I figure it would be a good thing to have a look at the world economy to put the economic worries in some perspective and perhaps to try and see where and when the economic downturn might end. First off, the US is about 30% of the world economy, the EU is also about 30%; this makes these two regions of the world very important, and if you throw Japan in there, you're almost up to 75% of world GDP. The world economy of today is a very integrated one, thanks to globalism. This means that if 30% or 60% of the world economy is contracting, then so must invevitably the rest - obviously the ones with big exports will be hit harder.

I guess just looking at these charts says a lot, and the situation for the EU is about the same as for the US, only differences are that consumer debt levels vary greatly in the EU and generally are lower than in the US; corporate debt (non-financial) is about $11 trillion in the EU whereas the US only has about half of that. The financial debt levels? Well, nobody seems to know what those might be (there are estimates out there, but they look very unreliable), perhaps the derivatives market is some kind of guide. The situation today is much worse than the one the world faced in 1929-30, debt levels and imbalances of trade are much higher. (note: derviatives market has grown to almost 700 trillion, chart is alittle out-dated)

What we've had is a credit-driven expansion of the world economy and now that people don't want to or are unable to keep expanding the aggregate debt, then government steps in to keep things "growing". When an economy is expanded by credit it simply means that you buy something before you're able to buy it, which means that you will not be able to buy the same thing later. So, when government spends your money by borrowing (which is what they have to do) they are making sure that whatever you might have wanted to buy in the future will instead be purchased in an economy that is over-priced. This over-pricing came from the fake demand created by credit, and now the markets are saying that prices need to go down to reasonable levels so that business can carry on as normal. Government prolongs the agony of a bloated economy and is rewarding incompetitive businesses by keeping them alive, when in fact, the only good thing to come from recessions are that bad companies go into bankruptcy and the stronger ones survive to make the recuperation easier.

From this very sad background of government intervention the economic crisis might last for many years, when it might only have lasted for a year or two if things would have run their natural course. If the natural crash would have been allowed, you could see business resumed pretty much as usual (at a lower level) and young people just entering the economy could do so with very bright prospects, with very low prices and more job opportunities than under intervention, while those still in debt would be working to pay it off, and maybe in a couple of years they could have paid off the debt to a reasonable level where their personal economy can grow again. Now we're going deeper into debt, wasting money that needs to be saved for the recovery. If the past is any guide then I'd say that we might have to endure a depression-type economic environment for the coming ten years. What might make it different is the possibility of hyper-inflation, which would simply erode away the debt and possibly give us the natural crash in a kind of detour-way (that is, with lots of more suffering). Governments look pretty desperate and they might get carried away with the spending, so I'm slightly favouring this out-come... The world economy is in trouble!

What countries will be the first to recover from the economic downturn (or hurt least from it)? I would say countries with small amounts of debt of any sort (public/private/consumer), countries with governments that lower taxes and cut military spending instead of throwing tax-payers money away and countries with broad and fairly independent economies - that is, countries that can supply themselves with pretty much all they need and who have a well-balanced exchange of goods with a wide variety of countries.

The description above fits pretty well for Russia, and I would argue that it is the exact opposite of the situation for the US and many west-european countries. Modern Russia has only existed for twenty years, they had a huge economic crisis in the country in the late 90's and they actually balanced their first budget in 2000 since the break-up of the Soviet Union. In the late 90's Russia saw inflation of almost up to 100%, which has since decreased, but is still fairly high at around 10%. These high inflation-rates has kept the interest-rates high all through the 00's and therefore hindered a boom of consumer-debt like the one we had in the west. The strong growth of Russia in the last nine years has been the main factor for the high inflation, which now seems to be slowing down - of course with the growth, but the growth is still estimated to be positive in 2009 although estimates vary from 1-6%.
There seems to be a persistent viewpoint that Russia is dependent on high oil prices, well the truth is that the high oil-prices has given the Russian government a pretty good surplus of income - much of which has been saved and now makes up a foreign reserve of about $400bn. Even with these lower oil-prices the Russian federal budget might very well still be postitive; and certainly, the lower prices of natural resources will greatly decrease income for many Russians as well as the government - but it isn't necessarily the end of the world (or the end of Russia). The main driver for Russia's growth has been domestic demand and oil and gas contribute only about 5% of the Russian GDP.

Almost all of the federal debt in Russia has been paid off today and stands at only about $13bn. Consumer credit is basically nothing to worry about, as I mentioned earlier. Private debt (we're talking foreign debt here...) is however a slight problem and is something that has been heard about alot lately - perhaps mostly in the form of 'the rouble has lost much of its value...' (because foreigners want out). The debt-load stands at around $425bn and the governement has so far helped by paying $73bn off the earlier debt-level. If you consider the willingness of the government to help out the private sector by buying their foreign debt, it seems that this problem might not be so great after all, since the Russian government actually has a reserve matching almost exactly this foreign debt in the private sector. Besides, not all foreign money is going out of the country and these companies are not in bad shape because they are unable to make money - they're in bad shape because they can't pay up large sums of money in such a short time.

If we make a little comparison with the US here... the private debt in the US today stands at about $30 trillion, that is about 75 times the Russian foreign debt. Of course the Russian GDP is only $1,7 trillion while the US GDP is at 14,3 trillion, but the difference is pretty striking; if Russia were to match the private debt of the US, it would have to be somewhere around $3.5 trillion! I guess I don't have to make a comparison of the public debt here? As I said, Russia $13bn - United States north of $10 trillion...

But what about the export-import situation? Well, Russia today has a positive export and a healthy level of trade with mostly european and asian countries. Considering that Russia still has a surplus in its trade, it would seem reasonable that it wouldn't be so hurt by its exports falling, as it can still keep imports up - athough these would also shrink. In 2007 exports were $365bn and imports were $260bn. So, that is a pretty big part of the economy, but in a very good position to withstand drops in exports. I guess we're all very familiar with the situation in the US, heavy imports from China and lots of out-sourced jobs to countries like India. Russia can pretty much produce anything it needs and whatever it can't produce, it can easily import because of its large exports. The US on the other hand doesn't produce everything at home and has a huge deficit in its trade-balance, so maybe one day the people in the US will be unable to get stuff from China, if the chinese realize that they're really getting nothing but pieces of paper from their "trade-partner".

Politically, as I hinted in the beginning - Russia has lowered taxes to help people and has also decided to cut military spending. The US has given away trillions of dollars to incompetent and corrupt bankers and is trying to force the american public to keep borrowing money, although they've already borrowed way too much, and also overlooking the fact that this is also the cause of the economic trouble in the first place.

Ok, that post got kind of big, but I hope you learned something - I certainly did, and I think that if I haven't missed some big piece of information, then Russia is a great place to invest today and in the years ahead, especially since the russian stock-markets are down to dooms-day levels.

PS. I forgot to mention the stabilization fund, which stands at about $150bn and is actually meant as a buffer for fluctuations in natural resource prices, so I guess this strengthens the case further.

This post from 1997 is hilarious, if you compare it with the situation in the US today:
http://www.heritage.org/research/russiaandeurasia/em481.cfm

Lots and lots of bail-out money has been created all over the world lately, clearly the US is in a "superior" lead when it comes to bail-outs. Alot of well-informed people are saying that this will lead to very high inflation, which is very possible. But what is constantly missing in the inflationary descriptions is how exactly all this bail-out money is going to make it into the real economy. By the looks of it, the bail-out money has been moved into the banks, who have then started buying bonds (what else can they really do?) - and we have seen a very high demand for US-bonds since the bail-outs started. Basically, if the banks want to be/stay solvent they have to put their money in bonds (preferably US-bonds), so by this perspective there couldn't possibly be any high inflation since it's kind of a zero-sum game where the government hands out money and then gets it all back. But, there are of course other problems - all the US-debt that foreigners are holding doesn't look too attractive to hold in the face of this, although the trend of late is a "demand" for dollars - or the pulling out from smaller (or growing) economies by dollar-investors. Foreigners holding US-bonds want out and the imbalances that the beloved global economy and central-banking has created are going to bring everything crashing down (even further - then there's the derivatives market as a little bonus ... but that's for another post!). I think we will see inflation, but it won't come directly from the bail-out, only indirectly from those foreigners who have been lending money like there's no tomorrow to the US, and who are now forced to start spending those dollars until they're worthless.