Old Fashion Economics

The New Super Weapon? 

Russia Deploys Exotic New Weapon: A “Budget Surplus”

The price of oil is rising, which is obviously good news for those who sell it to the rest of us. Russia in particular seems to be enjoying the current trend, so much so that — if I’m understanding this correctly – Moscow is now receiving more in taxes than it’s spending. This is producing something called a “budget surplus,” which is a kind of currency war weapon that can be deployed to improve a country’s geopolitical position. 

One way that Russia is likely to use this exotic new weapon is to buy gold. The Russian central bank is already one of the biggest buyers of the metal, increasing its reserves by nearly 500 tons in less than three years – while, remember, it was running budget deficits. 

Now, with a surplus to deploy, it’s reasonable to assume that the aggressive gold buying will at least continue and very possibly accelerate. The result: An increasingly gold-backed currency in a world of un-backed fiat, something that’s more of a threat to US financial hegemony than most of the hardware in the Kremlin’s military arsenal.

DYI:  If these reports are to be believed – and that goes for any country including the good old U.S. of A. – when the next downturn arrives Russia will be in a far better financial condition as opposed to debt laden westerners.  Amazingly today basic common sense budgeting is seen as a super weapon creating one of the biggest reasons for the demonization of Russia.

Russian finance’s goes further than gold with a debt to GDP ratio at a scant 12.60%!  If Putin takes portion of his surplus and pays down this small debt it is conceivable and possible [as opposed to western nations] to eliminate Russian government debt thus strengthening the Ruble and wringing inflation out of the Russian economy.  This huge difference between Russia and other western powers highlights the real reason for all of the handwringing in the main stream press.

Russian National Debt Clock

DYI