of the fall is caused by a dearth of international capital, the main reason the country's stock prices have fallen so much is that many investors are convinced that corporate governance is not improving but deteriorating.
    Utter rot. Utter, utter rot. Corporate governance is an issue. That's true. But has it really gotten so much worse (or, more to the point, have investors suddenly and uniformly decided that prospects gotten so much worse) over the last 10 weeks to justify such a precipitous drop?

    These are weasel words of the highest order. Aslund must have so much brass neck he needs polishing every day. What a moron.

    The five reasons for the crash in Russian stocks: Declining oil and commodities values; oligarchs facing margin calls on leveraged shares; foreign investors faced with losses at home forced to withdraw liquidity; negative international climate; political uncertainty.
    Russia is also subject to the vagaries of the dollar exchange rate. Until recently, the country imported inflation because of its combined dollar-euro peg. Because of the global economic slowdown, inflation is likely to abate, but the ruble exchange rate is plummeting because of the capital outflow. For years, the Central Bank has stated that it would move to inflation targeting in three years, but it has never done so. Inflation targeting would help Russia to keep inflation down, to stabilize the exchange rate and to maintain a normal monetary regime and without sharply negative real interest rates or credit squeezes.
    Is George Bush writing this? Inflation targeting would help keep inflation down? Well a-slap-a-mah-thigh!

    But the context of the statement, and the conclusion to the paragraph makes it all seem as though Aslund doesn't understand economics at all, which I know is not the case. I just don't get it, maybe I don't. Inflation targeting would necesarily mean a tightening of monetary policy, or, in other terms, squeezing credit, would it not? That's why it's called "tightening monetary policy".

    So, how does the previous paragraph and this paragraph stack? They don't. They come directly from Anders's own dream world in which everything Putin does is wrong (which may be the case, to be honest, but the arguments need to be sensible).
    The poor monetary and exchange rate policy has caused a credit squeeze in the banking sector that is bound to lead to bank failures. These will hardly be as big as Lehman Brothers, but Russia's banking system is so vulnerable because it is so weak. A potential benefit, though, is that monetization and leverage are so limited that losses to the real economy from financial failures will be limited, as was actually the case in 1998.
    Losses to the real economy were limited in 1998? Maybe for you Aslund. I didn't live in Russia back then, so perhaps somebody who did can tell me. Perhaps somebody who lost all their savings, or couldn't find work because there was none, or witnessed the unbridled desperation and tragedy could tell me. Or maybe I should listen to my friend, Kolya, who over a pint at Burbon Street on Friday said "Don't worry about the markets, Andrew, if you had lived though the ‘98 crash, you would understand that this is nothing."
    One of the most worrisome aspects of Russia's economic policy is that the government has adopted combative protectionism, which is never good for economic development. The three significant hurdles remain for the country's entry into the World Trade Organization. Russia need to mitigate its protectionism against Ukrainian agricultural goods, reduce its export tariff for lumber to Finland and agree on border controls with Georgia.

    The cost to Russia of staying out of the WTO will only increase with time. About 20 percent of the country's exports consists of metals and chemicals, and these goods are often subject to protectionist actions, such as anti-dumping. Outside of the WTO, however, there is no legal defense against protectionist measures.
    And while we're here, Aslund, why don't you try to ham fistedly shoehorn something about your favourite topic, Russia's WTO accession? Oh, you did that. Sorry.
    Today, it is obvious that Russia is highly vulnerable to global economic volatility, and the dramatic stock market falls have been a shocking wake-up call. Its economy is open and well integrated in the world economy, with exports amounting to about 30 percent of its gross domestic product. The more the Russian government protests against the vagaries in the world economy, the more the country is likely to be hurt, especially as some 80 percent of the country's exports consist of commodities.
    And, back where we started: what is the genius of Anders Aslund? To get paid for this slurry.

  2. #2
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    Nice work Carbo..

    The guy said
    no longer convinced that "Russia will most likely suffer the least" from the turmoil.
    In other words, he was wrong..

    I don't know why people compare what's going today to what happened in 1929.Now it's a recession ,back then it was a depression.
    It's going to be the start of bad times,but things will pick up,for sure it wont last 15 years ..

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