Tuesday, April 17, 2018

Sputnik International — Russia Has Answers to Possible SWIFT Cutoff, Debt Sale Ban by US

Calling the bluff.

See also

This is not just a trade war from the US side. It is an economic war to deny China access to technology. China knows this.

Zero Hedge
China Slaps 179% Tariff On US Sorghum Hours After US Bans Exports To China's ZTE
Tyler Durden


Konrad said...

Thanks for posting this Mike.

A couple of points…

[1] FROM SPUTNIK: “The scenarios of anticipated sanctions could include a ban on buying Russian sovereign debt…”

Whenever any article talks about “sovereign debt,” we must always ask, “In what currency?” Most articles fail to specify what currency they are talking about, because most authors want you to think that all “sovereign debt” is the same, which it is not. The Russian government, for example, can create infinite rubles out of thin air. However Russian rubles are not widely accepted outside of Russia. Therefore Russia needs foreign currency in order to buy imports. To get foreign currency, Russia sells exports (such as oil and gas) and, when necessary, Russia borrows foreign currency by selling sovereign bonds, which Russia pays off in foreign currencies when the bonds mature.

Why is this important? Because Western economists like to say things like, “The social programs of Venezuela have put the government deeply in debt.” Such statements are meaningless if we do not specify the currency. If the Venezuelan government’s debt is denominated in Venezuelan bolivares, then this “debt” is trivial, since the Venezuelan government can create infinite bolivares out if thin air. But if the government’s debt is in foreign currency, then the government can have a problem if the debt becomes huge.

Economists deliberately fail to clarify this, because most economists want you to think social programs that help average people always put the national government in “crippling debt.” This is nonsense. It is a lie.

So, to repeat, whenever someone talks about a nation’s “sovereign debt,” you must ask, “In what currency? Foreign or domestic?”

[2] Since Russian sovereign bonds are payable in foreign currencies (e.g. euros, pounds sterling, US dollars etc.) and since Russia will not default on its bonds, investors find the bonds to be lucrative. Therefore if the Western Empire forbids the purchase of Russian sovereign bonds, the Empire will hurt its own investors as much as it will hurt Russia. We already see this in the Empire’s ban on Russian agricultural products. This ban hurts Europe as much as Russia. That's why Treasury Secretary Mnuchin will not ban the sale of Russian debt instruments. The Western Empire is incredibly stupid, but not THAT stupid.

[3] FROM SPUTNIK: “The Russian government is also considering measures to encourage the Russian people to buy Russian debt instruments (OFZs).”

Here again, this statement by itself is meaningless. The Russian government has no need to sell Russian debt instruments to Russian people, since the Russian government can create infinite rubles. RT and Sputnik are as guilty of these economic gaffs as are the Empire’s corporate media outlets. Both commit constant errors. I wish I could have a long talk with their editors so I could straighten them out.

Matt Franko said...

“The Russian government has no need to sell Russian debt instruments to Russian people, since the Russian government can create infinite rubles.”

It depends on how they regulate their banks... if they don’t sell the bonds there may not be the removal of reserve assets necessary for the banks to remain in regulatory compliance ...

Matt Franko said...

Rusal payroll now in jeopardy:


Tom Hickey said...

See John Helmer, Unalloyed Reform — Six-Point Plan for Russian Aluminium to Prosper, Without Oleg Deripaska

I had posted a link to this here at MNE previously.

Konrad said...

@ Matt Franko: Thank you. I should have been clearer.

The Russian government may decide to sell government securities (aka "debt instruments") denominated in rubles to Russian investors for reasons of MONETARY policy (bank reserve requirements, inflation control, etc).

However the Russian government has no FISCAL need to sell government securities to Russian investors.

In terms of monetary policy, raising the yield on government securities to make securities more attractive is one way to remove money from immediate circulation, and thereby control inflation.

For example, during World Wars I and II, unemployment was near zero in the USA, yet consumer goods were rationed for the war effort. Americans had lots of cash, but few goods to spend their money on. This created a threat of price inflation. So the US government devised two means to remove money from circulation. One means was to impose a federal withholding tax, (during WW II) which we still have today. The other means was to sell "Liberty Bonds" during WW I, and "War Bonds" during WW II. The US government told the masses (falsely) that the purpose of these bonds was to "finance the war," when in fact the purpose was to control wartime inflation. As for “financing the war,” the US government did that by creating dollars out of thin air, just as the government does today.

So you are correct. A government may sell securities to its own citizenry for monetary reasons, but as I said, not for fiscal reasons. That was what I meant. Apologies for my lack of clarity.

Again, thanks for reading my previous comment above, and for responding.