F. William Engdahl — Russia’s Achilles Heel – Reflections from St. Petersburg

The first thing that is important to understand is that in Russia's governmental structure there are essentially two governments. The prime minister, currency Dimitry Medvedev, is responsible for domestic policy including economic policy, and the president, now Vladimir Putin, is responsible for foreign and military policy. The Central Bank of Russia is politically independent and responsible for monetary policy.

Secondly, it is important to grab that domestic affairs under Prime Minister Medvedev is deeply beholden to the ideology and economics of Western economic liberalism, introduced at the time the USSR collapsed. This cohort adheres to the the Western paradigm.

 Russia's Achilles heel is the economic liberalism inherited from the Yeltsin years and Harvard boyz by the proteges of Yegor Gaidar, the former Acting Prime Minister that introduced shock therapy. Current prime minister Dimitry Medvedev and central bank chief Elvira Nabiullina are economic liberals who follow the Washington Consensus that is based on neoliberalism as economic liberalization, deregulation, and privatization, along with low taxes and perks for "job creators." The prescription for economic policy is "expansionary fiscal austerity" in order to increase business confidence. The business of the central bank is solely to keep inflation low and the exchange rate stable.

What I experienced in my discussions at the conference–this year with record attendance of more than 12,000 business people and others from around the world–was a sense that there coexist two Russian governments, each the polar opposite of the other. Every key economic and finance post is firmly occupied at present by monetarist free-market liberal economists who might be called “Gaidar’s Kindergarten.” Yegor Gaidar was the architect, along with Harvard’s Jeffrey Sachs, a Soros-backed economist, of the radical “shock therapy” that was responsible for the economic hardships that plagued the country in the 1990s resulting in mass poverty and hyperinflation.
Today’s Gaidar Kindergarten includes former Finance Minister Alexei Kudrin, another Euromoney favorite in 2010 as international Finance Minister of the Year. It includes Economics Minister, Alexey Ulyukaev. It also includes Medvedev’s Deputy Prime Minister, Arkady Dvorkovic.

Dvorkovic, a graduate of Duke University in North Carolina, is a protégé, directly serving during his earlier years under Yegor Gaidar. In 2010 under then Russian President Medvedev, Dvorkovic proposed a lunatic scheme to make Moscow into a world financial center by bringing in Goldman Sachs and the major Wall Street banks to set it all up. We might call it inviting the fox into the hen house. Dvorkovic’s economic credo is “Less state!” He was the chief lobbyist in Russia’s WTO accession campaign, and tried to ram through rapid privatization of the assets that remain state-owned.

This is the core group around Prime Minister Dmitry Medvedev today who are strangling any genuine Russian economic recovery. They follow the western playbook written in Washington by the International Monetary Fund and the US Treasury. Whether they do this at this stage out of honest conviction that that is best for their nation or out of a deep psychological hatred for their country, I’m not in a position to say. The effects of their policies, as I learned in my many discussions this month in St Petersburg are devastating. In effect, they are self-imposing economic sanctions on Russia far worse than any from the USA or EU. If Putin’s United Russia party loses the elections on 18 September, it will be due not to his foreign policy initiatives for which he still enjoys 80+% popularity polls. It will be because Russia has not cleaned the Augean Stables of the Gaidar Kindergarten.

From various discussions I learned to my shock that the official policy of Medvedev’s economic team and of the Central Bank today is to follow the standard IMF “Washington Consensus” budget austerity policies.…

I had the honor of appearing on a major panel together with several members and founders of this group. It included a co-founder of the Stolypin Club, Boris Titov, a Russian businessman and open ideological foe of Kudrin, who is chairman of the All-Russian “Business Russia” organization. He insists on the need to increase domestic production of goods, stimulate demand, attracting investment, tax cuts and the cuts to the refinancing rate of the Central Bank. Titov is a central figure today in Russia’s recent China initiatives. He served as chairman of the Russian part of the Russian-Chinese Business Council, and member of the Presidium of the National Council on Corporate Governance.

My panel also included Stolypin Club leading members Sergei Glazyev, Adviser to the President of the Russian Federation, and Andrey Klepach, Deputy Chairman of the VEB Bank for Development. Klepach, a co-founder of the Stolypin Club, was formerly Deputy Economics Minister of Russia, and director of the macroeconomic forecasting department of the Ministry of Economic Development and Trade. My impression was that these are serious, dedicated people who understand that the heart of true national economic policy is human capital and human well-being not inflation or other econometric data.…

What was clear from my St Petersburg talks this time is that events are approaching a decisive “do or die” turn in which either economic policy is formally put into the hands of competent national economy circles such as those of Boris Titov, Andrey Klepach and Sergey Glazyev, or she will succumb to the insidious poison of Washington Consensus and liberal free market nonsense. After my recent private talks I am optimistic regarding prospects for a positive change.

NEO

Russia’s Achilles Heel – Reflections from St. Petersburg

F. William Engdahl

From the Saker’s inbox — caution about the Glaziev report

Dear friends,
I got the following email this morning and I want to share it with you:

“I see that you’ve posted a translation of the report attributed to Sergei Glazyev. While parts of it “ring true” because of SG’s similar formulations in the past, you might want to make your readers aware that this is a leaked text. My information is that it is, at best, a rough draft of what he may have reported before the Security Council. Some suspect that elements were doctored, to make it easier for the liberal financial press to attack it, as they have been doing for the past couple of weeks. See, for example: http://www.zavtra.ru/content/view/glazev-i-plan-revolyutsii-sverhu/ (not that everything in that article is right; the point about the corporate foreign debt is not so strange, for example, and is one that Yevgeni Primakov often made). Academician Glazyev did, however, present the entire, genuine article at today’s MEF session“.

Therefore, dear friends, caveat emptor (as always!).
Cheers,
The Saker

The Vineyard of the Saker
From the Saker’s inbox: caution about the Glaziev report
The Saker

Saker — Sergey Glazyev’s Report: “About urgent measures to counter threats to the existence of Russia”

“Business Online» for the first time publishes the full text of the widely discussed analytical document that will be presented today at the Security Council of the Russian Federation. Today, presidential adviser Sergey Glazyev will be presenting at the closed session of the interdepartmental commission of the Security Council the same report, which became widely known thanks to front-page article in the newspaper “Kommersant”, where it was named as the most complete presentation of the program outlined by the supporters of the “modernization breakthrough.” At the same time, at the disposal of both critics and apologists of these ideas was a biased set of fragments, but not the text itself – “Business Online» fills this gap.

Today, presidential adviser Sergey Glazyev will be presenting at the meeting of the interdepartmental commission of the Security Council a report on additional measures to overcome the economic sanctions against Russia

The report “On urgent measures to strengthen the economic security of Russia”, will be presented today at the inter-ministerial committee of the Security Council, which, after reading will pass it to the “Grand Council” chaired by Russian President Vladimir Putin. Proposals for the change of economic policy were prepared under the supervision of the Presidential Adviser Sergey Glazyev, although not by him alone, but by a group of about fifteen associates. Most of them belong to the domestic scientific community, moreover, the adviser to the president is a member of the Academy of Sciences.

Meanwhile, last week, the document acquired notoriety because of freestyle exposition of its ideas in the newspaper “Kommersant” – many economists and liberal journalists criticized the report. Yet no one could read the ” Pasternak himself”, because the report has not been published anywhere. As explained one of our well-known economists, head of the Institute of dynamic conservatism Andrey Kobyakov, the quotes from the report in “Kommersant” were “completely torn out of context,” and in this distorted form caused quite a stir in the Internet and in the liberal press. Meanwhile, in his view, the document offers practical measures to prevent the collapse of the Russian economic and public institutions in a standoff with the West.

“Business Online» is the first of the Russian Media to offer its readers the opportunity to to make up their own minds about the report of Sergey Glazyev. For ease of reading, we have divided it into chapters.

Full English translation. The Vineyard of the Saker Sergey Glazyev’s Report: “About urgent measures to counter threats to the existence of Russia” The Saker Translated by KA, Elona, Seva, Eugenia

Pepe Escobar — Russia’s ultimate lethal weapon

Let’s start with some classic Russian politics. Finance Minister Anton Siluanov is drawing up Russia's economic strategy for 2016, including the government budget. Siluanov – essentially a liberal, in favor of foreign investment - will present his proposals to the Kremlin by the end of this month.

So far, nothing spectacular. But then, a few days ago, Kommersant leaked that Russia's Security Council asked presidential aide Sergei Glazyev to come up with a separate economic strategy, to be presented to the council this week. This is not exactly a novelty, as the Russian Security Council in the past has asked small strategy groups for their economic assessment.

The Security Council is led by Nikolai Patrushev, the former head of the Federal Security Service. He and Siluanov are not exactly on the same wavelength.
And here’s where the plot thickens. Glazyev, a brilliant economist, is a Russian nationalist – sanctioned personally by the US.

Glazyev is arguably going no holds barred. He is in favor of barring Russian companies from using foreign currency (which makes sense); taxing the conversion of rubles to foreign currencies (same); banning foreign loans to Russian firms (depending if they are not in US dollars or euro); and – the smoking gun - requiring Russian companies that have Western loans to default.….

RT
Russia’s ultimate lethal weapon
Pepe Escobar

More evidence that Putin is getting advice from idiots

More evidence Putin is getting is advice from idiots. Take a look at these comments from one of his "senior advisers."

"An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system,” he added.

Sergei Glazyev, a senior adviser to President Putin, added that if Washington froze the accounts of Russian businesses and individuals, Moscow will recommend to all holders of U.S. treasuries to sell their U.S. government debt.

What more needs to be said? The guy's an idiot.

By the way, Russia holds $138 billion of Treasury debt. That's about one tenth of what China holds. What this guy doesn't understand is that even if they sold everything, the Fed's role as interest rate setter would require that it buy bonds to keep rates where they wanted them to be.