By @AlexanderIV17 (Twitter) for the Saker blog
One of the favorite lines of the West propagandists is “ Russia doesn’t count, it’s about the size of Italy’s GDP” . I remember B.Obama saying something like that with scorn in December 2016, when D.Trump had just been elected and the Democrats were abuzz with all sorts of Russian conspiracy theories. Ever since the Empire and its minions, serfs and vassals have toed the line and you hear that kind of put down everywhere in the Empire.
You cannot help but wonder how is it possible that the largest and richest land mass in the world, with $75 trillions of natural resources in 2021, a country with a population of 145 millions , 20 millions more than Japan’s, can have such a limited GDP.
Enter the different ways GDP (Gross Domestic Product) are computed. In particular the GDP on a PPP basis (Purchasing Power Parity) vs the GDP on a nominal basis.
On a PPP basis Russia’s GDP is currently the 6th largest in the world with $4.37 trillions, just behind Germany’s ($5.27 trillions). China has the largest GDP-PPP in the world at $30.18 trillions. (Source IMF estimates). This is never mentioned by Western politicians, TV-radio talking heads or the MSM.
On a nominal basis Russia (11th with $1.82 trillions ) is indeed behind Italy (9th with $2.1 trillions) and Brazil (10th with $1.83 trillions). It is thus not surprising that the West propagandists uses GDP on a nominal rather than on a PPP basis in order to disparage Russia. I am not here supporting the idea that these figures are cooked, on the line of W. Churchill famous quote:” I only believe in statistics that I doctored myself”, but I just underline the selective approach of the Empire’s spin doctors.
Why does this matter and what is GDP on a PPP basis?
GDP is the total monetary value of all the finished goods and services produced in a country in a specified period of time expressed in the same international currency for comparaison purpose, usually the US dollar ($). This value can be arrived at using the current $ cross exchange rates with the specific country currency. It is the GDP on a nominal basis. But is not a satisfactory comparaisons gauge because it does not consider the inflation impact and because exchange rates are notoriously volatile and subject to long or short term currency manipulations or national policy imperatives. For instance exports juggernauts like Germany and China always try to put a lid on their currency appreciation (this is why the Germans finally accepted the Euro creation in order to create a weaker proxy for the DM). Also opportunistic and shameless speculators always try to make a bundle attacking weak countries (G.Soros and the UK£’s Black Wednesday on September 16, 1992). Finally the notional GDP does not eliminate the international discrepancies between cost structures and productivities.
This is why PPP calculations and researches have gradually been adopted by the IMF, the OECD and the World Bank since the concept was introduced in 1968 by the UN in the International Comparison Program (ICP). The idea behind PPP is to find a cross currency rate for every pair of countries in the world that would equalise the total price of a basket of identical or near identical goods. Using this “rate” or “equalising factor” in the conversion of any particular country’s GDP calculated in the local currency into the US dollar will guarantee a level playing field comparaison. You will for instance downplay the labor costs differences between rich and poor countries. At this stage please notice that the forces behind PPP and GDP-PPP basis are the most respectable Western or “Imperial” Institutions: the UN, the IMF, the World Bank and the OECD. How more politically correct can one be?
And the PPP concept became even more mainstream when the Globalists weekly Bible, “The Economist” invented in 1986 the famous Big Mac Index standardising and simplifying worldwide currencies cross rate computations and comparisons by using a basket of only one universal product that is composed of exactly the same ingredients worldwide, bread, lettuce, meat, onion and a patented special sauce: the Big Mac.
The Big Mac Index is “a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.” Excerpted from The Economist website.
According to the Big Mac Index the Russian Ruble was the most undervalued currency in the world in January 2022 at -70% and it remained so until the start of the Special Military Operation (SMO) in the Ukraine. And this explain that as soon as V. Putin decided that the immense natural wealth of Russia will be priced , and its exports sold, from now in Rubles the Russian currency became the best performing currency of 2022 in the middle of a war and in the context of a June 2022 fabricated technical default nobody cared about! Amazing performance! This is also an illustration of how PPP works, how it corrects the fog of manipulated economics and sunken asymmetric costs and societal idiosyncrasies .
We can now add to the Big Mac (Moscow price $1. 74—NYC price $5.81) in our basket of products, a Sukhoi 75 Checkmate at $30MM apiece vs a F35 at $80MM apiece (rock bottom export subsidised prices, especially for that disaster of a plane that is the F35, rumoured to have cost the US Navy upwards of $300MM per unit!!) and a liter of gasoline (Moscow price: $0.81—US average price: $1.27). We see the significant prices differences there are for that basket, as for any other baskets, for products of similar social, military or commercial interest, use or appeal. Hence the imperative need for that apples to apples comparison tool , the GDP-PPP, for the correct assessment of international GDPs and countries true relative strengths. That is why in this instance and more generally you would do a country PPP-GDP calculation by using the US$ price of equivalent products and services, the ultimate simplification of the 1968 ICP initial PPP and the 1986 BIG Mac concepts.
But GDP-PPP comparisons are ignored by Western propaganda
To come back to B. Obama, loosely quoted at the beginning of this article, a very clever operator and ex-, but still de facto current, President of the United States, how come he did not read his very own CIA’s World Fact Book? It is all in there. First you get a nice and easy definition of GDP-PPP: “A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States”. Then the ranking follows: 1. China, 2. USA, 3. India, 4.Japan, 5. Germany, 6. Russia,….(and that’s 2020 estimates confirmed by the underlined 2022 data mentioned at the beginning). So Russia has been ahead of France, the UK, Italy, Spain and the Netherlands, and China is #1, since at least 2015 and B. Obama didn’t know it? Of course he did! He is just a sharp propagandist hell-bent on putting down everything Russian. Just read what he says about Russia and V.Putin in his memoirs “A Promised Land” volume 1! It’s pure scorn and hatred. And since B. Obama is still the real President of the United States, “puppeteering” J.Biden, hence the “Emperor”of the West, everyone is toeing the line in the “Empire”: politicians, businessmen, diplomats, intellectuals and journalists. Madmen to his right even want to better his assessment of Russia’s GDP and now you regularly hear that it is about the size of Spain or the Netherlands (M.Pompeo, M.McFaul or S.Hannity).
Russia’s GDP to overtake Germany’s within 3 years
I wanted to conclude this piece by elaborating on economic projections that were made before the start of the SMO on February 24, 2022. The consensus was then that Russia would have overtaken Germany’s GDP-PPP before the end of 2025. Now of course there is much less visibility because of the war. And V.Putin said recently he is keenly aware of the enormous task ahead in order to minimise the Western sanctions impact. But Russia is frankly off to a surprisingly good start in that area and I am confident, based on external trade and currency projections, that the above scenario of Russia overtaking Germany’s GDP-PPP by 2025 is attainable, especially as Germany will face a serious GDP crunch as it tries to wean itself off the cheap Russian gas contribution, that strong and reliable corner stone of its prosperity since the sixties. The “Axis of Good” wanted to collapse the Russian economy by waging a total economic and financial war (March 1, 2022 statement by B.Le Maire, French Economy and Finance Minister) or bring Russia back to the 19th century (J.Biden March 26, 2022 remarks in Warsaw). It did not work and incidentally J.Biden’s comment above was idiotic and illiterate since Russia’s 19th century borders incorporated what is now called the Ukraine, Warsaw, the Baltic midgets and Finland!! What pre-dementia does to people!
Since the beginning of the SMO, we can only fault the Russian economic war machine for the mismanagement of Russia’s $284 billions foreign currencies deposits in Western countries that had sanctioned her since 2014-2015. These deposits were sitting ducks waiting to be kidnapped by the “Pirates of the West”. And they should have been moved long ago to friendly countries and converted into their currencies e.g., Indian and Chinese banks, Rupee and Renminbi. The Euro and the $ currencies should have been spurned long ago as had been the US Treasuries. And I still do not understand why E. Nabiullina, Russia’s Central Bank Governor, was not fired on March 18, 2022 for dereliction of duty or at least for incompetence.
On all other topics V.Putin economic blitzkrieg scored big.
- The “mother of all sanctions”, being disconnected from SWIFT, went barely unnoticed as 4 key Russian banks are still allowed in that international payments messaging system, because they are indispensable channels for the international trade, and because the SPFS system (Russia’s Swift equivalent) is expanding its coverage to 23 countries and with Iran and India about to join. And the SPFS is also planning to integrate the Chinese CIPS international payment system.
- The foreign currencies frozen deposits sanction was countered with measures threatening the West’s larger assets pool in Russia (estimated at $400 billions). They are all potentially subject to expropriation or forced status modification, for instance Renault was “forced” to sell its Russian assets for the symbolic 1 Ruble, McDonalds sold its stake to a local licensee and the huge far eastern Sakhalin-2 gas and oil project is re-structured to protect Russia’s interests.
- The Ruble went in three months from most undervalued currency in the world in February 2022 (Big Mac Index) to 2022 best performing currency despite the colossal Western sanctioning that has been taking place, and returned to a multi-year peak rate of 60.30 for 1$ on August 5, 2022, after dropping to 130 at the beginning of the SMO. The only thing V.Putin had to do to achieve this amazing result was to start pricing gas and wheat in Rubles, forcing un-friendly countries to pay in Rubles and conferring something akin to a gold-pegged status to the currency. The Ruble definitely didn’t turn into rubble as was predicted by J.Biden.
- We can also mention the successful development of the MIR – UnionPay card to replace the Visa/ Master cards, the June 2022 fabricated nothingburger Russian default on some Forex Bonds that went mostly unnoticed, and the near trebling of Russia’s 2021/ 2022 first quarter external trade surplus to $58.2 billions due to significant commodities price increase (Euractiv-Eurostat)
All these fantastic developments give us confidence that by 2025 Russia’s GDP-PPP will be the world 5th largest, closing in on Japan’s. By that time the successful completion of the SMO will have provided Russia with the strategic battlefield depth it is entitled to have, the expansion and financial integration of the BRICS will provide the world an alternative to the neo-colonial Brzezinskian Weltanschauung of the West and the close cooperation between Russia and China in space will lead us to Mars, first step towards the stars where we all belong.
International Banker (retired)