Friday, December 19, 2014

Crony Capitalism killed the Russian Economy - US is doing the same thing: Paul Krugman speaks

http://www.alternet.org/economy/paul-krugman-shows-how-putins-burst-economic-bubble-essence-crony-capitalism

Vladimir Putin's macho act has been admired by the likes of Pat Buchanan and Rudy Giuliani. “That is what you call a leader,”  Rudy Giuliani, the former New York mayor, said after Putin invaded the Ukraine, unilaterally and without any public debate.
Alas, "swaggering strongman" Putin is hitting a bit of a snag, writes Paul Krugman in his column today. "Mr. Putin never had the resources to back his swagger," Krugman says. "Russia has an economy roughly the same size as Brazil’s. And, as we’re now seeing, it’s highly vulnerable to financial crisis — a vulnerability that has a lot to do with the nature of the Putin regime."
The ruble started sliding in August when Putin sent troops to Ukraine and has started downright plunging in recent weeks, Krugman points out. "And all indications are that the Russian economy is heading for a nasty recession."

Except for one thing. Usually, the way a country ends up with a lot of foreign debt is by running trade deficits, using borrowed funds to pay for imports. But Russia hasn’t run trade deficits. On the contrary,  it has consistently run large trade surpluses, thanks to high oil prices. 
The question is, where did the money go?


The money left the country, and took lavish trips abroad. It went to the most expensive neighborhoods in London and New York, where Russian oligarchs purchased luxury real estate trophies that they seldom inhabit. Krugman explains how they got the money: "Putin’s Russia is an extreme version of crony capitalism, indeed, a kleptocracy in which loyalists get to skim off vast sums for their personal use. It all looked sustainable as long as oil prices stayed high. But now the bubble has burst, and the very corruption that sustained the Putin regime has left Russia in dire straits."

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