Thread: What do we earn from selling oil?

A funny pic I found on the Internet.



1. FRS prints unsecured dollars, Central Bank of Russia prints unsecured roubles, oil company X extracts real oil from earth depths of Russia.

Balanse 1: USA has dollars, Central bank has roubles, X oil company has oil

2. The oil company X sells the oil to USA and receives dollars.

Balanse 2: USA has oil, Central bank has roubles, X oil company has dollars

3. You can't spend dollars in Russia so X oil company sells them to the Central Bank and gets unsecured roubles in return.

Balanse 3: USA has oil, Central bank has dollars, X oil company has roubles

4. Central bank of Russia deposits its dollars in one of US banks and calls it foreign gold-currency reserve.

Balanse 4: USA has oil and dollars, Central bank has nothing, X oil company has unsecured roubles.

Perhaps it is better simply to print roubles and distribute them freely instead?

Ah, a very good point. Can I ask another question, though? Why not to build some infrastructure on the territory of the Russian Federation and pay for the latest and greatest infrastructure with the USDs? The bottom line will look a bit different:

A one-year balance:

US: oil is burnt -> infrastructure helped to generate GDP -> print more dollars
RF: dollars were spent -> infrastructure built -> GDP generated -> print more rubles
X oil company: 80% rubles spent to pay off the debts and 20% spent to invest into new infrastructure -> generate income better -> more GDP
-------
Total: More infrastructure -> More GDP -> more goods and services for the US and the RF citizens and all the mediators in between.

(Dollars and rubles are just the means of exchanging the goods and services fluctuating at any specific point in time. So, more dollars or less dollars doesn't really make a difference as the dollars is neither the goods nor the services, but just a media of exchange.)

What do you think of that?

Yes - it's ironic that only 20 years after Communism, the problems with capitalism are clearer in Russia than almost anywhere else.

I guess some of the Russian oil money ends up with regular people if the oligarchs and company executives actually spend the money it in Russia... I doubt they pay any taxes though!

And they forgot to add a column for Switzerland in the calculation! A lot of Russian oil money probably finds its way to Swiss bank accounts....

Originally Posted by Hanna

Yes - it's ironic that only 20 years after Communism, the problems with capitalism are clearer in Russia than almost anywhere else.

I truly wonder what is the process that can lead to that kind of conclusion. Would you kindly be able to spell it out for me?
Presently, most of the countries in the world are capitalistic. But does it mean all of them equally prosper? I think some of the other countries are able to demonstrate much more "problems with capitalism" than Russia. Some of the soviet people were in a strange oblivion that as soon as Russia (or any other of the 15 Soviet Republics for that matter) would become capitalistic, everybody will start to prosper economically and culturally. It was the same strange oblivion that conquered the minds of Russian people at the late 19th and the early 20th century and made them change the regime from the absolute monarchy to the constitutional monarchy to the republic to the war communist to the cooperative to the socialist and now to the republic again. The truth is that the regime itself is not solving all the problems. It solves some problems and it creates other problems. It benefits some people and does ill service to others. And the transition is very painful.

Originally Posted by Crocodile

Ah, a very good point.

That reckoning doesn't make sense to me.

Originally Posted by Crocodile

Can I ask another question, though? Why not to build some infrastructure on the territory of the Russian Federation and pay for the latest and greatest infrastructure with the USDs?

What kind of infrastructure and who should build that?

Originally Posted by Romik

What kind of infrastructure and who should build that?

It's the Lada-Kalina-production-plant kind of infrastucture and it should be built by the dwarves.

Crocodile, in Russia, we don't build infrastructure, we steal it. I've been on negotiations with one federal agency and when the time had come to discuss the price and we said 10 million (Roubles) they said 'No, the sum is too small. Make it 25 million and we're agreed.' I should probably mention to those who are not familiar with our realities here, that we gave back a bribe worth 15 million in order to get the contract. We got 10, the federal budget lost 25, and the official got 15. EVERY ASPECT OF RUSSIAN ECONOMY IS RULED LIKE THAT. NO EXCEPTIONS!

Some years back I would probably have agreed with the rhetorics that puts all the blame on the evil Americans, but in reality, if there are 'enemies of the state', they all live here, in Russia.

Originally Posted by Ramil

Crocodile, in Russia, we don't build infrastructure, we steal it.

Yes, I know that. So, let's assume that in reality only 10% of the budget can be spent on the infrastructure building, 40% is spent on the luxury services within Russia, and the 50% go to the Swiss banks. Let's live with it for a moment and assumet it's ok as long as the majority of people are not starving to death.

The point I'm trying to make is that the stabilization fund or any other government-owned fund for this matter is a waste of the capital. Remember the parable about the silver talents? So, in my humble opinion, presently 'saving money' for Russia is worse than hiding their talents in an underground storage. At least, the talents were silver and didn't depriciate that much, but the modern money is just a temporary agreement. I think a govenment cannot afford to 'save their money' by just storing it somewhere. In case of an emergency those money would evaporate very quickly. On the other side, if the same money is spent by the government to build infrastructure and generate more GDP, they can issue (=print) more money and the entire country would be richer.

So, it's not really a question of 10% or the 50%. So, it's not efficient. Ok. But I'm really having hard time to observe any kind of the wise infrastructure development. Am I missing anything here?

They build already a lot of things, there are upcoming sport events, you know, maybe less of it would be better. The costs of many things pricier that anywhere else in Europe.
Actually I think the more they spend the oil money the worse it can affect the Russian economy as people would bay imported things rather than inward more often.
The best thing I think for the economy would be to stop to sell that raw materials.

Интересны комментарии на форуме автора картинки. Особенно в конце.

Схема "безплатной" передачи нефти из

Originally Posted by Ramil

Some years back I would probably have agreed with the rhetorics that puts all the blame on the evil Americans, but in reality, if there are 'enemies of the state', they all live here, in Russia.

I thought that you knew! We all have the same enemy now. It is the central banks of all the countries that own our governments, and the owners of the central bank are the same people. This is not a joke, by the way. ....maybe to the bankers but not to the people like us. These are the real enemies, and not individual countries and regular people. The Russian Revolution was funded by these same bankers.

Originally Posted by Sgt. Cold

I thought that you knew! We all have the same enemy now. It is the central banks of all the countries that own our governments, and the owners of the central bank are the same people. This is not a joke, by the way. ....maybe to the bankers but not to the people like us. These are the real enemies, and not individual countries and regular people. The Russian Revolution was funded by these same bankers.

And how they affect on Putin and others thereabouts?

Originally Posted by Romik

as people would bay imported things rather than inward more often.

Ah, now you're talking business! So, let's be practical here: say you worked hard (or not hard) and earned $10,000. You decide you want to own a car. How would you spend your money? Would you rather buy a new VAZ-produced vehicle like Kalina or a used Japanese car like Toyota or Honda? That was a rhetoric question. So, what stops VAZ from licensing say from Toyota and start mass-producing the Corolla? It would be a bit lower quality than the equivalent Japanese, for sure, but it would still be a way better than Kalina, cheaper than importing Corollas and would therefore satisfy the internal market limiting the import. Does it make sense? So, the cost of licensing and the cost of building a plant could be partially (or fully) sponsored by the Russian Government with the oil money. That was an example of a 'kind of infrastructure' I was referring to. That would also provide more local jobs spurring the GDP. So, in the end, an average Russian citizen could afford a better car for the same money. Do you think that would qualify for the definition of "richer"?

Originally Posted by Romik

They build already a lot of things, there are upcoming sport events, you know, maybe less of it would be better.

That is also some infrastructure, which is something, and they are looking for getting that money back once the Olympics is over. Which is good. However, that is a one-time action and not an infrastructure development plan that could (and should) be sponsored with the oil money.

Originally Posted by Romik

The costs of many things pricier that anywhere else in Europe.

I think Ramil had already covered that. That's mainly because of the corruption.

Originally Posted by Romik

Actually I think the more they spend the oil money the worse it can affect the Russian economy

Again, that depends what's been done with the money. If the money is calmly daydreaming in the banks, than it's worse for Russian economy, since there's no stimulus to diversify the income.

Originally Posted by Romik

The best thing I think for the economy would be to stop to sell that raw materials.

Ok, and what do you think should Russia sell?

Originally Posted by Ramil

Crocodile, in Russia, we don't build infrastructure, we steal it. I've been on negotiations with one federal agency and when the time had come to discuss the price and we said 10 million (Roubles) they said 'No, the sum is too small. Make it 25 million and we're agreed.' I should probably mention to those who are not familiar with our realities here, that we gave back a bribe worth 15 million in order to get the contract. We got 10, the federal budget lost 25, and the official got 15. EVERY ASPECT OF RUSSIAN ECONOMY IS RULED LIKE THAT. NO EXCEPTIONS!

Some years back I would probably have agreed with the rhetorics that puts all the blame on the evil Americans, but in reality, if there are 'enemies of the state', they all live here, in Russia.

Wow that's quite an admission. If the person got caught accepting a bribe, what would happen to them? Can they bribe their way out of trouble?

Scott

Originally Posted by Romik

And how they affect on Putin and others thereabouts?

It has an affect on the people. The government should be responsible for printing a countries money. But now, the bankers have set up private banks called central banks that print the money and sell it to the government and charge interest. This interest accumulates and the interest on the interest is charged also, so this money can NEVER be paid off. In the USA and I assume the same in Russia, all of the income tax paid by the taxpayers goes to pay for this money to the central bankers. It is a scam. The central banks make billions on this scheme and the people are generally unaware.

All of our other financial problems are "small potatos" compared to this.

Originally Posted by Crocodile

Ah, now you're talking business! So, let's be practical here: say you worked hard (or not hard) and earned $10,000. You decide you want to own a car. How would you spend your money? Would you rather buy a new VAZ-produced vehicle like Kalina or a used Japanese car like Toyota or Honda? That was a rhetoric question. So, what stops VAZ from licensing say from Toyota and start mass-producing the Corolla? It would be a bit lower quality than the equivalent Japanese, for sure, but it would still be a way better than Kalina, cheaper than importing Corollas and would therefore satisfy the internal market limiting the import. Does it make sense? So, the cost of licensing and the cost of building a plant could be partially (or fully) sponsored by the Russian Government with the oil money. That was an example of a 'kind of infrastructure' I was referring to. That would also provide more local jobs spurring the GDP. So, in the end, an average Russian citizen could afford a better car for the same money. Do you think that would qualify for the definition of "richer"?

Do you think who in charge of VAZ, GAZ aren't smart as you? They already have done that kind of combined infrastructure. The plants of Toyota, Volkswagen, Renault, GM and others are already present in Russia. It's difficult to be practical in Russia. Either way a choice is pricier and worse. The cheaper foreign car produced in Russia - Renault Logan is 1,5 time more expensive than the analog produced in Hungary.
To build that kind of infrastructure the oil money is not needed. If there is the demand on a product in a market, there is the possibility to return on investment producing the product locally, they take a credit, usual things, and the Russian Government has helped to implement those things like imposing blocking customs on imported cars.

Originally Posted by Crocodile

Again, that depends what's been done with the money. If the money is calmly daydreaming in the banks, than it's worse for Russian economy, since there's no stimulus to diversify the income.

Just to spent money without returning, growth of wages without growth of productivity, increase inflation, worsening competitiveness of the economy.

Originally Posted by Crocodile

Ok, and what do you think should Russia sell?

Released products.

Originally Posted by Romik

Released products.

Can you give an example? If, as you said, "it's difficult to be practical in Russia" how do you envision that happening?

Originally Posted by Crocodile

Can you give an example? If, as you said, "it's difficult to be practical in Russia" how do you envision that happening?

For example petrol instead crude oil. I don't envision what could happen, I just gave a thought that increasing spending of oil money won't help that ways as you suggested.
Now things often that it's not profitable to build an infrastructure to produce a product in Russia as anyway the same product could be imported from China 2 time cheaper and not worse in quality. And the kind of infrastructure they often build is final assembling of imported details.

Originally Posted by Romik

For example petrol instead crude oil.

Ok, so you call the petrol a "released product" and not "raw material." (I'm not arguing about definitions, I'm just accepting what you said for the time being.) So, what do you think stops Russia from exporting petrol?

Originally Posted by Crocodile

Ok, so you call the petrol a "released product" and not "raw material." (I'm not arguing about definitions, I'm just accepting what you said for the time being.) So, what do you think stops Russia from exporting petrol?

Well, I really don't know, there are a lot of things I don't understand. Now they involve BP to rig the Arctic that has just smeared the US shores.