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hi welcome back to Joe blogs in today's
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episode I want to provide you with an
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update as to what's happening in the
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Russian economy because the latest
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inflation data is now available and it
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shows that inflation has now risen above
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10% that's the first time that it's been
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in double digits since February 2023 so
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for more than 2 years and in terms of
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putting this into context I thought I'd
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ask you the quick question as to when
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you thought the last time inflation in
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the USA
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was above 10% and the answer to that was
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1981 and just to make everybody feel
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really old that was actually 44 years
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ago I know for a lot of people it
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doesn't seem like 44 years ago 1981 but
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it was a lifetime ago many people
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watching this video weren't even born
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when inflation was at 10% in the USA but
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that's where it is in Russia right now
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and in today's video I want to go
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through the details as to what's going
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on in the Russian economy because I've
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spoken a lot about it and said that
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Russia's in a state of difficulty right
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now and a lot of people don't seem to
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want to accept that everybody saying
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you're talking a lot of rubbish Russia's
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actually doing really well look at
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what's going on with the ruble as an
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example and we'll talk about that later
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because uh the bank of Russia is having
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a massive influence on the position with
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regards to the rubble right now so we'll
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go through exactly what's happening with
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that and we'll also have a look at the
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money supply because when you're setting
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out an economy if I was to set up a new
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Country Joe blogs land and invite
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everybody to come along I'd have to work
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out how I was going to work all of the
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economics so I'd have a Target rate of
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inflation and let's say it was 2%
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because that's the target rate in a lot
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of advanced economies and obviously Joe
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blogs land would be a super Advanced
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economy it'd be one of the best
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countries in the world everybody would
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want to live there and reason that I'm
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setting it at 2% is because as we've
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said before you need an element of
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growth in Prim
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to be able to allow all of your
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companies to pass on cost increases
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because if their raw material prices are
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going up by 1 or 2% they need to
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increase their sales price to make sure
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that they're not going to eat into their
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profit margin and also you want to be
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able to pay your people higher wages so
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you can have wage increases and still
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allow your prices to go up so all of
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that would be good and the other
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influence that I've got in terms of
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what's going on in the economy as well
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as interest rates because I can fiddle
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about with interest rates if I'm not
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happy with what's happening with
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inflation if inflation is getting out of
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control going too high I can increase
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interest rates and that will make things
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more expensive in terms of borrowing and
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so people will calm down demand will
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fall and therefore prices will stop
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rising at such a fast rate but if
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inflation and interest rates aren't
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really working to my satisfaction I've
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also got the money supply and the money
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supply as sure you've heard a lot in the
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past has a massive influence on what's
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happening with consumers so if I
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increase the money supply if I say in
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Joe blogs land I'm going to give all of
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the banks lots of cheap Capital then
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those Banks can go out and lend lots of
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money to people at very low rates and
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they'll go out and spend all of that in
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the stores so that'll push up demand and
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push up inflation so if I'm allowing the
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money supply to increase generally
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speaking that will increase demand and
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inflation and if I put it into reverse
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if I put the breaks on and reduce the
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amount of money supply going into Joe
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blogs land then that will cause people
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to spend less demand will fall and
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inflation generally goes down so we'll
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have a look at what's going on in Russia
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because one of the things that Russia
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has been doing over the past few years
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since the war in Ukraine started is to
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increase the money supply hugely so
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that's been driving demand and is one of
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the reasons why inflation is now getting
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out of control in Russia
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and that's why increasing interest rates
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hasn't really worked because the money
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supply is still applying it's on Full
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Effect they've turned on the TAPS in
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Russia they've allowed the banks to have
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access to lots of capital so the banks
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have been lending tons of money to
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people and companies and that's driving
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up demand and driving up inflation and
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it's now proving very difficult to stop
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unless Russia decides to put the brakes
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on the money supply but that could have
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a devastating impact on the whole of the
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Russian economy so let's start off by
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looking at what's going on with
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inflation now just before we go on any
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further today I want to talk to you
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to in cog.org
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or clicking in the link in the
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description below this chart shows the
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movement in the official rate of
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inflation in Russia over the past 12
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months and as you can see there is a
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significant upward Trend here 12 months
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ago inflation was running at 7.7 7% one
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thing to note about this chart is that
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the scale on the right hand side does
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not start at zero it actually starts at
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7.6% and goes up to
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10.6% and over the last 12 months
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inflation has been rising to the current
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level of
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10.1% and if we expand the scale of this
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chart to show the last 3 years you can
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see that the current rate of inflation
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is the highest that Russia's experienced
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since February 2023 and what this chart
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shows is that inflation has now been on
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the increase for 2 years since April
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2023 and if we have a look at how the
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current rate of inflation in Russia
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compares to the rest of the G20 you can
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see that Russia is number three on this
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chart the only two countries with higher
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rates of inflation are Argentina where
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it's now at
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66.9% it's been coming down quite
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rapidly but it's still a long way above
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the rate in Russia and Turkey where it's
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39% the next closest country is Brazil
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where inflation is sitting at 5% so
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around half of what it is in Russia
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followed by Japan up 4% the Netherlands
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and Mexico at 3.8% India at 3.6 South
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Africa at 3.2 and then we've got Spain
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and the United Kingdom at 3% so the
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current rate of inflation in Russia is
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significantly higher than it is in most
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of the rest of the developed world the
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only two countries that have higher
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rates are countries that are in economic
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distress right
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now this chart shows the year-on-year
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movement in food inflation in Russia and
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if you follow the channel you'll know
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that we always like to look at what's
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happening with food prices because it
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disproportionately impacts on the
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poorest members of society what you can
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see here is exactly the same Trend that
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we've just looked at for inflation
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however the figures are higher and the
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current rate of food inflation in
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February 25 is
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11.7% and if we expand the scale of this
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chart to show what been happening over
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the past 3 years you can see that the
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current rate of food price increases is
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the highest that's been seen in Russia
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since October 2022 and the trend here is
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exactly the same as what we just
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discussed for inflation the increase in
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food prices has been ongoing for the
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past 2 years and this is proving to be a
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problem for a lot of people in
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Russia as I said at the start of today's
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video the two major levers that a
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central bank has in terms of controlling
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its economy are the money supply and
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interest rates you can switch these up
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and down depending on what's happening
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with demand and inflation to keep
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everything on track to go in the right
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direction that you want your economy to
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go so to get a better understanding as
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to how these two operate in conjunction
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with each other let's have a look at
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what's been happening in the US economy
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this chart shows the money supply for
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the USA over the past 10 years and this
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definition is the m0 definition which is
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basically the amount of cash that's in
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the economy plus the reserves that the
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banks have and what this chart shows is
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that between 2015 and 2020 the money
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supply was actually reducing in the USA
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so the amount of cash circulating in the
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economy was actually going down however
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as you can see between 2020 and
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2022 there was a sharp increase in the
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money supply and this was as a result of
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the covid-19 pandemic which struck
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globally and reduced the amount of
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activity in the economy so the FED in
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the USA wanted to boost the economy it
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wanted to keep things going and as we
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came out of the covid-19 pandemic the
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FED wanted to Kickstart everything to
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get everything back up and running again
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so there was a large boost to the money
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supply and if we have a look at what was
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happening to interest rates over that
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same period you can see that between
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2015 and 20120 there was a gradual
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increase in interest rates from
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0.25% to a high of
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2.5% however as the co9 pandemic kicked
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in and the FED wanted to boost the
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economy interest rates were then reduced
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down to
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0.25% and they were then kept at that
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level for a period of two years to
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enable the economy to get up and running
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again and if we have a look at what was
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happening with inflation over the same
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period you can see that back in 2015
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there was very little inflation in the
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economy however by 2020 it was sitting
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at or around the target rate of 2% which
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was what the FED wanted when the
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covid-19 pandemic kicked in in inflation
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dropped back down to around 0% and this
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was a major problem and one of the
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reasons why the Fed was looking to boost
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the economy and get people spending
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again however the problem that you have
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when you put a lot of money into the
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economy and reduce interest rates is
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that people take on cheap debt and start
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spending and that drives up demand and
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drives up inflation and you can see that
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by the end of 2021 inflation in the
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United States was sitting at 7% compared
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with the target rate of 2% so obviously
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inflation at that point was much higher
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than the FED wanted it to be if we now
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jump back to the money supply chart you
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can see that at the end of 2022 the fed
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put the breaks on the money supply and
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reduced the amount of money going into
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the US economy in order to try to reduce
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demand and bring inflation back under
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control and at the same time as the
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money supply was reduced interest rates
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were increased rapidly from
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0.25% to 5.5% and the reason why the FED
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did that was to make borrowing more
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expensive and that would therefore
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discourage companies and individuals
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from taking on more debt discouraged
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them from spending therefore reduced
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demand and bring prices back under
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control and you can see from this chart
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that from the middle of 2022 onwards
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inflation reduced rapidly down to the
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current level of around 2.8% which is
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broadly in line with where the FED wants
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it to be so hopefully that analysis
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gives you a better understanding as to
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the interrelation ship between the money
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supply and interest rates and all of
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this is because the Central Bank in each
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economy wants to keep inflation at or
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around its Target rate and the target
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rate in the USA is 2% now in Russia the
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target rate is 4% so let's have a look
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at what's been happening in Russia since
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the start of the Ukraine
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war this chart shows the m0 money supply
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in Russia over the past 10 years what
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you can see here is that unlike what
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we've just looked at for the USA where
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we saw ups and downs in the money supply
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over the past 10 years the money supply
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has been increasing on a regular and
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Rapid basis in Russia and if we focus in
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on the right hand side of this chart
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which shows the last three years since
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the war in Ukraine started you can see
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that there was a sharp increase in the
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money supply in the second half of 2022
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and the first half of
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2023 and it's been maintained at or
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around that level over the past couple
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of years what this tells us is that the
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central Bank in Russia has been putting
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a lot of money into the economy to boost
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the economy to try to get it kickstarted
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again so it's similar to what the USA
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did at the start of the covid-19
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pandemic when the economy started to
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close down it was wanting to boost
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spending to encourage people to go out
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and spend money that's what the Russian
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Central Bank has been doing over the
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past three years but you can see that
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there hasn't been a drop off unlike what
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we saw for the FED after after the
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covid-19 pandemic had finished it
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decided it needed to put the breakes on
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and actually reduce the money supply and
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as a result of that we saw the chart
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going down and that meant that there was
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less money available for the banks to
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lend and so we therefore saw demand
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falling and inflation going back down
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but what we're seeing here for Russia is
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that the money supply hasn't been
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switched off it's actually still at a
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level that was boosting the economy to
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try to offset what was happening in
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Ukraine and I think this is one of the
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key drivers as to why the economy is
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still showing Healthy Growth in Russia
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rather than going into recession because
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the central bank is continuing to fuel
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the economy by pushing lots of cash into
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it but the problem that you have with
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that is that it drives demand and
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therefore drives
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inflation this chart shows the movement
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in interest rates in Russia over the
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past 5 years and what you can see here
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is that immediately following the start
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of the war in Ukraine interest rates
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were increased from 9 .5% to 20% Which
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was officially declared to be an
00:14:33
emergency rate by the bank of Russia
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however very rapidly interest rates came
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back down again and we back at
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7.5% by October
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2022 so less than 12 months after the
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war started interest rates were actually
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at a lower level than they were before
00:14:52
the war started now that obviously was
00:14:55
to encourage people to spend and goes
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hand inand with what we just looked at
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in terms of increasing the money supply
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if we compare this to the situation in
00:15:03
the USA when the covid-19 pandemic was
00:15:06
on the bank of Russia wanted people to
00:15:08
borrow money to drive up demand and keep
00:15:10
the economy going now interestingly if
00:15:13
we look at the right hand side of this
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chart you can see that since July 2023
00:15:19
the bank of Russia has actually been
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increasing interest rates and interest
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rates have risen from 7.5% to the
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current level of
00:15:26
21% so what this chart is indicating is
00:15:30
that the bank of Russia is trying to put
00:15:32
the breaks on the economy the intention
00:15:34
is to increase the cost of borrowing to
00:15:35
such a level that it discourages
00:15:37
companies and individuals from taking on
00:15:39
debt and spending and therefore should
00:15:42
reduce demand and bring inflation back
00:15:44
under control however as we discussed
00:15:46
earlier in the video inflation has been
00:15:48
increasing in Russia for the past 2
00:15:50
years and when you just look at what's
00:15:52
going on with interest rates it doesn't
00:15:54
really make sense however when you look
00:15:56
at what's happened to the money supply
00:15:59
over that 2-year period it starts to
00:16:01
fall into place you can understand why
00:16:04
inflation is still Rising because the
00:16:07
bank of Russia is still pumping lots of
00:16:09
money into the economy it's free and
00:16:11
easy to borrow money and therefore
00:16:13
people are taking on debt and spending
00:16:15
that's driving up demand and that's
00:16:17
driving up inflation so we've got two
00:16:20
conflicting signals here we've got the
00:16:22
bank of Russia on one hand increasing
00:16:23
interest rates but on the other hand
00:16:26
it's increasing the money supply and of
00:16:28
course that's always going to lead to
00:16:31
inflation this chart shows the movement
00:16:33
in the exchange rate between the US
00:16:34
dollar and the Russian Ruble over the
00:16:36
past 5 years and the reason I wanted to
00:16:38
talk about this is because I myself have
00:16:40
said on many occasions on this channel
00:16:42
that the strength of your currency is
00:16:44
directly linked to what's happening in
00:16:46
your economy if your currency is doing
00:16:49
well generally speaking it means your
00:16:51
economy is doing well what we can see
00:16:53
here is that since the war in Ukraine
00:16:55
started the Russian Rubble has been all
00:16:58
over the place in terms of its exchange
00:17:00
rate before the war kicked off the ruble
00:17:02
was trading for around 75 against $1 us
00:17:06
immediately following The Invasion the
00:17:08
value fell to around $125 to1 us and
00:17:11
then bounced back dramatically to around
00:17:14
50 and that whip saw swing was because
00:17:17
firstly the markets were abandoning the
00:17:20
ruble so lots of Traders and countries
00:17:23
were deciding that they no longer wanted
00:17:24
to buy the ruble and so its value fell
00:17:27
and then the bank of Russia stepped into
00:17:29
the market and started buying the ruble
00:17:32
and that's why increased dramatically to
00:17:34
the strongest level that we've seen for
00:17:35
a very long period of time now in the
00:17:37
period between the middle of 2022 and
00:17:39
the end of 2024 we saw a deterioration
00:17:43
in the value of the ruble by the end of
00:17:45
2024 one1 US dollar was trading for 110
00:17:49
rubles and that was actually the worst
00:17:51
rate in Russia's history apart from the
00:17:54
very brief collapse in the value
00:17:56
following the invasion of Ukraine now at
00:17:58
that that point things started to change
00:18:01
and you can see that over the past few
00:18:03
months the value of the ruble has
00:18:05
appreciated significantly and today is
00:18:08
trading for around 84 rubles so what is
00:18:12
the reason for this increase is it
00:18:14
because the Russian economy is now doing
00:18:16
really well and therefore the ruble is
00:18:18
in high demand lots of countries and
00:18:21
individuals want to buy Ruble so that
00:18:23
they can trade with Russia or is it for
00:18:26
another reason now as I've discussed
00:18:28
many times before on the channel the
00:18:30
market for the ruble is now very small
00:18:34
lots of countries the USA Europe the
00:18:37
rest of the West do not want to deal
00:18:39
with Russia or in Rubles and also
00:18:42
Russia's biggest trading partners China
00:18:45
and India are also refusing to deal in
00:18:47
Rubles they will only deal in Chinese
00:18:50
Yuan and United Arab Emirates durhams so
00:18:53
Russia isn't seeing a large demand for
00:18:55
the ruble and what we have seen over the
00:18:57
past three years is that the market is
00:19:00
now very very small and the benefit of
00:19:03
having a very small market for your
00:19:04
currency is that it makes it much easier
00:19:07
to manipulate the price you can control
00:19:10
exactly where you want that price to be
00:19:12
and what we've seen over the past few
00:19:14
months is the Bank of Russia has been
00:19:16
stepping into the market to support the
00:19:18
value of the ruble and that's what's
00:19:20
driving up the strength of the ruble not
00:19:23
because of what's happening in the
00:19:24
Russian economy so we've got a
00:19:26
disconnect here between the currency and
00:19:28
the economy as a result of the war in
00:19:31
Ukraine and the serious sanctions that
00:19:33
are in place against Russia the market
00:19:35
for the ruble is now very small and that
00:19:37
means that the bank of Russia is able to
00:19:39
manipulate the price and that's why it's
00:19:41
currently sitting where it
00:19:43
is so what's the summary and conclusion
00:19:46
today well I wanted to post this video
00:19:48
because I think what's going on in the
00:19:49
Russian economy right now is really
00:19:52
quite interesting the latest data for
00:19:54
inflation shows us that it's now into
00:19:56
double figures and this is the first
00:19:58
time that Russia has gone above 10%
00:20:00
since February 2023 so more than 2 years
00:20:04
and that's obviously a problem because
00:20:06
even if you know nothing about economics
00:20:08
you know that high levels of inflation
00:20:10
are something that everybody's always
00:20:12
talking about nobody wants prices
00:20:14
getting out of control and when you've
00:20:16
got double digigit increases in prices
00:20:18
that is a serious issue because for most
00:20:20
people you haven't got a double digigit
00:20:22
increase in your wages and so therefore
00:20:24
you're going to have less money to spend
00:20:26
each month but what we're seeing in
00:20:28
Russia right now is really quite
00:20:30
fascinating in terms of what the bank of
00:20:32
Russia has been doing because it's been
00:20:35
raising interest rates we've talked
00:20:37
about that a lot on the channel they've
00:20:38
gone up from 7.5% to the current level
00:20:41
of 21% which is off the scale really
00:20:45
that is the highest rate that it's ever
00:20:47
been in Russia this is the record level
00:20:50
and 21% hasn't been seen in most
00:20:52
economies ever it's it's really just
00:20:55
unmanageable you've got to the point
00:20:57
where everything's getting out of of
00:20:58
control so the bank of Russia isn't
00:21:01
happy that it's at that rate and based
00:21:03
on that simple analysis it seems
00:21:05
puzzling that inflation has continued to
00:21:07
rise why is it still going up if
00:21:10
interest rates are so high and the
00:21:12
reason as we've discussed in today's
00:21:14
video is because of the supply of money
00:21:17
what's been referred to globally as
00:21:19
quantitative easing where the Central
00:21:22
Bank makes it much easier for all of the
00:21:24
banks to get access to Capital and that
00:21:27
capital is then distribut Ed to
00:21:29
companies and individuals in the form of
00:21:31
loans so basically you flood the market
00:21:34
with money make it easy for people to
00:21:35
get cash they then go out and spend that
00:21:38
cash that drives up demand and
00:21:40
ultimately that will drive up prices and
00:21:42
you do that at times when your economy
00:21:44
is slumping when there's a problem that
00:21:46
you need to fix so we talked about the
00:21:48
USA needing to do that at the time of
00:21:50
the covid-19 pandemic because the whole
00:21:53
of the USA ground to a halt so you
00:21:55
needed to get everything kick started
00:21:57
again and Russia has been doing that
00:21:59
following the invasion of Ukraine we saw
00:22:00
in the middle of 2022 when the severe
00:22:03
sanctions were starting to hurt the
00:22:05
Russian economy that the Russian central
00:22:06
bank took the decision to ramp up the
00:22:09
supply of money m0 went up significantly
00:22:12
at the fastest rate that it's ever risen
00:22:14
in Russia's history however the bank of
00:22:17
Russia has never switched that Supply
00:22:19
off it is still going at the same level
00:22:22
as it was a year off 18 months ago and
00:22:25
so increasing interest rates isn't going
00:22:28
to so the problem that's not going to
00:22:29
bring down inflation on its own because
00:22:32
you need to do both you need to push
00:22:34
interest rates up and you need to stop
00:22:36
the supply of money reduce it make it
00:22:38
more difficult for people to borrow
00:22:40
money and therefore they'll have less
00:22:42
cash available so they'll spend less
00:22:44
demand will go down and inflation will
00:22:46
get back under control so the overall
00:22:48
summary of today's video is that the
00:22:50
problems in the Russian economy are
00:22:52
continuing we're seeing inflation
00:22:54
continuing to rise it's now into double
00:22:56
digits which is more than double the 4%
00:22:59
Target set by the bank of Russia it's
00:23:01
actually two and a half times that
00:23:03
Target it's increasing month on month
00:23:06
and has been for the last 2 years that
00:23:08
tells us that there are serious problems
00:23:10
in the Russian economy right now the
00:23:12
bank of Russia is really struggling to
00:23:14
get it back under control because whilst
00:23:16
it's been allowed to increase interest
00:23:18
rates it hasn't been allowed to switch
00:23:20
off the supply of money and that
00:23:22
increase in the supply of money is
00:23:23
fueling demand which is pushing up
00:23:25
prices which is pushing up inflation and
00:23:28
we have got a really Vicious Circle here
00:23:30
that until the bank of Russia is allowed
00:23:32
to switch off the money supply it's
00:23:34
likely we'll continue to see inflation
00:23:36
rising and problems continuing in the
00:23:39
Russian economy the problem that Russia
00:23:40
has obviously is that if it does switch
00:23:42
off the supply of money then demand will
00:23:44
start falling and the Russian economy
00:23:46
could slump into a recession and
00:23:48
obviously the authorities don't want
00:23:50
that so that's one of the main drivers
00:23:52
why the supply of money is staying high
00:23:55
so hopefully you've enjoyed today's
00:23:56
video you found it useful informative
00:23:58
and thought provoking if you've liked
00:23:59
what I've said then please give me a
00:24:01
thumbs up thank you for watching this
00:24:02
video all the way through to the end and
00:24:03
thank you to everybody that's supporting
00:24:05
the channel if you bought me a coffee
00:24:07
thank you for that if you sent me a
00:24:08
YouTube super thanks really appreciate
00:24:10
that and if you've signed up as a patron
00:24:12
or a member I genuinely appreciate the
00:24:15
long-term support that you're providing
00:24:16
to me really helps to keep me going
00:24:18
keeps me motivated so thank you for that
00:24:20
and here's something to about a smile on
00:24:22
everybody's
00:24:27
face for
