Episode 155: Let’s keep this private

The markets around the world have been impacted by the Russian invasion of Ukraine. It’s a bit complicated. You start with the biggest country in the world by landmass, Russia, a recent history of communism, a change to privatization and then an attack that affects the world markets.

Well, the kids aren’t feeling well, and so it’s all me. The markets have been going a bit wild lately, so I’ve been very curious about what has been going on. For most, we’d probably never speak about the Ukraine and money, but we can’t ignore it. We are all connected, and when talking about money, the rising cost of things, like gas, and investing, there are many things to think about and learn here..

First, as we know, when we talk about the financial markets, we’re talking about all the stock and bond markets that have been bouncing around since Russia invaded Ukraine. Let’s remember that markets don’t like uncertainty, and there are a lot of things that aren’t very certain right now.

Where will we get our oil and gas for our cars? If Russia takes over Ukraine, will it take over other countries? Will other countries be pulled into the fighting? Will China be mad if the US helps Ukraine and not Russia? It keeps going, and that uncertainty causes people to want to move their money so it’s somewhere safer than the stock market.

Ok, a little bit of background. Russia is a big place, with 6.6 million square miles of land. If that doesn’t mean anything, then let me tell you it’s the largest country in the world. Yep, the WORLD. Does that help? Well, the US only has about 3.6 million square miles, and is the 4th biggest, after China. We can’t leave out Ukraine with 233k square miles, which is not quite 1/30th the size of Russia.

But, that always doesn’t mean much. I wanted to know the number of people in Russia. The population takes a while to calculate so in 2020, Russia had 146 million people. For a big place, that’s not really that many people. Any idea about the US? Well, we’re over 330 million people, which is well over double. There’s a lot of wilderness in Russia, and if you haven’t heard of Siberia, maybe you should’ve. It’s not really a vacation hot spot, and it’s a region of Russia. But, it’s BIGGER, yes, bigger than the US at about 5.1 million square miles. From what I found, the most common climate in Siberia has an ANNUAL average temperature of 23 degrees Fahrenheit, with January averaging -13 and July averaging 63. You better keep your fuzzy gloves nearby and a lot of turtlenecks. Then, we have Ukraine at around 44 million people, that’s about 30% of the population of Russia. I honestly thought it would’ve been much smaller.

So, it’s the largest landmass, but ranks 9th most populated behind our friends in Bangladesh. But, Bangladesh is ranked 94th in landmass. A lot less room over there, with a lot more people. So, you get to know your neighbors very well, since you’re very close to them.

So, what does this all mean? With that enormous landmass, you have a lot more possibilities to have access to great resources that can be used to make or sell all kinds of things. And, Russia has that. Since we spoke about Siberia, get this. It has about one-fifth of all the timber in the world. If you don’t know what timber is, think trees. You know the stuff we use to build houses, furniture, make paper and all kinds of other stuff. It’s mainly conifers, so think Christmas trees that make those cones for seeds to reproduce. But, the country also has a lot more natural resources and may have more than any other country in the WORLD. It may have the most natural resources anywhere, with tons of oil to make gasoline for cars. Natural gas that’s used to heat a lot of homes. Copper, diamonds, gold, silver, and many more. Can you say this is the stuff to make jewelry, cars, weapons, tools, construction materials for buildings and much more? Russia has the raw materials to make and or supply what almost every country in the world needs to take care of their people.

So, Russia invaded Ukraine, and people are getting hurt and dying. The US doesn’t want to see this situation for many reasons. Therefore, instead of sending in US soldiers, we’ve chosen to put on financial sanctions. That’s a fancy way of saying we’re going to try and punish them financially. As a parent, when a kid does something wrong, we may “sanction” them. We call it a punishment, but it’s the same thing, so think “punish” when I say “sanction”. For Mak & G, maybe sanction them and they don’t get to watch TV. Ouch. A video game sanction means no playing, ouch. An in internet sanction means no connection to wi-fi, ouch. Or, maybe no hanging out with friends. Sanction that!! Whatever it is that hurts or makes it painful for them is a sanction.

For Russia, we’re not their parents, and we can’t tell them what they can do, though I know we’d like to. But, we can do things, that can make their life uncomfortable for sure.

I didn’t know that the closest portion of the US is only about 2.4 miles away from Russia. Did you? I guess there are some islands called the Diomede. The Big Diomede is in Russia, and the Small Diomede is part of Alaska. Isn’t that crazy? The furthest point from the US and Russia is 37,500 miles between Maine and Okhota in the East of Russia. I thought that was nuts, especially when you think about the distance around the equator is less than 25,000. Ok, I seriously digress.

I wanted to know more about Russia and Ukraine, and I listened to a couple of summarized books about the subject. It started to put some pieces together for me. I don’t know if I got it all correct, but the USSR, which was the Union of Soviet Socialist Republics had 15 republics. One of them was Ukraine. It started in 1922 and lasted almost 70 years until 1991. I’m not a historian, but one book spoke about the catastrophe in Chernobyl in 1986 was the beginning of the end of the USSR. I found that fascinating because I honestly didn’t know that Cherynoble was in Ukraine. So, there are definitely some very tough feelings between the two countries.

Ok, so the USSR was communist, which means the government owns everything. When it fell apart, ownership was given to the people. How’s that work? For us, it would mean the US government would’ve owned my home, but when it fell apart, they’d just give it to me. My friend’s parents lived in an apartment in Moscow when the USSR fell. That’s exactly what happened. One day they owned nothing, the next, they owned their apartment.

They call this privatization. You give it to a private citizen like you and me and it’s no longer owned or operated by the government. I think of communism as the community, or government owns everything. And, privatization happened with businesses too. One day the government owned it, and the next day, the employees did. Think about what may have happened. People didn’t know about owning stuff. Sounds crazy weird, right? But, you’re entire life the government took care of you. There weren’t a lot of ways to really get ahead. Things changed seemed to change overnight.

So, what if someone came by your apartment and said “I’ll give you $1,000 for your apartment. Live here until you die, then it’s mine.” What if you’ve never seen that much money in your life. Or how about someone says “Hey, I know you own part of this business now, how about I pay you an extra $1 per week for 2 years and you give me your ownership?”. It happened all over the place. For people struggling, a couple of dollars sounded great. They didn’t know any better. So, the people buying got VERY rich. Plus, there were HUGE companies making enormous amounts of money.

Remember those natural resources that everyone wants around the world. Those companies, now went to friends of the inner circle after the USSR fell apart. The inner-circle was tight and didn’t let the average people in. They chose who they let into the special club. If we’re talking about natural resources, Russia has been exporting about 5 million barrels of oil a day. Yep, a day. And, they also take that oil and make other stuff inside Russia, like gasoline. They call that refining oil. They actually refine and send out 3 million barrels of say gas and other stuff. Don’t forget that a barrel of oil is 42 gallons. Are you starting to understand at 8 million total barrels a day of exports that’s over 330 million gallons of the stuff a day? A DAY!!!

Ok, so you HAVE to be earning billions of dollars a day doing this. If you were part of the inner circle when things fell apart, you could be a big owner, or even a small one, in lots of these businesses, or you could have gotten huge contracts given to you by the government. Someone has to build the government buildings, supply them with office products, furniture and more. Someone has to service all their computers, make weapons, clothes, manufacture bicycles, make bread, mine and provide all kinds of services. If you were in the inner circle or bought up a number of companies, real estate or say natural resources, you could earn a ton of money. You could become a billionaire yourself. Are you following me so far. Hit the music, because here come the Oligarchs.

I’m sure you’ve heard that word thrown around because remember those “sanctions”. That punishment is both on Russia and the Oligarchs. Ok, so what the heck is an oligarch?

I had to look it up just to be sure. I thought it was the super-rich billionaires. But, it’s actually a term to identify a small number of people who have all the power. If you have all the power, you can get all the money and do whatever you want. In some of my readings, certain governments like a communist, totalitarian or an absolute monarch would put all the power in the hands of a chosen few.

Well, here’s what happened. Some of these people in the inner circle were given those juicy very lucrative, think tons of money, but had to stay out of politics. It sounds like they were told, you want to earn a lot of money, no problem, but let us run things. So, they did. They started businesses, accumulated yachts, and mansions bought really impressive soccer teams, drove super fancy cars, and supposedly didn’t get involved in politics. Others hung around Mr. Putin.

Ok, if you want to hurt somebody, you have to hit them in their pocketbooks. We talk about money, so we’re going to mess with their money. But, when you try to do that, you don’t only hurt the very wealthy, you also hurt those who don’t have much money. This stuff is fascinating, and we’re getting to some very interesting money stuff. So, come back next week and I’ll finish up this little story about Putin, Mone, the Oligarchs and Ukraine.

See you next week for more Money with Mak & G…. BYEEE