Written by Paul Craig Roberts and Michael Hudson, originally appeared at paulcraigroberts.org
William Engdahl recently explained how Washington used the corrupt Brazilian elite, which answers to Washington, to remove the duly elected President of Brazil, Dilma Rousseff, for representing the Brazilian people rather than the interests of Washington. Unable to see through the propaganda of unproven charges, Brazilians acquiesced in the removal of their protector, thereby providing the world another example of the impotence of democracy.http://www.informationclearinghouse.info/article45561.htm
Everyone should read Engdahl’s article. He reports that part of the attack on Rousseff stemmed from Brazil’s economic problems deliberately created by US credit rating agencies as part of Washington’s attack to down grade Brazilian debt, which set off an attack on the Brazilian currency.
Brazil’s financial openness made Brazil an easy target to attack. One might hope that Vladimir Putin would take note of the cost of “economic openness.” Putin is a careful and thoughtful leader of Russia, but he is not an economist. He has confidence in neoliberal Elvira Nabiulina, Washington’s choice to head the Russian central bank. Nabiulina is unfamiliar with Modern Monetary Theory, and her commitment to “economic openness” leaves the Russian economy as exposed as Brazil’s to Washington destabilization. Nabiuina believes that the assault on the ruble is due to impersonal “global market forces,” not to Washington’s financial clout.
Nabiulina, an indoctrinated and propagandized neoliberal, is essentially a servant of Washington, not that she is aware of her role as “useful idiot.” She delights in the applause she receives from the Washington Consensus for leaving the Russian economy open to Washington’s manipulation. Being a neoliberal, she does not understand that Russia’s central bank can create at zero cost the money with which to finance productive projects in Russia. Instead, she thinks that the money entering the economy from the central bank is inflationary, but the money entering the economy from foreign sources is not.
Money is money regardless of whether it is made available by the central bank or by foreign creditors. As long as the money, whatever its source, is used productively, the money is not inflationary.
There is a huge difference between the money created by the central bank and the money created by foreign creditors. Money lent by foreign banks in the form or US dollars or euros must be repaid with interest in the foreign exchange in which the money was lent. Money created by the central bank to finance public infrastructure projects does not have to be repaid at all, much less with interest and in foreign exchange earned by exports.
Funds acquired from borrowing abroad bring many risks. The money can be pulled out, collapsing a freely traded ruble. The interest that must be paid is a drain on Russia’s foreign currency reserves. Foreign borrowing also brings a foreign exchange risk, which rises with economic sanctions. If the ruble drops in value or is driven down with an orchestrated attack, the ruble cost of the foreign loan can rise dramatically.
None of these risks and costs are present when the central bank is the source of money. The appropriate use of the Russian central bank is to create the money with which to finance public projects and to serve as lender of last resort to private Russian companies unable to obtain funding from Russian banks. This use of the central bank insulates the Russian economy from orchestrated destabilization.
It is unfortunate for Russia that Nabiulina and prime minister Dmitry Medvedev believe that Russian debt financed by hostile foreigners is preferable to money created by Russia’s own central bank. Glazyev, alone among Putin’s advisers, understands this. We suspect that the Atlanticist Integrationists have a target on Glazyev’s back as they hope to integrate Russia with the West regardless of the costs to Russia. These Russian “America Worshipers” are Russia’s greatest problem.
For Washington, neoliberal austerity is for “export only” to countries that Washington intends to turn into dependent financial colonies. By accommodating Washington’s goal, Nabiulina is engaging in a charade. The dollars and euros borrowed from abroad are not the money that goes to the Russian borrowers. The borrowed foreign exchange is held by the central bank. Nabiulina then creates the rubles that finance the projects. There is no point whatsoever to borrowing foreign currencies as backing for domestically created rubles. Regardless of whether Russia borrows abroad, the central bank must create rubles with which to finance the projects. So there is no point to the foreign borrowing.
A Russian government that cannot understand this is in deep trouble.
i know finance is one of the key factors in a fight, but always have difficulty to fully understand that. what could be the problems by creating rubles without borrowing abroad in her point of view and your pont of view? including also potential problems. and are there also benefits to create rubles with borrowing mony abroad?
it is interesting. whether you borrow or not abroad, you will create rubles anyway. and the created rubles needs to be paid back whether you borrow money abroad or not. hhmm…. inflation…. hhmm… this doens’t make sense. if most of the money is really spend on productivity, and most of the money being paid back, wouldn’t the inflate rate stay low.
however money lending doesn’t take time, but to recover it, will take much longer. so do we need to find a ballance to have control over inflation? i don’t know but i think it’s important to think about this topic.
thz for your article !!
and there would be the difference between theory and practise.
Rare sane words on subject. Russia is colony of EU and EU’s shotgun against USA. Nothing else.
bork bork
Russian central bank does not need foreign currency from investors to function as a central bank. The ruble can be supported by tangible assets in the form of natural resources and existing and future gold reserves. Russia is self sufficient and does not need Wall Street speculators involved in their financial business. If foreigners want to invest money or participate in financial schemes in Russia, Russia should impose a negative interest rate for taking their money.
Sound logic but I believe that the author of this article is suggesting that Putin dismisses Nabiulina and her cronies.
Russian central bank should cut all ties and remove any G7 influence from within. If Nabiulina and her cronies need to be dismissed…..so be it.
why is the chair of the russian central bank borrowing money abroad to create rubles?
It is the byproduct of G8 dynamics and and going back to the early 90’s when US advised Russia on free market concepts. Since Russia is no longer part of G8, they should scuttle these “habits” and become self sufficient. Some of it can be related to capital debt that needs to be serviced, however, Russia can play hardball with the Europeans if the situation worsens. The Fed creates money out of thin air without any tangible assets, being a debtor country, and relying on the reserve currency status to promote a parasitic system. Russia does not need to import dollars, they can generate dollars through their exports, and then dump the dollars in exchange for gold, rubble or whatever makes sense at the time. The whole idea is to dump dollars at infinitum and degrade the reserve currency status of the dollar, that enables the financial well being of the US.
One sure way of degrading the reserve currency status of the dollar is to break the US-Saudi axis, the same axis that is causing all the turmoil in the Middle East. If US attacks Syria, then Russia might have the opportunity to deal with the US and Saudi airbases the US aircraft use, by attacking Saudi installations …..including oil wells and supporting infrastructure. Rendering Saudis impotent in the OPEC framework would be bad news for the dollar. The other major oil producers in the area, Iran, Iraq would be willing to deal in any other currency other than the dollar or euro.
Time will come to the corrupt Washington who seeks to destroy any country who does not bow down to its will. The Philippines under the leadership of Duterte is very vulnerable to such attacks by Washington sooner or later.
I don’t know the answer to Paul Craig Roberts questions. I do however think that wrong choices, even minor ones, can have dire results for Russia in the coming years. The trouble is knowing the right choices is not a given. For me the bigger question is will Russia learn the lesson of WW2. Then as now Russia waited as an enemy built up forces along the border. I can see the logic in doing this; but was it the right choice? We never know what the alternative history would have been.
“Economic problems deliberated created by American credit rating agencies ,…to down grade debt(value),…attacking the (value of) Brazilian currency”. If you remember in the American financial “black hole” of 2008 , the value of so called “toxic assets” was derived from these same credit rating agencies. As the value of these mortgages collapsed , six big banks in Europe became bankrupt. These credit rating agencies have never been held accountable. Look at what is happening to DB ! The creation of new EuroAsian credit rating agencies , might be a positive step in outflanking US monetary control . Money created by the central bank of the nation (Russia), is the foundation of independence. Thomas Jefferson is good on this . Adolf Hittler called it “National Socialism” in his book . In England and Canada it was called “Social Credit”. Great article .
The duly elected President of Brazil, Dilma Rousseff was ally of the corrupt elites, many now in jail and we will celebrate when she and mr Lula go to jail.