When BRICs Crumble, Will Commodity Prices Collapse?

Common wisdom assumes that commodity prices, including oil prices, will continue to rise on exponential demand from emerging nations, such as China, India, Brazil, Turkey, Russia, etc. But under the sheen of those rosy projections, exists a growing excremental stench of corruption and decay. If the magical trajectory of the BRICs should falter, how far would commodities prices fall? And what would be the repercussions for already stressed world financial markets, desperate for safe havens and hedged to the hilt?

China's property bubble is set to implode, and when it does, the Chinese economy will cool far more than anyone thinks, taking commodities along for the ride. Commodity producers like Australia and Canada are at extreme risk as well. _Mish

Not just Australia and Canada are at extreme risk. Two BRICs -- notably Russia and Brasil -- are gambling on continued high commodity prices into the indefinite future. Corruption in all of the BRICs is hampering genuine market-based growth, but economic dependence on raw commodities prices is particularly bad in Russia.

When commodity prices dive, Russia may well grow desperate.

Prime Minister Vladimir Putin, the country's uncrowned czar, has linked his legitimacy to the economy's performance by offering the Russian people a grand bargain: submit to his increasingly autocratic rule and the state will compensate with economic goodies like higher incomes and hefty social-welfare spending. Now that the economy is faltering, Putin is under intensifying pressure from a discontented public to restore Russian democracy, potentially destabilizing Russian politics. He has already faced protests in Moscow against his rule amid the economic downturn. There's also a risk that leaders in Moscow will resort to nationalistic appeals to distract the public from problems at home, escalating tension with Russia's neighbors, the rest of Europe and the U.S. _Time

Russia's ongoing demographic collapse, and the threat of losing much of Eastern Siberia to Chinese influence, is not helping the mood in Moscow. But without the clout that comes from high energy prices, Russia becomes an angry dancing toy bear with nuclear weapons.

Venezuela, Iran, the Arab states of MENA, Mexico, and many countries in tribal Africa and Asia, are also pathologically dependent on high commodity prices, due to internal corruption having squeezed natural markets to death. How will their people deal with the many difficulties and hardships they will face when their governments cannot feed, clothe, house, or water them?

Even the US is vulnerable to a fall in commodities prices. The US is the world's third largest oil producer. The recent boom in US shale oil & gas production is one of the few bright lights in an otherwise dim Obama economy. And although the jobs, housing, manufacturing, and other sectors in the US economy continue to sag, Obama has not had enough time to entirely destroy the US private sector.

Few readers of this blog understand the precarious state of China's economic house of cards. That is because almost all of the economic information coming out of China is closely controlled, and coated with a shiny facade. But it is time for readers to begin asking themselves about the global repercussions of a more sustained commodities price slump than they have seen.

The Largest Russian Charity Takes in $4.2 Million

The most well-supported American charity by the American public is the Salvation Army, which every year collects public donations well in excess of $1.5 billion. Every one of the top 18 American charities ranked by income collects at least $100 million in public donations. Since Russia’s economy is only one-tenth the size of America’s, you would expect the top Russian charity to receive about $150 million in yearly public support. But the Give a Life foundation, Russia’s best performer, doesn’t even get close to raking in $5 million per year. _LRP

CSMonitorCharity is something of a novel concept to most Russians. Coming from a culture of totalitarianism, an attitude of callous neglect toward fellow citizens might be expected.

Russians simply don’t care what happens to their fellow citizens, much less their fellow man. If you examine Russian history, you see a consistent and reckless failure of the Russian people to stand up for the rights of their neighbors. This was particularly vivid during the time of Stalin.

But corruption too is critical. Take for instance a recent charity concert promulgated by something called the Federation Foundation. Sharon Stone showed up to listen to Russian “prime minister” Vladimir Putin sing “Blueberry Hill” in order to raise piles of cash for sick children. The only problem was that there was no such thing as the Federation Foundation and Russia Beyond the Headlines reports that “a real uproar broke out after the mother of a gravely ill girl” who had been used in the Foundation’s propaganda materials “alleged in an open letter that the hospital where her daughter was being treated hadn’t received a penny from the foundation.” Oops. _LRP

Overall, Russia is far more impoverished than the US, with a much greater disparity of income between the very top and very bottom of the scale. Most Russian men do not live to see their 60th birthday (the Russian age of retirement for men). Russia suffers from extraordinarily high rates of TB, HIV, suicide, alcoholism, violent crime, and child poverty, when compared with western and other advanced nations. The need for charity in Russia is incredibly great. And yet, the more affluent Russians do not seem to feel the tugs at their heartstrings which you might expect.

This callous Russian attitude toward the suffering of others is quite common in the third world, and no doubt derives from historical times when almost no one could afford to lend a hand to a stranger or even to a neighbor. Rather than asking why Russian contributions to charity are so low, perhaps we should ask what it is about North Americans that causes them to want to give?

Russia's Looming Population Crisis

Russia's population declined by nearly 3.4 million over the past decade, a census showed on Monday, offering more evidence that Russian economic growth will lag behind that of rival emerging powers China and India.

The Kremlin has tried to boost population growth, fearing that fewer births in an aging population will sap the economy, especially with a pension age of 55. The demographic black hole is expected to take 1 million workers out of the economy every year until 2017. _Sun

VOANews
The collapse of Russia's demographic infrastructure is nearly complete. Infections such as tuberculosis and HIV are running out of control. Alcoholism, mental illness, suicide, and poverty run rampant. Russian women are unwilling to bring children into this ugly world that Putin has made. In time, Russia's military will no longer be capable of defending the nation's rich and vast Eastern Siberian land holdings, and China's huge population will naturally spill over to inherit the energy, mineral, and lumber wealth.

Russia still has serious, serious public health problems, notably AIDS and multi-drug resistant TB. With regards to the latter, the WHO recently issued a report indicating that Russia has the third largest number of infections in the world. Consider. China has almost 10 times the population as Russia, but only about double the number of infections, meaning that Russia’s infection rate is about 5 times China’s. The ratio is only slightly better when compared to India. These problems are bad in themselves, but are symptomatic of deeper problems that have baleful implications for Russian health and the potential for population growth. _SeekingAlpha

Russia's population could shrink by more than 20 million over the next few decades. There will not be enough young Russian men to run the civilian economy, much less to man the military.

A report published by Standard & Poor's says Russia’s population might shrink from roughly 140 million people to 116 million people by the middle of the century. At current spending rates, this would increase government age-related expenditures from 13 percent to more than 25 percent of gross domestic product. And analysts warn that Russia's national debt could be nearly six times the country's GDP by 2050 as a result.

Sergei Zakharov, deputy director of the Institute of Demography in Moscow, says a high morbidity rate is one of the main reasons for the imbalance. "Our death rate from outside reasons, such as accidents, traumas, poisoning, murders, suicides - everything that is not connected to disease. The level of human loss here is similar to the countries at war such as Columbia, which is at war with is drug barons. So the first thing that needs to be dealt with is that," Zakharov said. _VOANews

High mortality and low fertility are burning Russia's demographic candle at both ends. Meanwhile, highly placed ex-KGB officials and other government thugs are sucking Russia's wealth dry, and sending it to private accounts out of the country.

Russia is wealthy, in terms of energy and mineral deposits, and other natural resources. But Russia cannot access and produce its vast wealth without outside help. And every time outsiders come in to develop Russia's resources, Russia steals all the infrastructure the outsiders bring in and develop. And so Russia's main export of note is its young, beautiful women -- both as mail order brides to the west, and as workers for the world's brothels.

Of course, women are exploited inside Russia as well -- which is why so many of them are desperate to leave. Neither is Russia a very child-friendly place. And men tend to die before the age of 60 -- never living long enough to reach retirement age.

The Russian tragedy is that Russia's people never grew out of serfdom and obeisance to authority. Putin's Russia is slipping back into the Soviet and Tsarist repressionism of ages past. But modern Russia has satellite TV, the internet, and many other connections to the outside world. Any Russians who bother to make comparisons between their own sad state of affairs, and conditions in the western world -- even a western world experiencing a prolonged economic downturn -- become progressively crushed under the weight of despair and hopelessness.

Americans Not Drinking Enough Alcohol

DailyMail_World_Ethanol_Consumption
According to maps released by the World Health Organisation, Americans are not doing their part to support the world alcohol industry. Clearly Russians are holding up their end much better than North Americans or Brazilians, on average.

MoscowTimesMeanwhile the small Russian child is becoming something of an endangered species, with ethnic Russian birthrates at very low levels, while Russian death rates -- particularly among men -- are quite high due to a combination of factors.

The population will probably shrink to 116 million by 2050 from 140 million last year, forcing the government's age-related expenditures to rise to 25.5 percent of GDP from 13 percent in 2010 in the rating agency's "base-case scenario," S&P credit analysts led by Frank Gill in London said in a research note last week.

..."Russia's aging population will likely place substantial pressure on economic growth performance and public finances," the analysts wrote. "By 2035, we expect that Russia's fiscal indicators will have weakened such that they would be more in line with sovereigns currently rated in the speculative-grade category, because, in our view, the projected improvement in GDP per capita would not be able to offset the potential fiscal deterioration." _MoscowTimes_via_LaRussophobe

The Russian retirement age is 60 for men and 55 for women, whereas life expectancy for Russian men is 59 and for Russian women is 72. This gives Russian women a much longer time span to drink after retirement, than men -- who typically will never reach retirement age. [Al Fin comment: Russian men are forced to drink much more than Russian women to compensate for their much shorter lifespans.]

Out in the wild Russian East of Siberia, ethnic Russians are losing the majority to illegal immigrants from China. Freed from the one-child policy, Siberian Chinese are likely to propagate at a higher rate than the more vodka-oriented Russians, which makes it likely that the Chinese will eventually inherit the natural wealth of East Siberia by demographic default.

The bursting of the Chinese economic bubble may provide an impetus for even faster Chinese out-migration to areas such as Siberia and overseas locations.

Al Fin futurists do not claim that demography alone is destiny. But when you combine debt, demography, and drinking, you come much closer to the mark.

Bad weather, both hot and cold, in Russia is contributing to lower crop harvests, which only adds to the immediate economic woes of the nation. When you combine the lack of any rule of law with a dictatorial mafiacracy of a government, and a generalised societal malaise and sense of futility, Russia does not seem a good place to raise a family or plan for the future. That widespread feeling keeps birthrates depressed, and drinking rates high.

Russia needs a change, but with its current government, it can only look forward to more of the same -- only worse. At least Russians understand the need to support the global alcohol industry, in these times of prolonged global recession.

Without Siberia, What Will Become of Russia?

With an area of over 3,727,000 square miles, Siberia makes up roughly 75 percent of the total territory of Russia. If Siberia were to secede from Russia, it would be the world's second-largest country, with only Canada being larger. Major geographical zones include the West Siberian Plain and the Central Siberian Plateau. _Source

The population of ethnic Russians in Russia has been collapsing in a morass of high death rates and low birth rates. The Nicholas Eberstadt video below goes into much more detail in explaining the what of ethnic Russia's collapse.
Growing numbers of Russian children are being abandoned to the streets, where drugs, violence, alcoholism, TB, and HIV hold sway.

It should be obvious that Russia's time as a grand empire is running out. It is uncertain how long Russia can hold onto the resource rich but relatively unpopulated regions of Siberia -- with a shrinking number of Russians to project power into what are essentially colonies of Moscow.

When will Siberia secede from Russia? Siberian separatism has been simmering below the surface for many years, and the centrifugal forces pulling Siberia away from Moscow can only grow stronger as the number of Russians shrinks.

The recent trial of Mikhail Khodorkovsky, former chairman of Yukos Oil, highlights the problem of perennial recurrent Russian autocracy and tyranny -- and much of the reason for a pessimistic view of Russia's economic future. Russia's "one trick pony" reliance on energy to prop up an otherwise crumbling economy, is a fool's game. The stupidity of the strategy will be made painfully clear when Siberia finally does break away from Moscow, taking most of Russia's energy wealth with it.

Who has the most to gain from Siberian secession? Clearly China will be in a dominant position to control Siberia's destiny, assuming China does not collapse or lose its economic shine first. International energy companies will likewise have much to gain from access to Siberia's rich oil and gas fields. The US is also likely to find many opportunities for advantage within a nascent independent Siberia.

In addition, Alaskan and Northern Canadian secessionists would find much to celebrate in a free Siberia. If destructive US central government autocratic policies are not reined in, more and more Alaskans will view separation more positively. Likewise, many Northern Canadians will consider breaking away from Ottawa should the leftists regain control and resume the destructive policies of earlier leftist governments.

Governments can be overthrown very precipitously, as was demonstrated in Eastern Europe of the late 1980s and early 1990s. They can fall like dominoes in a row, should conditions shift in certain directions. Watch and learn.