Russian Macroeconomics

Every American knows that our national debt is unbelievably high; how convenient that it is a number that is difficult to imagine. When I think about the balance of my mortgage, it is a number that is easy to imagine. When I research a company for investment purposes and find their debt to be measured in 8 or 9 digits, I can compare that number to their assets, their income, and to the debts of similar companies. But the debt of the United States is almost inconceivable: according to the CIA's World Factbook, the U.S. debt stands at $10.04 trillion! I have held thousands of dollars, I can calculate millions in my head, I have worked for multi-billion dollar companies. However, I have no frame of reference for 10 trillion dollars. I suspect most Americans also have no way to conceptualize that amount. Therefore, trillion dollar debt sounds bad, but our brain never calculates how bad it is.

Now, let's talk about Russia. I think most Americans conceptualize Russia as backwards, depressed, poor, crumbling, corrupt, and economically ignorant. To be sure, Russia has many problems and many of them are economic. However, like the communist, socialist black hole of China, Russia is in a pretty good place when you look at macroeconomic fundamentals. Again, I am using the CIA World Factbook as a source. They have run a budget surplus since 2001. Their GDP grew an average of 6.7% since 1998. They have pre-paid all Soviet-era sovereign debt to Paris Club creditors and the IMF (over $22 billion). They have a stabilization fund of $89 billion, and the third largest foreign exchange reserve (after China and Japan) of $315.5 billion. Their debt in 2006 was $287.4 billion. In other words, if they didn't have to cover the value of the Ruble, they could payoff all of their debt and still buy a few fighter planes!

Since the 1980's most Americans have been aware of the United States' trade deficit. Americans have piles of disposable income to waste on junk food and trinkets, and goods in other currencies are dirt cheap when purchased in dollars, so we import more than we export. And here's the rub: The more we spend on foreign products, the less money in the U.S. economy, generally speaking. At some point, if you ship out more money than you bring in you end up bankrupt. I am not an advocate for tariffs and quotas, I am just pointing out a math problem.

How is Russia doing? Very well, thank you very much. Russia's imports were $171.5 billion in 2006 and their exports were $317.6 billion. For the same period, U.S. imports were $1.869 trillion and our exports were $1.024 trillion. Therefore, Russia gained $146.1 billion from trade and the U.S. lost $849 billion.

Let's talk budget again for a second. In 2006, the U.S. had revenues of $2.409 trillion and expenditures of $2.66 trillion. For the same period, Russia had revenues of $222.2 billion and spent only $157.3 billion. So for one year, the U.S had to finance $251 billion dollars, while Russia was able to pocket $64.9 billion. And this has been going on for years!

Russia has had negative population growth for a while now, suffered from inflation and emigration, their infrastructure is still in shambles, corruption is rampant, the rule of law is often laughable, and they have some major political issues to resolve. However, when you already have a powerful economy, these other problems are easier to solve.

I hear people in America making noise about abortion, stem cells, social security, immigration, health care, line item vetoes, steroids in baseball, and gay marriage; as if any of these things really mattered. Look, you can neither allow nor prevent gay marriage when your nation is broke. You cannot provide health care or social security when we are begging China for money.

If we don't fix our macroeconomic fundamentals today, we will have potholes in our interstates, the White House will yellow from neglect, the Capital dome will crumble, and all our best doctors and scientists will leave our institutions for greener pastures. Men like Bill Gates and Warren Buffet will cash in their dollars and hold assets in a more stable currency, in a more stable country.

Our debt can be easily conceptualized, but not in units. Here is how: What comes after trillions? Quadrillions? No. Bankruptcy.

Who would have thought that we would need an economic lesson from Russia?