Russia's reeling markets

NY Times:

The stock market here has swooned so often in recent weeks that regulators have repeatedly shut it down, as if Russia, which aspires to be a financial powerhouse, has become just another bumbling backwater. The oligarchs, those Kremlin-connected magnates who once dazzled the world with their riches, are reeling. And Vladimir V. Putin is facing a threat to his legacy of bringing growth, stability and a renewed swagger to this nation.

The global financial crisis has not spared Russia, wiping out roughly a trillion dollars in wealth and forcing the government to adopt a broad rescue plan to shore up banks. At stake is the country’s robust economy over much of the last decade, which has for the first time given many Russians a taste of comforts long enjoyed in the West.

For now, the damage has been largely limited to the Russian elite. While Russia’s stock market has plummeted by about two-thirds since May, more than those in the United States and Western Europe, the country has not yet developed a broad investor class, and most people have not squirreled away their savings in the market.

As a result, though the stock market here had soared to $1.5 trillion in value, making it one of the world’s biggest, it had a very narrow base of investors. It was dominated by foreign and Russian investment funds, which sprinted for the exit when things started turning bad.

The Kremlin has also sought to contain the fallout from the crisis by having the major Russian television networks, which it controls, play down or even ignore the stock market collapse here. The network news programs have instead focused on financial troubles in the United States and Europe.

Still, the Russian stock market declines seem to be signaling investors’ pessimism over the future of the economy and the government’s stewardship of it. Even as Russia has experienced strong growth in recent years, driven by oil and gas revenue, it has not achieved gains in diversifying its economy. Nor has it had significant success in modernizing decrepit roadways, power grids and housing.

Russia’s invasion of neighboring Georgia, the perception that the Kremlin has meddled in the affairs of large companies and pervasive corruption have deepened investor concern. These issues may help explain why Russia’s stock market has declined more than those in other emerging economies like Brazil’s.

Russia has run budget surpluses in recent years, putting $190 billion in contingency funds. The fear seems to be that this money will provide only a short-term cushion.

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There are several reasons for the decline and fall of the Russian markets. Little noted is how dependent economies like Russia's are on a strong economy in the US. The American culture and its economy is the key to world prosperity. An American decline does not imply that others will rise or be better off. Even out enemies like Chavez in Venezuela is seeing his economy decline as our economic activity decreases the price of oil also decreases and he loses his windfall from Democrat party policies which precluded a more robust US energy policy.

When the Roman empire fell the rest of the world was not better off with the absence of Roman culture. The decline in living standards was felt as far away as England and it would take centuries for those living standards to be achieved, much less surpassed. Those who are currently chortling about the US down turn should take note and not wish us so much ill.

The American culture has raised living standards throughout the world. Those like William Ayers who denigrate it, do this country a disservice. It is the American culture that gives the NY Times a pulpit from which to pontificate. They shoudl also be more appreciative.