When will the Recession End ? Part 138 Forty one (41) early warning signals of the collapse and decay of the Russian Federation (Putinism) and Ukraine (Yanukowych Regime)

Here's my preliminary list of early warning signals that point to the decay and collapse of  both Russia and Ukraine.

(N.B. I'm not anti-Russian or anti-Ukrainian, I actually feel quite sorry for most Russian and Ukrainian people, who have to struggle under the current oppressive regimes. I sincerely hope this scenario doesn't pan out, because many ordinary people are not prepared and will suffer again like they did in the late 1980's, but the odds of it not happening are against it --wd)

[N.B....Back in the 1970's and 80's,Cybernetic experts using system dynamics modeling  in Kyiv and Moscow, predicted the collapse of the Soviet Union by 1990 plus or minus one or two years-not a popular notion at the time, but key people did pay heed. Two years before the collapse of the FSU,   Russian and Ukrainian oligarchs started to move their wealth off-shore in 1988-89. These predictions were spot on.

Similar systems dynamics modeling shows that Putinism in Russian and president Yanukowych regime in Ukraine will suffer a similar fate as did the former Soviet Union--Walter Derzko]

According to many Soviet expats that I talk to, similar conditions and circumstances that we see today, also existed before the collapse of the Soviet Union exactly 20 years ago (ie in 1989 and 2001).

Former Russian acting Prime Minister Y. Gaidar admits that the key reason why the Soviet Union collapsed was # 27 in my list below-the USSR just went broke due to artificially low oil prices, encouraged by the USA and Saudi Arabia. Most people don't realise that the KGB and Communists supported and funded Arab terrorists starting in the 1970's to raise the price of oil-unsuccessfully. (see Gaidar quote at end of blog post below)

So, here's my list-41 early warning signals indicating the collapse in Russia's Putinism and the Yanukowych regime in Ukraine. (Randon order)

1)     Ubiquitous Institutionalized corruption and widespread bribe taking, kickbacks, covered up by double entry book keeping systems....I never understood  why even every street kiosk had to have an accountant

UPDATE: ....[..]...People in Russia & Ukraine are encouraged to be bribe-takers by the "system" that stretches back to Soviet days. Bribes compensate low pay. It’s a control mechanism. Corruption is tolerated by the state, until that person steps out of line and then the  authorities have evidence in hand to charge you…the higher ups and inner circle of Medvedev, Putin and Yanukowych never get charged…just look at the evidence....(well unless you fall out of favour like Berezowsky, Mikhail Khodorkovsky and other Russian oligarchs).(Russia and Ukraine)

2)      Theft of state property and funds via selective privatization (to your inner circle of friends) and crony capitalism. (Russia and Ukraine)

3)      Unrestrained money laundering. (Russia and Ukraine)

UPDATE: Russian Bank official charged over laundering of 17m dollars a day; Interfax news agency, Moscow, in Russian  14 Mar 2011

4)      Off shoring of assets and oligarch profits; Cyprus,  Switzerland (est. over  $100B from Ukraine), Belize, Virgin Islands and UK. (Russia and Ukraine)

5)      Capital flight; $25B from Russia $30B from Ukraine in 2010 alone. (Russia and Ukraine)

6)      Growing nepotism. (Russia and Ukraine)

German Daily Reports on Nepotism at Russia's Gazprom Frankfurt/Main Frankfurter Rundschau (Russia)

7)      Exported corruption to EU, Canada and the USA (Russian and Ukrainian mafia) (Russia and Ukraine)

8)      Condoned / Endorsed mafia activity and banditism at home.

ie No Jail Possible for Thieves, Managers in Russia >  (Russia and Ukraine)

9)      Tacit government support of contraband, narcotics  and human trafficking ie 7Km Market in Odessa, Ukraine. (Russia and Ukraine)

10)   Demographic collapse. (Russia)

UPDATE: Russia is in civilizational decline, new nations emerge-Siberians see themselves as separate nation from Russia  http://bit.ly/lSzxZm

11)   Weakened military control at the periphery of the empire. (Russia)

12)   Conflicts on the periphery.

UPDATE ie Extremist calls increasingly common in blogs, social networks - Russian police; RIA Novosti > Feb 1, 2011 (Russia)

Russian paper fears conscripting postgraduate students could trigger Russian brain drain  Vedomosti website, Moscow, in Russian 12 May 2011 (Russia)

Russia is in civilizational decline, new nations emerge-Siberians see themselves as separate nation from Russia  http://bit.ly/lSzxZm  (Russia)

13)   Army can't afford to pay utilities or conscript salaries, hunger strikes over wages (Russia)

14)   Government worker salaries withheld. (Russia and Ukraine)

15)   Lack of independent police and widespread corruption. (Russia and Ukraine)

16)   Lawlessness, police focus on extremists and political opposition instead of bandits who run free.

UPDATE: ie Russian police said putting social, political activists under surveillance in Yezhednevnyy Zhurnal website, Moscow, in Russian 2 Jun 2009; Extremist calls increasingly common in blogs, social networks - Russian police in RIA Novosti, Feb 1, 2011; Crackdown on dissenters, not corruption, seen as Russian police's priority> [Article by Aleksandr Podrabinek: "The Main Enemy for Starters"] in Yezhednevnyy Zhurnal website, Moscow, in Russian 9 Jun 10 (Russia and Ukraine)

17)   Lack of independent judiciary (pocket book justice where verdict can be bought directly or drawn out/extended) and corruption.   (Russia and Ukraine)

UPDATE: "The legislature and the judiciary have stopped executing their functions. The government is de-facto non-existent in Ukraine. All the decisions are made in the presidential administration. The last bulwark that we have is fair elections. But there is a threat that the current authorities will deprive the Ukrainian people of this right," said Tymoshenko in Brussels. --Ukrainians may be deprived of right for fair elections - former premier  ; Ukrayinska Pravda Online  Thursday, March 24, 2011

UPDATE: Russian court refuses to order arrest of prosecutor in illegal gambling case Moscow, 8 June 2011: Moscow's Basmannyy court has refused to order the arrest of the prosecutor of Ozery in Moscow Region, Anatoliy Drog, who is suspected of "protecting" illegal casinos in Moscow Region. Moreover, the court studied confessions from Drog's driver, Ruslan Tankiyev, who said he personally handed over the money received by Ozery's prosecutor as a bribe.

18)   Dictates from above to; pressure on parliament, the police, tax enforcers, the  judiciary and the interior ministry staff. (Russia and Ukraine)

UPDATE: The press secretary of Moscow's Khamovnicheskiy Court, Natalya Vasilyeva, maintains that pressure is being exerted on her boss, judge Viktor Danilkin. Earlier, she said that the verdict in the second Yukos trial was not Danilkin's independent decision. (Source: REN TV, Moscow, in Russian 1630 25 Feb 11);

 "The legislature and the judiciary have stopped executing their functions. The government is de-facto non-existent in Ukraine. All the decisions are made in the presidential administration. The last bulwark that we have is fair elections. But there is a threat that the current authorities will deprive the Ukrainian people of this right," said Tymoshenko in Brussels. --Ukrainians may be deprived of right for fair elections - former premier  ; Ukrayinska Pravda Online  Thursday, March 24, 2011

19)   Illegal Use of Administrative resources. (Russia and Ukraine)

20)   Cyber attack, info wars, online provocateurs to protect the status quo, false flag terrorist operations for excuse to declare marshal law.

UPDATE: ie Extremist calls increasingly common in blogs, social networks - Russian police; RIA Novosti > Feb 1, 2011 (Russia and Ukraine)

21)   Political opposition and critics branded as extremists and terrorists. Journalist critics murdered (Russia and Ukraine)

22)   Intelligence arms of government -FSB (formerly KGB) and SBU growing  in power.

UPDATE: ie Editorial says Russian security service protects regime, not people or state > Gazeta.ru April 10 2010 (Russia and Ukraine)

23)   Growth of religion as a political weapon ie Moscow Patriach Kirill,  Russki Mir and  the Compatriots Abroad progarm run by the FSB etc.

UPDATE i.e.  Azarov believes that government should not interfere in the union of churches ; Russian Moscow  Patriarch Kirill likley to take over Kyiv Patriarch Ukrainian Orthodox Church and church property in Eastern Ukraine by July 1, 2011-Walter Derzko (Russia and Ukraine)

24)   Politics of denial  game. (Russia and Ukraine)

25)   Food price fixing.

UPDATE: ie [Russian prosecutors uncover food price-fixing in several regions from  RIA Novosti News Agency 4 Oct 2010; Azarov: There are lobbying groups in Ukraine who want food price rises Interfax : Ukraine General Newswire. Kiev: Mar 1, 2011; Ukrainian president urges regional governor to prevent bread shortage  in Lviv; Unian, March 15 2011.]  (Russia and Ukraine)

26)   Commodity price fixing, specualtion. 

UPDATE ie. Antitrust agency could fine fuel traders up to UAH 1b, says energy minister Anonymous. Interfax : Ukraine General Newswire. Kiev: Mar 14, 2011; Ukrainian president urges regional governor to prevent bread shortage  in Lviv; Unian, March 15 2011 (Russia and Ukraine)

27)   Low (below $100 per barrel) or reversal of oil / gas and commodity prices that are /will bankrupt the government again. (Last year Russia said it needs oil at $100 per barrel for the next 5 year just to break even-now even that price may not be enoough. At $85 a barrel, Russia is going broke-- just like the straw that broke the camel's back in 1989 and 1991)

UPDATE: Will Russia and Gazprom go broke again?  and How high can oil go before it derails economic growth? 'spike and crash' scenario likely-similar to 2008 and 1970's    (Russia)

UPDATE: Quality of Russia's crude reserves deteriorating admits Russian ministry http://bit.ly/f8w1F1

28)   Behind the scenes support  to oligarchs and big business, ignoring  general public and small and medium business (ie [..] "small business, squeezed between the public-hygiene inspectorate demanding bribes and  rattled banks, where money is left hanging, can only smile at this." [...] ) (Russia and Ukraine)

29)   Uncontrolled Sovereign wealth fund spending, government going broke, no reserves. (Russia)

30)   Rising Russian nationalism and provoked ethnic tensions. (Russia)

31)   Potential Tax revolt 2011. (Russia and Ukraine)

32)   Protests demos and possibly a national strike 2011. (Russia and Ukraine)

33)   Deceptions and provocations, (Tabachnyk and Demjanjuk in the case of Ukraine. etc) (Ukraine and Russia)

34)   Endless empty promises and no action, or reforms or new governance business models. (Russia and Ukraine)

35)   Imbalances, paradoxes and contractions (ie Putin's $B dollar  palace vs. poverty rates;  oligarchs avoid taxes by off shoring profits vs. tax squeeze on SMB, Russia plans to upgrade its Navy/Black Sea fleet but it can't afford the basics- hoses, fire trucks and pumps to fight forest fires in the summer of 2010; Police and Interior Ministry told to concentrate on dissenters, not bandits, rapists, thieves, and corruption; Russian Official puts [future] Russia's arms exports portfolio at 30bn dollars (10 bn dollars in 2011), yet there is no money for social basics http://www.unian.net/ukr/news/news-419648.html etc   

Nearly nine million of Ukraine's 14 million pensioners live on $120 a month, while as many as a third of Ukrainians are mired in abject poverty. All of this is happening in a nation that is one the world’s top exporters of steel, ore, grain, chemicals and arms (Russia & Ukraine)                                                   

36)   intelligence service failures (Russia)

37) Loss of FDI confidence

UPDATE: Investors pulled a net $38.3 billion out of Russia last year, according to central bank data. > http://www.bloomberg.com/news/2011-01-23/bond-buyers-oppose-fitch-rating-as-spreads-widen-russia-credit.html) (Russia)

38) Wild unrealistic growth expectations based on debt financing (Russia & Ukraine)

 UPDATE: i.e. Ukraine’s reliance on foreign loans has raised its public debt to $54 billion, even as the government still hopes to tap up to $12.1 billion more in loans from the International Monetary Fund.

UPDATE: ie Russia’s economy may grow 5 percent this year, fueled by domestic consumption, construction and capital inflows, Yaroslav Lissovolik, Deutsche Bank chief Moscow economist, told a conference in London on Friday. (Bloomberg)http://www.themoscowtimes.com/business/article/for-the-record/429475.html

What  capital inflows?  (see 37 above ) Investors pulled a net $38.3 billion out of Russia last year, according to central bank data.  http://www.bloomberg.com/news/2011-01-23/bond-buyers-oppose-fitch-rating-as-spreads-wider-russia-credit.html

39) Disenfranchised unemployed  youth grows more militant leading to demonstrations, clashes and riots. Nashi out of control in Russia (Russia and Ukraine)

40) former "Cash Cow" industries become inefficient, debt laddened (Russia and Ukraine)

UPDATE i.e. Pundit says Russian defence exports not making profit, merely keep plants busy Anonymous. Ekho Moskvy radio, Moscow, in Russian  16 Mar 2011

41) Wild Card-flu outbreak in Russian military (Russia)

 

UPDATE:  see Ten Years of Putinism http://www.putin-itogi.ru/putin-what-10-years-of-putin-have-brought/  (Russia)

UPDATE: Statistics on Russian Crisis, Decay and Collapse (in Ukrainian or use Google translate)

UPDATE: Slow decay of Russia> http://www.youtube.com/watch?v=sRSOljlCj3s&feature=related 

(russian and English  dubbing)

UPDATE: Why did the Soviet Union Collapse? (lessons for Russia today)

According to Yegor Gaidar, who  was the acting prime minister of Russia, minister of economy, and first deputy prime minister between 1991 and 1994.

"The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.

As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive. The Soviet leadership was confronted with a difficult decision on how to adjust. There were three options--or a combination of three options--available to the Soviet leadership.

First, dissolve the Eastern European empire and effectively stop barter trade in oil and gas with the Socialist bloc countries, and start charging hard currency for the hydrocarbons. This choice, however, involved convincing the Soviet leadership in 1985 to negate completely the results of World War II. In reality, the leader who proposed this idea at the CPSU Central Committee meeting at that time risked losing his position as general secretary.

Second, drastically reduce Soviet food imports by $20 billion, the amount the Soviet Union lost when oil prices collapsed. But in practical terms, this option meant the introduction of food rationing at rates similar to those used during World War II. The Soviet leadership understood the consequences: the Soviet system would not survive for even one month. This idea was never seriously discussed.

Third, implement radical cuts in the military-industrial complex. With this option, however, the Soviet leadership risked serious conflict with regional and industrial elites, since a large number of Soviet cities depended solely on the military-industrial complex. This choice was also never seriously considered.

Unable to realize any of the above solutions, the Soviet leadership decided to adopt a policy of effectively disregarding the problem in hopes that it would somehow wither away.  Instead of implementing actual reforms, the Soviet Union started to borrow money from abroad while its international credit rating was still strong.  It borrowed heavily from 1985 to 1988, but in 1989 the Soviet economy stalled completely...

The money was suddenly gone. The Soviet Union tried to create a consortium of 300 banks to provide a large loan for the Soviet Union in 1989, but was informed that only five of them would participate and, as a result, the loan would be twenty times smaller than needed.  The Soviet Union then received a final warning from the Deutsche Bank and from its international partners that the funds would never come from commercial sources.  Instead, if the Soviet Union urgently needed the money, it would have to start negotiations directly with Western governments about so-called politically motivated credits.

In 1985 the idea that the Soviet Union would begin bargaining for money in exchange for political concessions would have sounded absolutely preposterous to the Soviet leadership.  In 1989 it became a reality, and Gorbachev understood the need for at least $100 billion from the West to prop up the oil-dependent Soviet economy.

Walter Derzko

Comments

[discjocke]

I've been predicting the same as you're predicting within Ukraine, for a few months now, at my ukraine-english-news.com/forum.

As has been mentioned, it might just happen as soon as the warm temperatures start rolling in. Demonstrations are occurring throughout Russia, and we hear about just a handful. Both Russia and Ukraine are in dire straits, and the fear of both country's leaders are seen. Desperation is starting to blossom. Just a matter of time. Who will lead it in Russia's beyond me. I believe in Ukraine, it'll once again be started again by the small business sector, which can cripple the country in a heartbeat. I do hope the change will happen quickly, much faster than is happening in the middle east currently.

[Account Deleted]

Hi Walter, I would share the most of your conclusions. I even "voted for it by my feet" as we say here in Russia by applying for immigration to one of the Western countries. However I would not agree to your proposals about Russia's braking apart in the nearest future. There are two points for that:
1. The power of Russian people is in the dip history and culture of nationalities living in Russia for centuries. They are able to get together in the face of danger. Political and economical collapse are able to get together people of different political wings. I am witnessed how civil society improved for the last 10 years. People do not quiet anymore and they protect their rights by all available constitutional manner.
2. The second reason against that bad scenario is that political elite clearly understands that situation is going out of their control. They started legally step by step liberate political dialog. The controlled by government Mass media reflect more and more different from the officials opinions.

[SmartEconomy]

Mit106
Remember your history

Back in the 1970s and 80s, cybernetic experts in Kyiv and Moscow using system dynamics modeling, predicted the collapse of the Soviet Union due to low oil prices, by 1990 plus or minus one or two years - not a popular notion at the time, but key people did pay heed. Two years before the collapse of the Soviet Union, Russian and Ukrainian oligarchs started to move their wealth off-shore in 1988-89. Similar systems dynamics modeling shows similar collapse signals and that Putinism in Russian and President Yanukovych’s regime in Ukraine will suffer a similar fate as did the former Soviet Union

[SmartEconomy]

Reply to Russell Smith-thanks for taking time to comment..see my reply below--Walter

If you only read the headlines of most newspapers, the perception you would get is that Russia is a rising regional power with ambitions of becoming a global super power again.
A public 2009 Canadian military foresight report summarizes the following: “Since 1999, Russia has been experiencing an economic revival largely based on its oil and natural gas exports. Unlike the USSR, modern Russia is not challenging the world order, only the current power distribution.” It concludes: Wanting to be a player on the world stage again, Russia will pursue continued relations with Europe, NATO, and the United States in order to prevent marginalization and help recreate Russia as at least a regional power. For the foreseeable future, Russia will not aggressively challenge the United States or its allies.”
In fact, this vision of Russia may be overly optimistic. The reverse may now be true.
In reality, both Russia and Gazprom, the state-owned gas company, are both quietly going broke, which the mainstream media and experts ignore. But wait a minute, you ask? Isn’t Russia selling oil and gas like there is no tomorrow? Yes, but that is Russia’s strength for the time being and its Achilles Heel in the medium and long run.
Russian Energy Minister Sergiy Shmatko admitted last November that the Russian oil sector had reached the point where it needs immediate reforms and a reduction in the tax burden, in order to prevent a rapid decline of oil production, starting in 2011-2012. This sector, meanwhile, generates over 40% of Russia’s export revenues, so that reducing the tax burden on the oil sector when Russia is already carrying a budget deficiency in the area of 10% is a very challenging task indeed. Coupled with tumbling oil production, we may see another collapse of both oil and gas prices in the near future. Europe is not as dependent on Russian gas as it once was. It now has other options, such as liquefied natural gas from Qatar and shale gas from Poland and Ukraine within the next five years.
Gazprom also carries a very heavy debt load, and can sustain stability only if its revenues increase, which looks unlikely. Russia had already depleted most of its sovereign wealth fund reserves, and is running budget deficiency 9-12% per year. Under these conditions it will have no resources for bailing out Gazprom. The recovery of the gas market in Europe will not be sufficiently fast, and will not produce sufficient demand to offset emerging competition from Central Asia, Azerbaijan, Qatar, and possibly Poland and Ukraine in European markets.
Remember too that oil price manipulation (keeping oil prices artificially low for a decade) was a geopolitical weapon that was successfully used by the USA (Zbigniew Brzezinski and the Reagan Administration) in an attempt to bankrupt the former Soviet Union. It worked.
Back in the 1970s and 80s, cybernetic experts in Kyiv and Moscow using system dynamics modeling, predicted the collapse of the Soviet Union due to low oil prices, by 1990 plus or minus one or two years - not a popular notion at the time, but key people did pay heed. Two years before the collapse of the Soviet Union, Russian and Ukrainian oligarchs started to move their wealth off-shore in 1988-89.
Similar systems dynamics modeling shows similar collapse signals and that Putinism in Russian and President Yanukovych’s regime in Ukraine will suffer a similar fate as did the former Soviet Union.
These geopolitical and economic developments may lead to the economic collapse of Gazprom in the short term and the Russian Federation during the second half of the current decade. Russia already defaulted on sovereign debt in the 1980s and won’t hesitate again to leave foreign bond holders with worthless paper. Such a collapse, even if it won’t impact on the territorial integrity of the Russian Federation, will essentially weaken Russia. It could lead to the rapid escalation of ethnic tensions in the Northern Caucasus, massive infiltration of Chinese migrants into Siberia, and growing separatist movements that will fill the power vacuum. Its ability to play the role of the superpower may be diminished at the regional level and over a larger geographical area, which includes Moldova, Ukraine, Russia, Kirgizstan, Tajikistan, Armenia, Georgia, and Azerbaijan, which may become unstable. The cause of such instabilities are still existent “frozen” conflicts in Transdnisteria, Abkhazia, South Ossetia, Karabakh, and border disputes in Central Asia. So far, all these conflicts remain “frozen” because of Russia’s heavy military grip. As this weakens, the probability of cross boarder and internal conflicts grows.
A new energy wild card has come into the mix. A new US biotechnology company Joule Unlimited has received a patent on a genetically modified E coli bacteria that can use only carbon dioxide (CO2) and sunlight to generate refined hydrocarbons including gasoline, jet fuel and diesel at a cost of $30 per barrel. So who do you think Europe will be buying oil products from in the future? High priced Russia ?

So if the worst case scenario takes hold in Russia, similar to conditions before the collapse of the Soviet Union, why would Ukraine want to strengthen its economic and political ties with Russia, a losing horse?

See more here at http://bit.ly/fDyi3m

[SmartEconomy]

Mit106

I'm posting your comment because any opposing views would likley be censored or banned in your country. I actually hope you are right, because I feel sorry for the hard working Ukrainian and Russian people, but not for the current regime in power. But your own experts are predicting collapse. Go complain to them, not to me...wd

[Account Deleted]

Hey, You! Russia, Ukraine, Belarussia and all Slavic nations will never fall down! You'd better think about your own country, which debts are goring too fast!

Remember! We will never be surrended and nothing will crash us!

[Russell Smith]

I don't understand number 24.

27 may be one of the most important, but a long term decline in oil pricing seems unlikely. I guess it depends on what price point you want to use as your basis point: $50 or $100 going forward?

I think the bigger problem going forward is a general one of the "Dutch Disease" of easy exports. And of course there is always the matter of how long the oil will last in so far as inexpensively obtained reserves.

Some of your list in the 30s were stated as future-possible events, but I take it to mean that they reflect lower level current events.

The Tunisian and Egyptian rulers both have learned that it is expensive but necessary to keep their military happy.

Once you have rioted in the streets to throw the bums out, presumably the second time is easier, but on the flip-side, are not a lot of Russians still disenchanted with the results of the Soviet break up?