The Parallax Brief

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Unrepentant Subjectivity on Economics, Politics, Defence, Foreign Policy, and Russia

Tempting Fate in Bad Times

No sooner had the Parallax Brief crafted an article about the paradox of thrift and its effects on Moscow, than Bloomberg illustrates the point by publishing yet another set of wrist-slashingly depressing figures for the Russian economy:

“Russia’s unemployment rate rose to 8.1 percent in January, the highest since March 2005, as collapsing demand and frozen credit markets forced businesses to cut staff.

The total number of unemployed rose by 300,000 in the month to 6.1 million people, or 8.1 percent of the working population, the Moscow-based Federal Statistics Service said in an e-mailed statement today. That was lower than the median forecast of 9 economists surveyed by Bloomberg for 8.2 percent.”

So if dropping demand and the evaporation of credit availability are leading to job losses, what affect do the job losses have? Why, they square the vicious circle, of course. According to another article on Bloomberg today, rising unemployment is having exactly the affect the paradox of thrift tells us it should:

“Russian retail sales grew at the slowest pace in more than nine years in January as the country faced its first recession in a decade because of falling commodity prices and the credit crisis.

Sales increased an annual 2.4 percent, the lowest growth rate since November 1999, down from 4.8 percent in December, the Federal Statistics Service said in an e-mailed statement today.”

Of course, the good news is that the figures exceeded the predictions of most economists, who had anticipated effectively flat growth, although how long this will last is anyone’s guess.

The Parallax Brief isn’t really so pleased that his gloomy prognoses are being backed by fresh evidence, but one thing is clear: whether you want to call it the vicious cycle or the paradox of thrift, it’s working in Russia in the same way it is working everywhere else, and it’s going to hurt.

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Filed under: Economics, Russia, , , , , , ,

Recession 101: How the Vicious Cycle Works

A friend yesterday emailed me an excellent story from the Wall Street Journal. It’s a smart concept: to look at one family forced to make cutbacks after redundancy, and examine how their diminished spending affects their whole community.

This is a elegant way of demonstrating how a recession becomes a self perpetuating cycle downward, and why we need stimulus right now.

Recommended reading for anyone interested in the real effects of the current economic turmoil.

Filed under: Economics, , , , , ,