cropped-bob-shapiro.jpg   By Bob Shapiro

If the only tool in your kit is a hammer, pretty soon every problem starts to look like a nail. I’m not sure where I hear that, but I’ve seen that phenomenon in action.

I read an otherwise excellent recounting of the travails of Russia and its Ruble during the last few months, as their major exports, oil and gas, have plunged on world markets. As oil and gas prices have gone down, so has the foreign exchange value of the Ruble, by a comparable

amount.

Russia’s government budget largely depends on their oil and gas revenues to be in balance. (How quaint! Russia’s is supposed to balance its budget but not the US.)

Balance

Steven H. Hanke thinks Russia’s trouble balancing its budget because of falling export revenues is a disaster waiting to happen (he’s not alone). But Russia’s books are denominate in Rubles, not Dollars. In Rubles, export revenues have changed hardly at all because of the simultaneous fall in oil & gas and in the Ruble.

Before a few months ago, Russia exported much more than it imported. Now, its imports will cost consumers quite a bit more, but Russia’s other exports will be much more competitive in world markets. Russia’s population is about half that of the US, and it’s unemployment rate (May, 2014) is 4.9%. With a participation rate around 50% (much less than the US), there still are a lot of possible workers who could be hired.

Boom Time

Far from a major international economic problem, Russia’s current situation looks to me to be a net positive. Russia’s Economy should rocket ahead during the next few years, even with the turmoil caused by their rising import prices.

And, if there is no problem to solve, then Hanke’s solution of a currency board just doesn’t make sense to me – it’s not the nail that Hanke thinks it is.

Please read Steve H Hankes article, Currency Wars, the Ruble and Keynes. Then decide for yourself.

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