NOTE: Readers are asking to know who, in addition to the Western-financed NGOs, are the Fifth Columnists inside Russia. Michael Hudson and I left the description general as Atlanticist Integrationists and neoliberal economists. The Saker provides some specific names. Among the Fifth Columnists are the Russian Prime Minister, head of the Central Bank, and the two top economics ministers. They are springing a privatization trap on Putin that could undo all of his accomplishments and deliver Russia to Western control.
http://sakerlatam.blog/the-saker-files/putins-biggest-failure/
by Paul Craig Roberts and Michael Hudson
Two years ago, Russian officials discussed plans to privatize a group of national enterprises headed by the oil producer Rosneft, the VTB Bank, Aeroflot, and Russian Railways. The stated objective was to streamline management of these companies, and also to induce oligarchs to begin bringing their two decades of capital flight back to invest in the Russia economy. Foreign participation was sought in cases where Western technology transfer and management techniques would be likely to help the economy.
However, the Russian economic outlook deteriorated as the United States pushed Western governments to impose economic sanctions against Russia and oil prices declined. This has made the Russian economy less attractive to foreign investors. So sale of these companies will bring much lower prices today than would have been likely in 2014
Meanwhile, the combination of a rising domestic budget deficit and balance-of-payments deficit has given Russian advocates of privatization an argument to press ahead with the sell-offs. The flaw in their logic is their neoliberal assumption that Russia cannot simply monetize its deficit, but needs to survive by selling off more major assets. We warn against Russia being so gullible as to accept this dangerous neoliberal argument. Privatization will not help re-industrialize Russia’s economy, but will aggravate its turn into a rentier economy from which profits are extracted for the benefit of foreign owners.
To be sure, President Putin set a number of conditions on February 1 to prevent new privatizations from being like the Yeltsin era’s disastrous selloffs. This time the assets would not be sold at knockdown prices, but would have to reflect prospective real value. The firms being sold off would remain under Russian jurisdiction, not operated by offshore owners. Foreigners were invited to participate, but the companies would remain subject to Russian laws and regulations, including restrictions to keep their capital within Russia.
Also, the firms to be privatized cannot be bought with domestic state bank credit. The aim is to draw “hard cash” into the buyouts – ideally from the foreign currency holdings by oligarchs in London and elsewhere.
Putin wisely ruled out selling Russia’s largest bank, Sperbank, which holds much of the nation’s retail savings accounts. Banking evidently is to remain largely a public utility, which it should because the ability to create credit as money is a natural monopoly and inherently public in character.
Despite these protections that President Putin added, there are serious reasons not to go ahead with the newly-announced privatizations. These reasons go beyond the fact that they would be sold under conditions of economic recession as a result of the Western economic sanctions and falling oil prices.
The excuse being cited by Russian officials for selling these companies at the present time is to finance the domestic budget deficit. This excuse shows that Russia has still not recovered from the disastrous Western Atlanticist myth that Russia must depend on foreign banks and bondholders to create money, as if the Russian central bank cannot do this itself by monetizing the budget deficit.
Monetization of budget deficits is precisely what the United States government has done, and what Western central banks have been doing in the post World War II era. Debt monetization is common practice in the West. Governments can help revive the economy by printing money instead of indebting the country to private creditors which drains the public sector of funds via interest payments to private creditors.
There is no valid reason to raise money from private banks to provide the government with money when a central bank can create the same money without having to pay interest on loans. However, Russian economists have been inculcated with the Western belief that only commercial banks should create money and that governments should sell interest-bearing bonds in order to raise funds. The incorrect belief that only private banks should create money by making loans is leading the Russian government down the same path that has led the eurozone into a dead end economy. By privatizing credit creation, Europe has shifted economic planning from democratically elected governments to the banking sector.
There is no need for Russia to accept this pro-rentier economic philosophy that bleeds a country of public revenues. Neoliberals are promoting it not to help Russia, but to bring Russia to its knees.
Essentially, those Russians allied with the West—“Atlanticist Integrationists”— who want Russia to sacrifice its sovereignty to integration with the Western empire are using neoliberal economics to entrap Putin and breach Russia’s control over its own economy that Putin reestablished after the Yeltsin years when Russia was looted by foreign interests.
Despite some success in reducing the power of the oligarchs who arose from the Yeltsin privatizations, the Russian government needs to retain national enterprises as a countervailing economic power. The reason governments operate railways and other basic infrastructure is to lower the cost of living and doing business. The aim of private owners, by contrast, is to raise the prices as high as they can. This is called “rent extraction.” Private owners put up tollbooths to raise the cost of infrastructure services that are being privatized. This is the opposite of what the classical economists meant by “free market.”
There is talk of a deal being made with the oligarchs. The oligarchs will buy ownership in the Russian state companies with money they have stashed abroad from previous privatizations, and get another “deal of the century” when Russia’s economy recovers by enough to enable more excessive gains to be made.
The problem is that the more economic power moves from government to private control, the less countervailing power the government has against private interests. From this standpoint, no privatizations should be permitted at this time.
Much less should foreigners be permitted to acquire ownership of Russian national assets. In order to collect a one-time payment of foreign currency, the Russian government will be turning over to foreigners future income streams that can, and will be, extracted from Russia and sent abroad. This “repatriation” of dividends would occur even if management and control remains geographically in Russia.
Selling public assets in exchange for a one-time payment is what the city of Chicago government did when it sold the 75 year revenue stream of its parking meters for a one-time payment. The Chicago government got money for one year by giving up 75 years of revenues. By sacrificing public revenues, the Chicago government saved real estate and private wealth from being taxed and also allowed Wall Street investment banks to make a fortune.
It also created a public outcry against the giveaway. The new buyers sharply raised street parking fees, and sued Chicago’s government for damages when the city closed the street for public parades or holidays, thereby “interfering” with the rentiers’ parking-meter business. Instead of helping Chicago, it helped push the city toward bankruptcy. No wonder Atlanticists would like to see Russia suffer the same fate.
Using privatization to cover a short-term budget problem creates a larger long-term problem. The profits of Russian companies would flow out of the country, reducing the ruble’s exchange rate. If the profits are paid in rubles, the rubles can be dumped in the foreign exchange market and exchanged for dollars. This will depress the ruble’s exchange rate and raise the dollar’s exchange value. In effect, allowing foreigners to acquire Russia’s national assets helps foreigners to speculate against the Russian ruble.
Of course, the new Russian owners of the privatized assets also could send their profits abroad. But at least the Russian government realizes that owners subject to Russian jurisdiction are more easily regulated than are owners who are able to control companies from abroad and keep their working capital in London or other foreign banking centers (all subject to U.S. diplomatic leverage and New Cold War sanctions).
At the root of the privatization discussion should be the question of what is money and why should it be created by private banks instead of central banks. The Russian government should finance its budget deficit by having the central bank create the necessary money, just as the US and UK do. It is not necessary for the Russian government to give away future revenue streams in perpetuity merely in order to cover one year’s deficit. That is a path to impoverishment and to loss of economic and political independence.
Globalization was invented as a tool of American Empire. Russia should be shielding itself from globalization, not opening itself to it. Privatization is the vehicle to undercut economic sovereignty and increase profits by raising prices.
Just as Western-financed NGOs operating in Russia are a fifth column operating against Russian national interests, so are Russia’s neoliberal economists, whether or not they realize it. Russia will not be safe from Western manipulation until its economy is closed to Western attempts to reshape Russia’s economy in the interest of Washington and not in the interest of Russia.
Commentary by the Saker:
When two preeminent economists like Michal Hudson and Paul Craig Roberts take the time to jointly issue a stark warning to the Kremlin President Putin really ought to pay attention. The combined wealth of knowledge and experience of Hudson and Roberts is simply unparalleled and their record clearly shows that they both are friends of the Russian people. I honestly believe that to ignore their warning would be absolutely irresponsible.
I fully agree that the latest privatization plan is a direct attack by the Russian 5th column against President Putin and against Russia. Roberts and Hudson put it perfectly:
“Those Russians allied with the West—“Atlanticist Integrationists”— who want Russia to sacrifice its sovereignty to integration with the Western empire are using neoliberal economics to entrap Putin and breach Russia’s control over its own economy that Putin reestablished after the Yeltsin years when Russia was looted by foreign interests“.
Putin cannot wait much longer. He needs to take action now. All his supporters have been literally begging Putin to finally purge the government from what in Russia is called the “economic block of the government”. There are plenty of excellent Russian economists capable of *truly* begin to reform the Russian economy (Glaziev) and most of the Russian business community will enthusiastically support such reform. But the first step in this process must be to finally take action against the Atlantic Integrationists. Now.
The Saker
Roberts, Hudson, & Saker,
Brilliantly Done and Written!
It is to be hoped that Russia’s top leadership, including the Duma members, will see and read this article. It’s translation (to Russian) would be advisable.
Yes, Russia, and all nations that wish to remain, or become Sovereign, and, most importantly, control their economies, and their credit, must keep their Banks (specially), and other key economic (such as industrial and control of natural resources), enterprises, under Public control.
Lovely and Loving advice for Russia. And good advice for all peoples’ nations!
PJA
Dear The Saker,
http://www.fort-russ.com/2016/02/glazyev-we-need-large-scale.html
Glazyev is now discussing the need for large scale nationalisation.
Rgds,
Veritas
Let’s watch how the ‘privatization idea’ spreads in the following weeks. I am sure that Russia will not fall in this trap once again.
Excellent article! let’s see if President Putin will balance in the right direction,that will be a game-changer
I am also waiting to see what Vladimir Putin does sooner, rather than later.
In case V. Putin or others around him (including Glazyev, Starikov …) might read this website, I have a proposal that might seem baffling at first.
But, if you think more about it, it’s probably the best way to create and maintain a monetary system which cannot be abused too much and which naturally provides the required elasticity for an expanding or shrinking economy.
First, let me quickly point the biggest problem of
1- a gold backed monetary system or
2- a fractional reserve fiat system
Gold on its own has very little intrinsic value (even for industry), except that many people (especially women) are craving to wear it because they were indoctrinated in childhood. And by the way, the same thing is valid for diamonds. The world is literally filled with diamonds, but the market is cornered by the Oppenheimers.
One advantage that gold had from the old times is that you cannot counterfit it.
However, let’s assume a country has a finite amount of gold and that population+economy of that country doubles in 50 years. It’s easy to understand that more money will be needed for the extra population and the extra amount of goods in circulation. But the gold is the same, so the price of it will double. Therefore, people will feel that is better to accumulate gold instead of doing some business. This will strangle the economy leading to depression.
In the past, because population and economies were growing so slow, no one within a generation would have realized that gold is a stopping element. On top of it, the world kept extracting it.
So, fair enough, gold is good to prevent bankers from creating fake currency, but it’s not good for economies like today when high technology is booming, there more services every 5 years that people want (internet, software, plastic surgery, movies, music concerts and albums … think about … they all need extra money to be paid with … compared with a shelter, some food and some clothes just 300 years ago).
Therefore, a monetary system that allows to expand the money supply as the economy and population grows, it’s much better, if it’s done in good faith. That’s, amongst others, one of the reasons why the British Empire flourished so well for 2 centuries.
However, as we can see, the fiat monetary system got abused after the FED was created in 1913. Not so much in the first 50 years, but much more lately.
So, what system to chose between the two ?
How about a system in which the money is a contract or legally binding piece of paper based on which one can get a CERTAIN AMOUNT OF ENERGY ??? Not petrol or gas, or grains or salt … but a certain number of kWhour or Joules.
These units of energy are there set in the laws of the Universe, no banker in the world can play scams anymore.
Plus, most of the goods and services created by humans can be scientifically related to the energy spent to create them (so pricing can be proven scientifically).
For example, a piece of bread needs the energy required for the crops to grow, to be harvested …. to be milled and then finally baked into a loaf. Eventually, we add the energy needed for transporting that bread into the shelves of a store.
Also, if someone needs to heat his house, he can pay for it using legally binding notes that will allow him to get a certain number of kWh from a state or company.
Countries can exchange these “money” or notes in forms of energy (electrical, caloric). This will be equivalent to the settlements performed today in Basel. Just that we can bypass Basel and their magic (corrupt) methods of establishing exchange rates. It’s through that Basel+FED scam that some countries have a “strong currency” while others are falling down in the abyss of inflation.
If V. Putin will create such a system, he can be the hero to placed humanity on a path of progress never seen before.
Let’s think now what happens if there is “oversupply of energy” (because of new hydro-plants, for example). Instead of the price of energy to drop, like it happens in a corrupt fiat system, more energy notes can be issued and economy will be stimulated with the real food = energy. People and businesses will be motivated to expand and burn that surplus.
If energy becomes scarce because there is no more water in the hydro-plants or natural gas, the economy will also shrink to a sustainable level.
I think this proposal takes the international banking mafia out of the game. But most important, it opens the eyes of entire humanity to become aware about another method of trading. This eliminates speculation and promotes a fairness.
In terms of countries implementing this, it’s almost the same as we think today, just replace the reserves in dollars with reserves in kWh that a certain country can provide when the settlement date comes. Beside kWh, it can be any other form of basic energy converted to kWh by using standard physical laws: thermal energy, oil (energy value),
Fully agree. Russia should gulag the israel-american 5th column and completely dismantle all the infrastructure these sods set up to ensure continued Russian subservience to the zpc/nwo.
Aw, its not happening, Russia is moving in the wrong direction and will continue to move in the wrong direction, I secretly held out that “Putin had a plan”, that he was “sskillful maneuvering himself in the right position to strike” but it seems he does not.
For true change to happen there seems to need to be a power change, either a coup or the military take over or another party takes over. Putin is good, very good, but he sadly he will not do what it takes. I even heard that Putin wished to join NATO initially, it seems to me many of the good things for Russia indepedance he has done not because he wishes Russia to distance itself from the west and develop independently, but because the west rejects Russia.
Don’t let (allegedly communist) Martin from East Berlin know your thoughts!
Everybody with eyes and the capability tp process at least small parts of information can here (and at 10.000 other places) witness, what a bad evil “capitalist” I must be:
http://thesaker.is/paul-craig-roberts-and-michael-hudson-privatization-is-the-atlanticist-strategy-to-attack-russia/#comment-207682
“”””” Martin from S.E.B. on February 09, 2016 · at 12:20 am UTC
Hi eimar:
Fully agreed.
They did the same (almost) everywhere, in 1994 and since in Germany, from 2002 or what it was on in Poland, since last October they split the Serbian Railways into such small fractions competing with each other.
This all lead and leads to: More unemployment, higher customer prices, more railway lines closed down and back to start. A deadly cycle.
I first heard about the privatization plans for the RZD 3 days ago in a german railways forum. Just when I wanted to write a longer comment about the situation I saw that Saker already is aware of the subject and published his article.
It must be prevented under all circumstances!!!
So called “Privatization” has destroyed all of Eastern Europe since 1989.
What remains are de-industrialized empty lands or “new markets” how the Oligarchs would say.”””””
But I noticed that almost or not even almost _no_body helps me here.
Maybe that tard is right: A pity for my energy and time.
Joining NATO would effectively neutralize them.
RR
ordered Michael Hudson’s book and am waiting for Paul Craig Robert’s commentary. Thanks, gentlemen.
Joining NATO would have ended it. It would have been a great victory for Russia, which is why it was rejected out of hand by many in the West.
Also read this article by F. William Engdahl
http://journal-neo.org/2016/02/08/is-china-being-wooed-by-fantasies-of-western-acceptance/
A US fight back to keep the dollar number one?
Russia cannot move away from the dollar and survive until China is fully onboard. Some time ago I read that the AIIB would be lending only in US dollars which did not sound good. Now this article by Engdahl and also Putin even considering privatisations?
The talk of privatisations in Russia, what is happening with China and the AIIB/IMF, Obama/Kerry’s recent diplomacy (Iran nuke deal, talk of drooping sanctions against Russia ect), I think are all part of a concerted US effort to keep the dollar at number one.
Their hand may be forced, in an ironic twist, to ‘do something’ and that will in fact deliver a coup de grace to the dollar.
I suspect for long time now is they are scared sh!tless to start/conduct any major war lest some kickass wildfire start in either/and the dollar & bond market.
If you can find a long-term chart multi-decade of either US treasury bond yields, or the inverse bond value per $100 issued face value, look at right exactly January 1968—there was a huge inflection point jump from a slow rise to a near parabolic rise in rates demanded by the market, & an inverse collapse in bond prices that didn’t stop till late 1981.
What happened right in there around then? Tet offensive Vietnam end of January/68.
Which all the vainglorious cheerleaders wrote as propaganda was a victory for the side of freedom.
World money markets said opposite, a run on US debt because all those tens of billions issued to then hadn’t bought or guaranteed sh!t!.
Since 1971 its intrinsic value has been zero, so how long can they continue to issue dollars & bonds by the cubic cubit & expect it to keep its same value?
DB Deutsche Bank one of world’s biggest down another 8% today to $15+, way below even the dismal low of the 2008 crash, & for reference a high of $102 early 2008 & only $55 in 2014:
http://stockcharts.com/h-sc/ui?c=DB,uu%5Bd,a%5Ddacaynay%5Bdf%5D%5Bpb200!b28%5D%5BiUk21!Ld21%5D&pref=G
We’re supposed to believe everything is just marvy!
I see it right now as damned if they do, & damned if they don’t.
Peter AU,
Yeah I know that everybody is cheering the AIIB and the BRICS NDB, but so far they are not as the alternative sites are presenting them. AIIB has decided that its first project w/b a co-project w its Western rival, the Asian Development Bank.
China’s argument w the West is just that it wants more votes for iself & BRICS– so that they will have more power w/in the present IMF/Fed structure.
If Michael Hudson’s Modern Monetary Theory were put in place China & the BRICS would not merely be adding their hands to the leash which is strangling sovereign countries everywhere. Nor would lending thru either IMF or AIIB be quite the engine for development that IMF fails to be today. Nations wd in many cases be creating their OWN credit. That’s the revolution. It’s the NDB that’s using dollars. Only if nations become sovereign again is their any hope that citizens can regain control over them & their govt’s monetary and trade policies– forever unreachable if seated in some supranational institution.
If you want info on AIIB or NDB, etc, I’m sure GlobalResearch.ca has at least one article on each.
@ anonymous: Hudson, though he is affiliated with UMKC is not an MMT proponent. MMT theory does not reform the current monetary system, believes that debt-free money cannot exist and is an impedement to teal monetary reform. I suggest you take time to read Dr. Joseph Huber’s critique of MMT. Or actually attempt to understand what MMT Theory is all about.
This is nonsense. Of course I support MMT and my colleagues at UMKC. Randy Wray, Stephanie Kelton et al.
Michael Hudson
The above comment is nonsense. Of course I support MMT, and my colleagues Randy Wray and Stephanie Kelton.
People who talk of “debt free money” don’t understand that balance sheets have a liabilities side as well as an asset side. Randy Wray’s books will walk them through this.
Michael Hudson
Michael Hudson most definitely is an MMTer.
Huber is a Positive Money cultist. If his arguments can’t rise above ad hominem and strawmen then he doesn’t have much.
Michael Hudson asked me to post the following reply:
The above comment is nonsense. Of course I support MMT, and my colleagues Randy Wray and Stephanie Kelton. People who talk of “debt free money” don’t understand that balance sheets have a liabilities side as well as an asset side. Randy Wray’s books will walk them through this.
Michael Hudson
Saker, before panicking I advise you consider this: http://politrussia.com/ekonomika/pravilnaya-putinskaya-privatizatsiya-967/ (in Russian).
Dmitry, very interesting!!!
So the announced “fire sale of assets” is in fact a disguised “forced investments” for the oligarchs who want to work in Russia ?? Did I understand this correctly?
Are their any other links about this that are English?
Dmitry, since you are native Russian speaker, maybe give us all a summary ?
@Serbian Girl,
Here’s a machine translate (sorry Mods for lengthy post, the link won’t give the translation, so am cut-and-pasting):
* * * * * * * * * * *=*=* * * * *
I want to share with you tragic news. The
Bloomberg agency exposed the cunning plan of
Vladimir Putin and reported about it to the
whole world. The American journalists came to a
conclusion that Putin isn’t going to sell the state
enterprises to foreign investors, and after all
they so hoped for opportunity to buy any sweet
state asset on cheap stuff.
And the Bloomberg agency found out that
foreign investors don’t trust Putin. On this place,
probably, it is supposed that the Russian reader
has to be hung up literally from melancholy, but
I for some reason don’t want to do it.
Foreign investors even can sympathize. They
with excitement watched some months efforts
of the government on advance of a new wave of
privatization, and, probably, it seemed to them
that the happiness is so close, but the fiasco
turned out.
Conditions which were laid down by Vladimir
Putin for privatization of minority packages of
public industries, frightened off many
representatives of the Western financial world.
Actually Putin put the ideal filter which doesn’t
allow the western speculative capital to
privatization.
The president insists that the structure which is
in the Russian legal framework can only be the
buyer of minority packages and it is the major
aspect. The noisy, but badly understanding law
inhabitants of social networks already branded
this condition, having declared it the cheap PR
course, after all stirs nothing foreign or even the
offshore company to found the Russian open
company and to participate in privatization at
formal observance of all conditions.
Yes, it so, but here foreign speculators well
understand a problem: if shares are taken by
the Russian company in the Russian legal
framework, and all subsequent conflicts to the
state or potential expropriation will decide in the
Russian legal framework and with the Russian
open company as the participant of judicial
proceedings. Repetition of a situation with
“Yukos” which actions belonged to the offshore
foreign companies is already impossible.
It turns out that in this situation only those
foreign investors who aren’t afraid of the
Russian courts will participate in privatization
and aren’t afraid to play in everything by rules
of the Russian state. Those who wanted to
hapnut an asset on cheap stuff to sell and run
away, are eliminated, washing bitter with tears
pages of “Bloomberg”, “Sheets” and “Gazeta.ru”.
It would seem, foreigners have to whine with
envy in relation to the Russian oligarchs, after all
each Internet patriotic knows that a new round
of privatization — this plunder of the country.
However foreign journalists and financiers are
able to work with the calculator and are able to
penetrate into details.
In fact, it turned out so: that thought the
government as sale of assets at any price,
turned in peculiar “coercion to investments” for
those oligarchs who want to work in Russia. The
source of Reuters agency which, according to
the statement of agency, “is close to
privatization process”, claims that oligarchs
minority equity stakes at the price above market
will force to redeem, and operation is performed
within the program for return of the oligarchical
capitals To Russia.
Control of the companies remains in hands of
the state what Putin accurately declared. On the
sum of factors it turns out that oligarchs money
in the budget forces to pour right now, and also
to invest in those companies, whose minority
shareholders they will become. In an exchange
they receive hope that when national economy
considerably will grow, they will be able to count
on certain dividends or on opportunity to sell
the package at higher price. This scheme has
one more positive side effect. It will connect
interests of business elite with health of the
Russian economy and the state enterprises that
can’t but please.
It is good that we have a president – the judoist
wizard who uses even the most dangerous
proposals of our liberals to improve a situation
in the country. And that the essence of some
actions should be read in comments of foreign
mass media while the state and allegedly
patriotic editions are occupied with fascinating
discussion of details of the relations of the goat
Timur and the tiger Amur is bad at us.
Systematically failure information policy can cost
very much to us.
@Serbian Girl,
Here’s a machine translate (sorry Mods for lengthy post, the link won’t give the translation, so am cut-and-pasting):
* * * * * * * * * * *=*=* * * * *
I want to share with you tragic news. The
Bloomberg agency exposed the cunning plan of
Vladimir Putin and reported about it to the
whole world. The American journalists came to a
conclusion that Putin isn’t going to sell the state
enterprises to foreign investors, and after all
they so hoped for opportunity to buy any sweet
state asset on cheap stuff.
And the Bloomberg agency found out that
foreign investors don’t trust Putin. On this place,
probably, it is supposed that the Russian reader
has to be hung up literally from melancholy, but
I for some reason don’t want to do it.
Foreign investors even can sympathize. They
with excitement watched some months efforts
of the government on advance of a new wave of
privatization, and, probably, it seemed to them
that the happiness is so close, but the fiasco
turned out.
Conditions which were laid down by Vladimir
Putin for privatization of minority packages of
public industries, frightened off many
representatives of the Western financial world.
Actually Putin put the ideal filter which doesn’t
allow the western speculative capital to
privatization.
The president insists that the structure which is
in the Russian legal framework can only be the
buyer of minority packages and it is the major
aspect. The noisy, but badly understanding law
inhabitants of social networks already branded
this condition, having declared it the cheap PR
course, after all stirs nothing foreign or even the
offshore company to found the Russian open
company and to participate in privatization at
formal observance of all conditions.
Yes, it so, but here foreign speculators well
understand a problem: if shares are taken by
the Russian company in the Russian legal
framework, and all subsequent conflicts to the
state or potential expropriation will decide in the
Russian legal framework and with the Russian
open company as the participant of judicial
proceedings. Repetition of a situation with
“Yukos” which actions belonged to the offshore
foreign companies is already impossible.
It turns out that in this situation only those
foreign investors who aren’t afraid of the
Russian courts will participate in privatization
and aren’t afraid to play in everything by rules
of the Russian state. Those who wanted to
hapnut an asset on cheap stuff to sell and run
away, are eliminated, washing bitter with tears
pages of “Bloomberg”, “Sheets” and “Gazeta.ru”.
It would seem, foreigners have to whine with
envy in relation to the Russian oligarchs, after all
each Internet patriotic knows that a new round
of privatization — this plunder of the country.
However foreign journalists and financiers are
able to work with the calculator and are able to
penetrate into details.
In fact, it turned out so: that thought the
government as sale of assets at any price,
turned in peculiar “coercion to investments” for
those oligarchs who want to work in Russia. The
source of Reuters agency which, according to
the statement of agency, “is close to
privatization process”, claims that oligarchs
minority equity stakes at the price above market
will force to redeem, and operation is performed
within the program for return of the oligarchical
capitals To Russia.
Control of the companies remains in hands of
the state what Putin accurately declared. On the
sum of factors it turns out that oligarchs money
in the budget forces to pour right now, and also
to invest in those companies, whose minority
shareholders they will become. In an exchange
they receive hope that when national economy
considerably will grow, they will be able to count
on certain dividends or on opportunity to sell
the package at higher price. This scheme has
one more positive side effect. It will connect
interests of business elite with health of the
Russian economy and the state enterprises that
can’t but please.
It is good that we have a president – the judoist
wizard who uses even the most dangerous
proposals of our liberals to improve a situation
in the country. And that the essence of some
actions should be read in comments of foreign
mass media while the state and allegedly
patriotic editions are occupied with fascinating
discussion of details of the relations of a goat of
Timur and a tiger of Cupid is bad at us.
Systematically failure information policy can cost
very much to us.
* * * * * *
Ps Thanks Penelope too for the two links .
Thanks Eimar, much appreciated!
Technically it’s not a “privatisation” at all but a “put option” for a minority stake… This is not interesting at all for private investors.
Tragic news indeed for Wall Street. Quite ingenious, if it is correct, on behalf of Putin and co.
This is a must read article.
There is an article carried in Sputnik International today, “US debt will reach $30 trillion in a decade”. The article carried this comment :
“”I think it is a terrifying scenario for the United States. It is incredibly unwise to have a situation where you are essentially borrowing simply to pay interest on previous borrowing,” the analyst argued”.
I read this and I couldn’t help thinking, so the “exceptional nation” now finds itself in the same enviable position it has for decades through the IMF and the world bank forced upon developing nations throughout Africa and Latin America and God knows where else (read confessions of an economic hitman and Naomi Kleins shock doctrine), poetic justice indeed. There is such a thing as karma and what goes around will always come around, and now the citizens of the “one indispensable nation” will also know the privations and devastation on their society and economy long experienced by Africans and Latin Americans .
About 65% of the US debt is held by other US institutions (government or private). It’s part of the game of the FED printing money and giving it to the government in exchange for the “US-Treasuries”.
Here are some numbers:
The famous FED / Federal Reserve – $2.461 trillion
Social Security – $2.786 trillion
Office of Personnel Management Retirement – $873 billion
Military Retirement Fund – $601 billion
Medicare – $267 billion
All Other Retirement Funds – $187 billion
Cash on Hand to Fund Federal Government Operations – $508 billion.
Mutual Funds – $1.056 trillion
China is the largest foreign holder, with $1.2645 trillion.
Japan is next, at $1.1449 trillion.
Russia holds only about $80 billion.
In conclusion, US can continue living on debt “ad infinitum” because the FED will just print more dollars (in fact is just pressing a few buttons on computer keyboard) and give it to the US Treasury. The Rest of the World using US dollars is actually going to pay for it through inflation.
This article with Saker’s addendum makes my blood boil and gets my Irish up. This is the worst thing to happen to the world since the privatization of sex by marriage; now by money.
This is a life or death issue. Lincoln and JFK found that out when they made money public.
Vineyard Russia lovers can pray, send light, energy and the information of this article to the Russian government, relatives, friends, media and anyone else who can exert influence on Putin and his cronies.
I’ll do my bit with the little wit I have left. What I can’t do, love can. We have received so much “Love From Russia.” Now it’s time to make a new movie called “Love To Russia.”
This morning I watched the sun rising through the trees from my outdoor bed here in 80 degrees S. Cal, after a night of periodically viewing the stars overhead. I thought that if all that lovlectric magnetism could be focused by a vineyard on the move, mountains could be moved.
My early morning rituals include readings of love, including this vineyard Russian version. Allow me to share what a random opening from The Song of Songs translated by Robert Graves revealed. What was arresting was the portrayal of love as an “army in battle array.”
“Bridesmaids: The other women, queens and concubines, have blessed and praised her [love]. They cry: ‘Who is this who advances like the light of dawn, lovely as the moon, clear as the sun, terrible as an army in battle array?’
“Bridegroom: I retired to my garden, to view the fruits of its valley, to see whether the vines were flourishing, whether the pomegranates were budding. [a la Saker Vineyard] There I lost my senses, feeling like a chariot driven by a princess.
“Bridesmen: Return, return, daughter of Shulam that we may gaze on you again!
“Bridegroom: What do you see in this daughter of Shulam, unless it were an army in battle array?”
And from my textbook @ thelovegovernment.com: “When push comes to shove, it’s a matter of love.”
Dennis, you have apparently left the French Ukraine documentary thread, but Lumi and I have both added to it, and I would like you to to check back in there, assuming you have not yet.
You may be pleasantly surprise! But check out the 2 hr 16 minute till 2 hr 45 minute segment of the link I provided. Evidently he did not. I think it might help him understand that what we are up against is not invincible. He’s stuck on his computer altered sunset photos of the WTC towers. Since I have been in one of them (1979) I was slightly unconvinced by his link. See what you think and help him up Jacob’s Ladder if you can. I fear he has fallen off and his rhymes may go to waste.
» He’s stuck on his computer altered sunset photos of the WTC towers. «
The photo I posted was of the fake smoke pipe system installed at the WTC on 9/11 2001:
https://latimesphoto.files.wordpress.com/2010/09/911-05_l8jz78nc.jpg
This fake smoke pipe system used on 9/11 to hoax the American people (and the rest of the world) can be observed on many close-up videos of the WTC facade. Like here:
September 11th 2001 ABC Dub 2_23 – YouTube
The post you’re referring to is here.
» I have been in one of them (1979) «
Of course there were offices in the WTC in 1979, at least on the lower floors. Looks like you’re stuck in that year as you don’t seem to remember that 9/11 happened in 2001.
It was unclear what you were asserting in your posts on the towers. When and how do you assert they were vacated without anyone noticing? That’s as nutty as the idea that they were almost always empty, which I took as the more reasonable of your two possible intended meanings,both of which I consigned to the outer fringes of extremely remote possibility.
Has anyone here concluded anything similar to what you conclude from these photos, videos you keep posting, as though they were proof positive of anything? All I have seen is a couple of other people also questioning their relevancy. Not that votes or consensus establishes truth, but what are you seeing or thinking that others are not???
More clarity, man, more clarity. Otherwise we end up talking about entirely different things! Sorry, can’t spend all day in the vineyard. Maybe better luck next time!
His excellency Henry Kissinger received a royal welcome at the Kremlin from his friend Vlad recently – that says it all.
Joy, it’s not the end of the world if Henry Kissinger met with the Kremlin. Henry represents one voice of the CFR and like organizations. He has an opinion. The Kremlin would like to find out his opinion and voice their own concerning various economic and NATO events. If I were Mr. Putin, I welcome an opportunity to convey a message directly to the gang at CFR. Henry has spoken his dislike for the Presidents policies concerning Syria and Turkey. You cannot take much more away from that meeting than a willingness to talk.
Are there friends in foreign affairs? Besides, meeting important people is the only rational and wise thing. Russia is trying to break the unity of the West and work with those factions it can. Many argue that the Kremlin has had various deals with the Obama White House, ex-State Department, regarding Syria. If so, this is a serious accomplishment, not something that “says it all”.
This seems a bit garbled. Economics always has that effect on me, I have to confess. But this does seem confused.
All the evidence from the many victims of the IMF is that the conclusion is correct. Russia should not be privatizing assets to finance the government’s deficit. (At least, any privatization would have to be strictly regulated.)
But nor should Russia be monetizing the deficit.
The conclusion that it should reject neoliberal (quack) remedies does not rely on heterodox economics. – The drawbacks of the neoliberal version of globalization are a hot topic in mainstream economics (see “The Globalization Paradox” by Dani Rodrik OUP 2011).
I’m a wishy-washy liberal and believer in mainstream economics, sufficiently slow on the uptake that I am only now questioning my faith, But what is a coherent alternative? Glaziev et al. seem to mix a bit of Marxian economics, a bit of old-style Keynesianism, and some central planning. Central planning has been tried and failed (see “Whither Socialism” by Joseph Stiglitz MIT 1996). Old-style Keynesianism relies on a causal link between public spending and economic growth that has not been found to hold in practice. And Marxian economics, I know nothing about, other than that the labour theory of value is generally considered exploded. As I understand it, the advantage of Marxian economics is that it studies explicitly the questions of class and power that mainstream economics discreetly hides from view (for the benefit of those who have and shall be given).
Can anyone recommend a text on Marxian economics and its practical consequences (preferably not technical or mathematical)?
Just briefly on the (apparent) gobbledygook which contributes nothing to the argument against the Washington Consensus: The authors are talking about money and credit in a market setting. It is not clear why they say that credit is a natural monopoly. It is however the case that the provision of credit by the banking system works best with some sort of guarantor, a central clearing house or bankers’ bank or a central bank backed by government. Credit and money are distinct – the two sides of the balance sheet. When the banks extend credit, they create money. For any given institutional set-up, there is a determinate demand for money. Excess supply will merely drive down the price of money i.e. drive up the rate of inflation. If banks extend excessive credit, their clearing house will increase the interest it charges them to reflect the increased default risk. Similarly, the central bank. This will choke off the demand for credit. The more efficiently this system works, the less disruptive will be the economic cycle. This is not altered in essentials by making the central bank the only source of bank credit. If it extends too much credit, there will be an excess supply of money, and inflation will rise. Monetizing the government deficit makes sense if the economy is in a slump (there is a shortfall in money supply relative to demand). It does not make sense if the economy is anywhere near capacity, when monetizing the deficit will create excess money. It will lead to hyperinflation. The authors’ description is surely garbled, and does not as they claim reflect practice in capitalist economies.
There is also a question about the assertion that allowing foreigners to own Russian assets encourages them to speculate against the ruble. This seems odd on the face of it: the investors would not want their ruble income stream devalued by a fall in the ruble exchange rate. They have no motive to speculate against the ruble.
But I’ve gone on long enough.
Ewan, you are trapped by the rigidly Aristotelian ideological walls of your own economic assumptions/ideology.
Like I said last time, how the hell do you expect to resist Empire with no internal improvements?
How can you resist Empire as Lincoln did, without placing the interests of your producers above those of your atomized, no vision consumers, who can’t see beyond the trough their pig snouts are stuck in??
Etc, etc, etc.
You say, “There is also a question about the assertion that allowing foreigners to own Russian assets encourages them to speculate against the ruble. This seems odd on the face of it: the investors would not want their ruble income stream devalued by a fall in the ruble exchange rate. They have no motive to speculate against the ruble.”
Tell that to Agents of Empire like George Soros. They would eat you alive if you were in charge of a national economy and of a mind to protect a national economy from their attacks, if you did not quickly shed your ideological blinders that they made for you. Capisce???????????
Soros and many more like him would love to gobble up Russian companies and then sink the country. They would be hedged to win in so many ways that your head would spin. They are playing a different game than you imagine. They are not trying to gain a few billion more dollars by protecting Russia and their new lusted for investments there. They are backed by bigger fish (Rothschilds, Rockefellers, British Monarchy, etc) who are out to crush all opposition to their world domination. That’s their mission. Not to make a few more billion $.
please no caps. amended on this occasion – next to trash. Mod TR
Ted
“Aristotelian”?
“Internal improvements” – public works – are no doubt a Good Thing. Hitler found them so in the 1930s. (His economists told him it wasn’t sustainable. Just as well what he was running a war economy for – was to fight a war. Otherwise, not a panacea).
I do love the image of Abraham Lincoln resisting the Empire But I think we should leave him be.
I take it you have no coherent economic theory or practice you can refer me to?
As for rubles and foreign investors, I was merely pointing out that what the authors were suggesting does not make sense – that foreign investors will both invest in rubles and at the same time speculate against the ruble. (Perhaps they should have explained that they didn’t mean to refer to economic agents seeking profit, but agents who seek to profit by destroying their own profit…?.) A critique of the Evil Empire should at least make sense.
The Royal Family?
Ewan, I wish I had more time.
But let’s give it a try:
“Aristotelian?” Yes. Epistemology. The theory of knowledge you are employing. The investigation of how you know what you know, how you distinguish reality from mere appearance, prejudice or belief.
Aristotelianism is full of “logical” ( but not reasonable) syllogisms that are mere mental traps that handicap the mind from ever discovering fundamental principles. You emit many such syllogisms of the form
If A = B and B=C, then A =C that bespeak ideologogical/formal logic programming more than reason.
Example: A “Hitler made internal improvements in Germany
B “His economists told him it wasn’t sustainable
C He was a disaster. (unsaid by you, but he was, I agree)
Ergo Hitler was an idiot (C) because (A) he made unsustainable internal improvements, ignoring his economist advisors(B) .
Mechanically, that might seem to hold, on the surface, with little or no inspection. But there are problems. Guess what Ewan? A and B are both completely wrong (see in the link provided who really paid for the autobahns and munitions factories, and why!…..) and completely miss the point of what really happened. Only C is correct. And “they” are going for it (stop Eurasian cooperation and integration, especially Germany hooking up with Russia, at all costs….) again, so maybe we should get clearer on some things, this time, and not let them? Maybe?
Here’s the story of what really happened, from one insightful point of view, employing a principal of morality, without economic ideology blinders: https://youtu.be/U1Qt6a-vaNM
from the 4 minute 30 second mark to the 45 minute mark should suffice for now, but the whole is worth watching.
Any German visitors will find this documentary liberating in the sense that you will be empowered to shed some of your victor imposed “guilt” (even if you are young) onto Americans, and particularly the British. Though the narrator is an Englishman, I believe.
Also good on Russia, in a general, background way.
“British Royal Family?” Pretty good on them too.Except they are really Germans, who have no problem setting Germany and Russia against each other 2,3,4,5 times.Oligarchs don’t give a damn about nations.
But best against dumb. corrupt Americans. If there is moral and epistemological garbage all over the landscape there will be rats (banksters) governing and exploiting them until the people get tired enough of the rotten arrangements to change themselves, first. I’m an optimist. It can be done, with enough good fights among people of good will looking for a way out of the strategic and civilizational crisis of today.
Just don’t take the side of Roger Taney and his Dred Scott decision against Abraham Lincoln. That’s just ridiculous. And I won’t let either of them “be”. That was just yesterday in historical terms and still very highly relevant.
Ted
Ah! Aristotelian! I do know that a valid syllogism entails (if that is the word) a conclusion that is true only if the premises are true. Luckily, I didn’t pretend to reduce what I was saying to a series of valid and true deductive arguments. Phew!
However, it is worth remembering that you’re more likely to arrive at correct conclusions if you apply rationality rather than irrationality. Aristotelian logic is a step in the right direction.
Since we’re talking logic, my comments about public works and Hitler were more in the nature of a reductio, don’t you know. Public works are not the be-all and end-all. If they were, Hitler would have done wonders. (His economic policies, in fact, could only be justified as an all or nothing preparation for war. If you’re interested in the German economy under the Nazis, Adam Tooze “The Wages of Destruction” Penguin (I think) is a very good history.)
I’m sure you know that “placing the interests of producers above those of consumers” doesn’t really make a lot of sense. If no-one consumes, there’s no point producing.
That the plutocrats of the world are united in defending their interests and collaborate with fascists, that JFK was likely a victim of the Deep State, that the US (and before it the UK) has repeatedly used terrorists for their own ends – none of this is controversial, I think. It may be that Francis Richard Conolly over-eggs it, which is always bad for credibility. (Similarly, with the Royal Family. I suggest some brief study of the history of the British constitution in the last couple of centuries.)
My main grouse with your response, however, is that it does not address what I said.
I said that I agree with the conclusion that Russia should try to extricate itself from the institutions of the international economy that are, in effect, a means for the US to exploit others.
I said that the argument presented in the article for that conclusion appears garbled to me (although I am no economist).
I said that there are orthodox arguments, but that I suspect something more radical is required.
I asked if anyone could refer me to a coherent argument for a more radical theory (and practical blueprint for putting it into practice). Marxian economics appears to be the main contender. An idiot guide would be welcome.
There is no use in simply taking every opportunity to be indignant about the perfidy of the Empire. It serves little purpose.
“Aristotelian logic is a step in the right direction.”
Sure, if you are interested in remaining comfortably trapped in its matrix of false axioms, I agree, 100% !!!. Logic supplies consistency which is necessary. A system of thought or scientific knowledge cannot contradict itself and be worth anything. However Logic is never sufficient sufficient sufficient to discover or create anything new. Oligarchies don’t want anything new. Ergo, Aristotle was their “philosopher” (read mind controller) for more than a millenia for that precise reason.
Pulling your punches, diluting the truth to propitiate those who you don’t think will be able to handle it loses “credibility”, in my book. Connolly’s video is very well researched and provides an impressive amount of historical film footage but is far kinder to them than those Nazis in Buckingham Palace deserve.
“I’m sure you know that “placing the interests of producers above those of consumers” doesn’t really make a lot of sense. If no-one consumes, there’s no point producing.”
Here we go again, with the blindness due to Aristotelian categories and definitions. How about the radical conception that average households, in the aggregate, might ought to be in both, both, both, both (since I can’t use caps, I will use multiplication for emphasis….control b doesn’t work for me to make bold letters………….) Production & Consumption??? Instead of one (Aristotelian Category A OR two, Aristolelian Category B one household of Both Production and and and Consumption…………..Ummmm???? A nice example of mental Divide & Conquer, btw. Then see what they can consume if their powers and rights to produce are targeted by exterior or interior enemies and significantly damaged. And then ask them, “Which is primary to you, your interest as a Producer, or as a Consumer???” Since their production must collapse if their ability to produce is destroyed, just what do you think they will answer, nearly 100% of the time??
Let me give some thought to your very valid concluding paragraphs and request for a more radical theory. It ain’t Marxism with me. But I have to find a link that will be a good introduction for you that you can sink your teeth into, conceptually, and not just a label that won’t mean anything to you or anyone else, probably. Thanks, Ewan.
Ted,
So when you say, “placing the interests of the producers above those of consumers”, what you mean is placing the interests of the producers/consumers above the interests of the producers/consumers.
Don’t get too hung up on Aristotle. Do give due care and attention to logic. It is every bit as ideological as every other branch of mathematics. Best not draft it into the conspiracy of the plutocrats and thus reject it.
(I’m genuinely intrigued by your animus towards the Royal family. Edward who abdicated was an admirer of Hitler – and apparently possibly a traitor – the rest of the family were not particularly. There were members of the aristocracy who were, particularly Londonderry. But that doesn’t add up to what you seem to think it does.)
Ted
My reading of what you say here about consumers and producers may be less than charitable. I find it hard to follow just what it is you are saying. Are you saying that consumers now are forced or persuaded to consume what producers wish them to? That production would be better determined by the ultimate consumer? That the workers should own the means of production? Through (Marxist) government or anarchism? That American consumers should be the producers of their own consumption goods and opt out of any form of globalization? Autarky? Or that workers of the world should unite? Or… Some clarification would help us stop talking past each other.
Ewan: “Are you saying that consumers now are forced or persuaded to consume what producers wish them to? That production would be better determined by the ultimate consumer? ”
I don’t think that is what Ted is saying.
This point that (I think) Ted makes has often occurred to me just from listening to the nightly news: Why alwasy the premise that producers and consumer are different people/entities? Same goes for “consumers” vs. labor.
I think these are false categories. Sort of like separating the in-breath from the out-breath.
“labor” is also consumers.
Consumers are also producers to one or another extent, depending on what they do for a living.
I believe these terms must be very carefully defined and their use always examined for faulty premises.
Katherine
Katherine, you are getting the gist off what I am trying to get across on Producer/Consumer discussion with Ewan. Thank you for your input. The language/interpretation/perspective of others may help Ewan and I get somewhere (after considerable effort!….) because, as we both observe, we are almost speaking foreign languages to each other, so far.
Ewan, I wonder if some of the difficulty is that you are English, and I am American? Can’t take the time here to butt heads endlessly on the royal family, but would just observe quickly that the link provided earlier https://youtu.be/U1Qt6a-vaNM of Francis Richard Connolly’s Everything Is a Rich Man’s Trick contains one hell of a lot more damning information on the British (and Wall St!!!) support of the NAZIs than a brief reference to Edward’s abdication and running off with Wallis Simpson, which is where you would like to stop, I have the impression? Or didn’t you watch it?. Connolly sounds English to me, and that inspires me to believe that many in Britain can on one future day ditch their degenerate German rulers, and one day rule themselves.
Here is much shorter but historically broader material on the degenerate family from a different source.
https://youtu.be/aSNDb-FsO8A “Who Are the Windsors?”
It would be interesting if Mulga Mumblebrain or some other similarly well informed regular visitor here from a “commonwealth” country would contribute something if they see this, because their words may resonate better with you than mine do.
If you acquire any new insight from this, instead of sloughing it off because it does not fit what you already have in your experience or belief, there is a lot more to cover.
As a preview I would call attention to the fresco by Raphael Di Sanzio “The School of Athens”
http://www.wga.hu/art/r/raphael/4stanze/1segnatu/1/athens.jpg
which has always been recognized by western elites (good and bad over the last half millenia) as a kind of cultural/historical keystone to western civilization. As you will see on his website, the second presentor (Webster Tarpley) employs it at the top of his website http://www.tarpley.net . More later. Gotta run.
Ted
You weren’t talking about the British establishment, but specifically about the Royal Family, who are of little relevance. Of course, it is well-documented that a significant portion of the British elite were sympathetic to fascism; and a significant portion calculated that they had no quarrel with Hitler and that the Empire was best protected by not getting involved. Similarly, it is well-documented that US corporations were keen on doing business with Germany and many sympathised with the Nazis.
On consumers and producers, you are still left saying that the interests of consumer/producers should be placed above the interests of consumer/producers.
I am still in the dark about your proposed blueprint for a better future, other than that it will involve public works.
That’s right, that’ why Marx was forced to speak, but of economy, of p o l i t i c a l economy.
Mod,
Thanks for letting Ted’s writing through though. It is important to point out that the current economic modus operandi is not to make profit but to use economics as a form of warfare for domination.
He hits the current situation clearly on its head in pointing out what motivates the big global players and what their objectives are. This is what and where the fight is.
In a Biblical sense it is God vs Mammon.
it is nothing to do with economics- it is anglosaxon thievery.
when adam smith wrote did he not forget or deliberately omit the loot of India by the english -that is where the wealth of anglo nation was created.
all talk of economics by anglos is just a fraud to hide the real source of the anglos wealth-loot.
if economics is so right then why did IMF hail money printing by the usa but the money tightening for non anglosaxon nations like greece, latin america-asia and africa?
anon is right. British (Adam Smith) “Free” Trade is word trickery and monetary and other forms of sleight of hand thievery. It ain’t what built the USA, but it’s what has been hollowing it out for 4+ decades.
“Free” to commit genocide in India and force the cultivation of opium there, in place of food crops, creating famines.
“Free” to force that opium down the throats of the Chinese, and sail away with Chinese Silver and gold.
“Free” to capture or buy black Africans by the boatload and sell them into slavery in the Caribbean and the American South.
The greatest disorientation among those who oppose the Empire is in the field of economics.
I don’t have the time for long essays to straighten out the mental spaghetti of the many misconceptions and lay out a perfectly convincing, brief thesis that will convert all the Austrian School adherents here who have been hoodwinked. But I do have the time to point out a few of the glaring absurdities in such fraudulent theories, and wreck the idea that they are for real freedom and development of people and nations.
Also, I can take a minute to point out, with some compassion, that Mr Hudson, in particular (I am no fan of “Reagonomics”, so I’d be a little more careful with PCR….though his stand against neocons and the Empire is much to his credit) has considerably more experience and expertise than Ewan, Back2Freedom and others that mistakenly admire Adam Smith, Hayek, Von Mises, Murray Rothbard, etc.
I read about this decision – or is it? – on RT a few days ago.
Alarm bells have been ringing ever since.
Not only will privatization result in the outcomes outlined above, despite caveats, it will also result in multiple ‘outsourcing’.
When British Railways wasprivatized, a host of secondary, even tertiary companies arose, with inevitable consequences both for the cost to the consumer (having to pay the increasing overheads in order to ensure profits to multiple entities) , it also resulted in serious issues regarding accountability and transparency.
For example, if an accident happened (much more likely with multiple actor all looking for profit) , tracing the root cause becomes all but impossible, even when the full facts are known.
This is because the operation of the railway was no longer centralized, but ‘balkanized’, with each company passing the buck of responsibility to the next, or invoking ‘commercial sensitivity’ to withhold crucial information, or even declaring bankruptcy to evade liability.
When a single entity is responsible, such as the state, it is much easier to prosecute in the public interest.
This is a timely and important article Saker – very well played.
Hi eimar:
Fully agreed.
They did the same (almost) everywhere, in 1994 and since in Germany, from 2002 or what it was on in Poland, since last October they split the Serbian Railways into such small fractions competing with each other.
This all lead and leads to: More unemployment, higher customer prices, more railway lines closed down and back to start. A deadly cycle.
I first heard about the privatization plans for the RZD 3 days ago in a german railways forum. Just when I wanted to write a longer comment about the situation I saw that Saker already is aware of the subject and published his article.
It must be prevented under all circumstances!!!
So called “Privatization” has destroyed all of Eastern Europe since 1989.
What remains are de-industrialized empty lands or “new markets” how the Oligarchs would say.
Martin,
Yes – absolutely.
S thought of you when I found this excellent website a few months ago – seems right up your alley.
This link is to a very comprehensive look at the mass privatization of the Chubais etc years, and how the whole ‘shock therapy’ scam was ‘respectablized’ by what is now more accurately termed the ‘Harvard Mafia.’:
http://www.softpanorama.org/Skeptics/Pseudoscience/harvard_mafia.shtml
Thanks eimar.
I saved it and will re-share it.
Harvard-mafia, correct!
Add Zio-Stanford to it.
They have a budget deficit, and there are no really great options. Cutting spending (ie mostly social and military) is not viable; -and on the contrary they want to spend more to grow economy away from oil. No good way to borrow cheaply. Printing money will cause more inflation which is high already.
So making more opportunities in private sector may do some good, small business and agriculture especially.
Now, Aeroflot and Railways are both making losses lately, maybe that’s why they are talking on privatizing them. But indeed it may be a bad idea. No space for several competing airlines; and railways too big and unique. Indeed, privatizing here may drive up prices and reduce safety and quality. Hope they can find ways to keep it–though that means absorbing losses.
Mr. Ewan,
You are much more educated in economics than you suggest. Your entire post is very sharp. I agree with you completely.
Most people here have great intentions and have their heart in the right place but have not understand economics and unfortunately supports policies that are detrimental to the Russian interests.
Luckily for them, Putin is smarter than them. Most old russians despise free markets and have a heart for socialism where nobody has more stuff than they do. But they will die, and we need to teach the youth to embrace freedom – social and economic.
Credit is is nothing more than claiming Time is on your side, debt when it isn’t.
The days when credit was actually backed by valued tangibles is long gone.
The dollar is just toilet paper.
“Central planning has been tried and failed (see “Whither Socialism” by Joseph Stiglitz MIT 1996).”
Caveat: I am not an economist (like most here!!).
But anyhow.
1. I believe Stiglitz’s thinking has evolved massively since 1996. Not sure how this would be relevant to Hudson’s arguments, but I should think Stiglitz’s change of direction would have some relevance, since I think he is a macroeconomist
2. Regarding “central planning,” I can’t help wondering whether we don’t take far too narrow a view of what this can be. WE shouldn’t assume knee-jerk fashion that “central planning” is a repeat of every mistake putatively or truly lmade by the Soviets. What do you call it when teh government makes major investments in infrastructure and basic research to support new economic sectors and also public services? What is it called when the govt. supports universal free tertiary education for the whole population, and free specialized education for those who have the qualifications to succeed? What do you call it when the govt analyzes the strengths and weaknesses of its economic context (geography, environmental weaknesses such as flooding; transportation obstacles such as mountain ranges; deep knowledge of certain types of technologies; etc.) and takes steps to overcome problems and maximize advantages? What is it called if the government sponsors various types of events to “advertise its wares” and broaden markets? All of these could be called “central planning.”
As for private management being ipso facto more “efficient” than public ownership/management, that is definitely not proven fact. In fact, efficiency often falls when public entities and services are privatzied, for a number of reasons. Some of them are veiled by means of higher prices chareged for the same services–I think this is called socialize costs, privatize profits (as Hudson points out with the example of Chicago). But another big area where privatization costs society is that the employees of public entities work harder and often work longer, and give far more of themselves than the corporate bounders and bean counters do, nor even than the bean counters ever manage to count. Many of employees of public entities work many hours for free, out of commitment to their organiazations and their clients. I am not advocating that people should work some hours for nothing. I am commenting on the level of commitment that people feel and their attitude when they feel that they are working for something that benefits society as well as themselves (because they have a paycheck), often not quantified (but was quantified in a recent UK study).
The cost of this reduced commitment on the part of management and employees is borne by society at large. It is time to stop making assumptions about “faceless bureacrqcies.” I have heard many people here in teh USA assert, and I can confirm this myself, that the service you will get out of Social Security Administration and Medicare and their employees is far better than what you will get out of a private health care entity.
So, who is to say that retaining control of large economic entities can’ty work in Russia? They have a pretty good military, which I assume is “centrally planned” . . .
Katherine
“Central planning has been tried and failed (see “Whither Socialism” by Joseph Stiglitz MIT 1996).”
Caveat: I am not an economist (like most here!!).
But anyhow.
1. I believe Stiglitz’s thinking has evolved massively since 1996. Not sure how this would be relevant to Hudson’s arguments, but I should think Stiglitz’s change of direction would have some relevance, since I think he is a macroeconomist
2. Regarding “central planning,” I can’t help wondering whether we don’t take far too narrow a view of what this can be. WE shouldn’t assume knee-jerk fashion that “central planning” is a repeat of every mistake putatively or truly lmade by the Soviets. What do you call it when teh government makes major investments in infrastructure and basic research to support new economic sectors and also public services? What is it called when the govt. supports universal free tertiary education for the whole population, and free specialized education for those who have the qualifications to succeed? What do you call it when the govt analyzes the strengths and weaknesses of its economic context (geography, environmental weaknesses such as flooding; transportation obstacles such as mountain ranges; deep knowledge of certain types of technologies; etc.) and takes steps to overcome problems and maximize advantages? What is it called if the government sponsors various types of events to “advertise its wares” and broaden markets? All of these could be called “central planning.”
As for private management being ipso facto more “efficient” than public ownership/management, that is definitely not proven fact. In fact, efficiency often falls when public entities and services are privatzied, for a number of reasons. Some of them are veiled by means of higher prices chareged for the same services–I think this is called socialize costs, privatize profits (as Hudson points out with the example of Chicago). But another big area where privatization costs society is that the employees of public entities work harder and often work longer, and give far more of themselves than the corporate bounders and bean counters do, nor even than the bean counters ever manage to count. Many of employees of public entities work many hours for free, out of commitment to their organiazations and their clients. I am not advocating that people should work some hours for nothing. I am commenting on the level of commitment that people feel and their attitude when they feel that they are working for something that benefits society as well as themselves (because they have a paycheck), often not quantified (but was quantified in a recent UK study).
The cost of this reduced commitment on the part of management and employees is borne by society at large. It is time to stop making assumptions about “faceless bureacrqcies.” I have heard many people here in teh USA assert, and I can confirm this myself, that the service you will get out of Social Security Administration and Medicare and their employees is far better than what you will get out of a private health care entity.
So, who is to say that retaining control of large economic entities can’ty work in Russia? They have a pretty good military, which I assume is “centrally planned” . . .
Katherine
Katherine
I think I more or less agree with what you say. It’s more or less a mixed economy i.e. a mix of public sector and private. I have this notion that what has gone wrong is a comprehensive example of “regulatory capture”, where the corporations have captured the government that is meant to regulate them. I suspect, however, that it is more fundamental – that some form of socialism is the only way to avert disaster. I simply can’t see how to get from here to there. And I’m not at all clear what “there” means in practice.
Re: Joseph Stiglitz
Here is Stiglitz’s current position.
Sounds quite a lot like Roberts-Hudson but I can’t be sure.
http://www.theguardian.com/business/2016/feb/08/whats-holding-back-world-economy-joseph-e-stiglitz
Katherine
Apologies for glitch of double posting. I still get faked out sometimes by the comment box.
Katherine
Katherine,
Am having the same problem. The posting times-out, so I retry. Then a double post appears later. The time-outs are now happening regularly, don’t know why
Mods – if you have the time, and traffic isn’t too heavy, please delete the copy-post. Thanks.
hi Ewen
know the muddled feelings (and yet still want to have “the answer`)`; here are some I found useful at least to get the questions aligned:
1)Michael Hudson (above) has some great stuff re Marx and current governments deficit strategies etc so go there plus all in all great non BS economic writing
2) in a few days great online course (MOOC) Money Masters over 4 weeks starts (feb 14?) what is money, credit, great presentations; references, fun assignments and last 2 had about 350 participants from around the world trying to sort out the same Q (&A) we are-Jem Bendall
3) oldie but maybe most germane to different thought?philosophy western and whatever Russia is, written about role of money/usury through history by grandson of 2 US Presidents, Adams; The Law of Civilization and Decay“ rise of money powers throughout civilization and takedown there-off
4) Astle; Babylonian Woe classic
and
5) friend of mine but still Dr O Haydorn; `Social Credit Economics“ which I think was at least summarized into russian and distributed to some top aides etc
don`t have link handy to MOOC but go to Positive Money and they will have link
God bless us ALL
Brian
Brian
Thank you for the references. All sound fascinating. The Law of Civilization and Decay – a grand theme that many recent scholars have also studied. Babylonian Woe – ancient banking sounds worth pursuing (less sure on the notion that there has been a four thousand year conspiracy of bankers). Social Credit Economics I know absolutely nothing about despite the fact that it appears to address precisely the questions I was asking – and the book is readily available this side of the Atlantic.
Thanks.
Brian
Reading about Clifford Hugh Douglas. Brain fog! Will persevere. Interesting man.
Ewan, I suggest you get any Michael Hudson book instead. Also I think you’l find him and possibly Modern Monetary Theory lectures on Youtube.
Deficits– reasonable ones– are not bad. When a company borrows money to expand you realize that that is Investment. If ever the US treasury begins issuing our currency and credit again, without going thru the Fed, they will not be paying interest when they expand the money supply. Reasonable deficits for productive investment (not for fatcat speculation as now) is fine & necessary.
Modern Monetary Theory is the alternative to the present scam. It borrows from many schools of economic thought including Marx.
Penelope
Hudson’s recent book is top of my buy list (which is rapidly expanding with suggestions from people commenting on this blog).
I am completely ignorant of Modern Monetary Theory. James, below, has given me several links to pursue.
Deficits can indeed be perfectly justified. I’m not sure about your last point, which sounds a bit like the old “real bills” doctrine that wrought havoc in the Depression.
Even Hicks didn’t believe that old IS-LM stuff you’re talking in the end.
Money has no intrinsic value.
John G.
Funny some say it’s Austrian School and others say it’s “hard money” (?) and you say it’s Neo-Keynesian. Certainly the Keynes of the Treatise on Money would recognize it and agree with it.
Hicks thought of IS-LM as a useful model. That is all.
Money has no “intrinsic value”. What is intrinsic about value? And what follows from money’s lack of it?
“Hicks thought of IS-LM as a useful model. That is all.”
It turned out to be not useful (other than for neoclassicals) and he admitted so much later. And Keynes regretted not rejecting parts of the Walrasian analysis on these questions in General Theory that allowed to neoclassicals to piggy back on and subvert Keynesian macroeconomic policy.
But your assertions on ‘monetising deficits’ etc are standard IS-LM objections to public spending. Maybe it’s QToM. I don’t know where you’re coming from. But the sheer number of currency units in the system at any given time have no effect on the ‘value’ of a currency unit.
You have to get a stock/flow consistent view of it all. Spending, not stock, is what can create inflation. Whether government spending or private.
In any case, we don’t live in gold standard conditions any more. There is no valid reason to pay any attention to the New Keynesians or neoliberals.
Fiscal deficits are merely numbers on a spreadsheet.
John G.
The link between money and inflation follows from a stable enough demand for money in a given set of institutional arrangements. A change in banking practices is going to change the demand for money. I’ve a feeling that a drastic change in the way the economy behaves is also going to change the demand for money (people might switch to cowrie shells or cigarettes). There appears to be a relatively stable demand for money in all economies that have been studied, punctuated by gradual or abrupt changes for reasons such as those I’ve mentioned.
I don’t know what you mean when you say that fiscal deficits are merely numbers on a spreadsheet. If the government spends more than it takes in taxes, it meets the shortfall by borrowing, either from domestic savers or foreign. When it borrows, it undertakes to repay with interest. If it raises taxes to repay, the private sector will have less to save from (and there is evidence that higher government spending is associated with lower growth, although I suspect you’ll dispute this). If it persists, its tax take will dwindle. If it borrows from the central bank or the banking system to repay, money is created. If it persists, there is going to be an excess supply of money relative to demand. Economic agents will find that they have more money balances than they wish and will spend the money. The economy as a whole cannot reduce its money balances by shuffling them around. Excess supply leads to a fall in price (does it not?) If the government persists, lenders are going to demand a higher interest rate to protect their real return. If the government persists, lenders are going to look for safer investments.
I’m not sure how the technology used for the accounting of these stocks and flows affects the logic.
As I have said, I’m no economist. Economics gives me brain fog. However, I find the story I have told more credible that the others mentioned here. What is wrong with it and what is your alternative?
” If the government spends more than it takes in taxes, it meets the shortfall by borrowing, either from domestic savers or foreign.”
No. Currency issuers in a modern monetary do not. They spend the money then they issue securities in the amount of the deficit to soak up the excess reserves created by their net spending.
It is merely a portfolio rearrangement of government ‘liabilities’. If they didn’t issue the securities the liabilities would just remain as excess reserves. That they issue these securities is moot in this day and age. It’s a hangover from gold standard days.
Deficit spending creates net financial assets (savings) in the non-government sector. The fiscal balance exactly equals the combined change in savings of the non-government sectors.
“(and there is evidence that higher government spending is associated with lower growth, although I suspect you’ll dispute this)”
There is no evidence of this whatsoever. It’s a mathematical impossibility.
” there is going to be an excess supply of money relative to demand”
If total spending (both government and non-government) exceeds the real resource capacity of the non-government sector to supply, inflation will occur.
It is a spending issue, not a stock issue. If the private and foreign sectors choose to save then demand will decline and deflation will occur.
“They spend the money, then issue securities to soak up the excess reserves…”
The government buys goods and services from the private sector. It pays for them (I think you are saying) with cash – the private sector has fewer goods and services and more cash. The government issues bonds which the private sector buys (I think you are saying) – the private sector has less cash and more government bonds. So, the government has acquired goods and services. The private sector has acquired government bonds (IOUs from the government). In other words, the government has met the shortfall by borrowing either from domestic savers or foreign.
“The fiscal balance exactly equals the combined change in savings of the non-government sectors…”
The crucial detail is the price at which domestic and foreign savers are willing to buy the government’s bonds i.e. the terms of the government’s IOUs). The demand for government bonds is not perfectly elastic.
That government spending may lead to slower growth is a “mathematical impossibility” …
How do you think growth comes about? Neither government spending nor private is wholly on current consumption. All that is required for my (debatable) assertion to be true is that the government is less efficient in its investments than the private sector.
“It is a spending issue, not a stock issue…”
There is a stock of money the private sector wishes to hold in its portfolio (if the money is a buffer stock, there is a preferred range for the stock it wishes to hold). Excess supply of money will prompt the private sector to try to reduce its holdings back to the preferred level, by buying assets and buying goods and services. Individual economic agents can reduce their holdings of money only by increasing someone else’s. Ultimately, the attempt at the aggregate level merely leads to an increase in prices.
“How do you think growth comes about? ”
Spending. Spending = income.
” Individual economic agents can reduce their holdings of money only by increasing someone else’s. ”
Or paying down debt. Thus decreasing your ‘stock’ of money.
John G.
How does growth come about?
“Spending. Spending = Income.”
Our toy economy has two economic agents, A and B. 20 units of spending power is shared equally between them. A spends his 10 units. Those 10 units become B’s income. B spends his 10 units. They become A’s income. Total income at the start, 20 units; at the end, 20 units. Growth? Zero.
Individual economic agents can reduce their money holdings how?
By “paying down debt”.
You pay down debt by paying the creditor the money you owe. You have 10 units. You owe the creditor 10 units. You pay the creditor the 10 units. How many units are there? 10.
“Our toy economy has two economic agents, A and B. 20 units of spending power is shared equally between them. A spends his 10 units. Those 10 units become B’s income. B spends his 10 units. They become A’s income. Total income at the start, 20 units; at the end, 20 units. Growth? Zero.”
Spending/income is a flow. A spends $10 with B who spends the $10 with C. Spending = $20.
“You pay down debt by paying the creditor the money you owe. You have 10 units. You owe the creditor 10 units. You pay the creditor the 10 units. How many units are there? 10.”
Bank loans create deposits. Conversely, repayment extinguishes deposits.
Take out $10 loan from bank. 10 units. Repay $10 to bank. 0 units.
John G
There are two sides to a commercial bank operations. Your point only helps your argument if the banks are shrinking their balance sheet, which they are not in the case we are discussing.
And you haven’t explained how you think you get growth from income = spending
John G.
On my comment at 9.12 am: I think my first sentence is beside the point, at best. What you say is true, and shows that what I said is simply wrong.
However, the point I did not manage to make is this: in a booming economy (which tends to be when banks end up extending too much credit), why would economic agents on average choose to pay down debt, rather than spend, or invest in the expectation of a return higher than the cost of borrowing? The crucial point there is that those who borrow to consume extrapolate the banks’ current willingness to lend, and those who invest expect a return higher than the cost of borrowing, so economic agents on average keep borrowing and spending, and the money they spend is spent etc. The illusion is created that the risk is slight relative to the rewards. In principle, we and the monetary authorities ought to know better and ought to be able to keep things on an even keel (which we do for long spells). In practice, we fall for the illusion again and again. The consequence is an episode of inflation followed by recession (if the monetary authorities try to reduce the inflation). There is always going to be volatility in the business cycle. Historically, the monetary authorities have exacerbated the volatility. In principle, it ought to be possible to reduce its monetary component.
The moderators are politely begging us to stop now. I’ll let you finish up, if you wish.
I must say, that having in my youth read a lot of Rothbard, I am rather inclined to say that all things being equal decentralized and free markets(Is there really such a thing?) are better than central planning. The problem is that the so called privatizations are in fact an occult form of centralization. Sorry, Cass, but I am not experiencing even a hint of cognitive dissonance.
‘The problem is that the so called privatizations are in fact an occult form of centralization.’
Please explain this. Do you suggest that the assets will be sold to parties that already own most of the russian assets?
I do agree with the rest of your post.
No, I am suggesting that parties that already control the world’s assets are anxious to buy in, only with motives that go beyond enlightened self interest.
“The problem is that the so called privatizations are in fact an occult form of centralization.”
Wow. that seems like a pretty good way to put things.
I guess what you mean is that privatizing *concentrates* economic power in the hands of people who coordinate their activities behind teh scenes, in secret ways, and their activities are not in the pubilc interest. but they form a secret bloc.
Really, how could *privatization* be in the *public* interest?
Is that too basic to even be a valid question?
Katherine
To Paul and Michael: what economic and financial advice would you give the Donbass republics, especially the DPR, as to what would be best for their economies, what should they do?
On Chicago, check out how well things are going there, Illinois in general.
Illinois has not had a budget for 8 months and counting.
Unpaid bills pile up having now reached a record $10 billion to $12 billion according to state comptroller Leslie Geissler Munger.
http://www.safehaven.com/article/40345/past-due-illinois-vendors-furious-as-unpaid-bills-top-10-billion
still pujtin goes on doing business as usual with those entities of anglosaxon cabal who have shown maximum evidence of their hostility to the very existence of Russia, let alone other antions.
russians never learn that is why they are doomed to be attacked and dly one estroyed so many times. her.
russia has only one main enemy england agasint which russia has not prepared anything neither militarily nor diplomatically or by media expsoure of that evil nation.
result is england being under no retaliatary threat of any kind- goes on plotting one after another scheme to kill russians and destroy russia by destablising those pro russian forces whim russian could have benefitted from.
but foolish russia even criticisesd her ally like north korea for acts for which russia should congratulate
Dear The Saker,
I am glad you posted this as one of the main articles here at the Vineyard. I had put a link to the article by PCR from Sputnik in the open thread.
This is of great concern and VVP needs to act now. Everyone in Russia remembers the Yeltsin years. These traitors need to be removed from their posts.
P.C.Roberts and Michael Hudson are currently the world leading economists that everybody who claims to have something to do with economics should read and follow. The mainstrean wańnabe economists are just clowns with a task make smoke screens around this discipline and obscure what should be made clear. They often do not understand what they are saying. However in return they are awarded by Nobel prize for economics with is absolutely preposterous.
These two gentleman(Roberts, Hudson) should acctually be hired by the Russian goverment to help implement the truly needed banking and financial reforms .
Well written, but central banks, and the national money supplies they control, are not controlled by their respective governments. The Federal Reserve, for example, is a private consortium of banks. This has been pointed out by a number of writers over the years. The Fed itself has also stated this in rejection of Freedom of Information requests.
Members of the Fed Board of Governors are ostensibly appointed by the President. However, the actual names will be supplied by the President’s economic advisers who are themselves chosen from Goldman-Sachs and other Wall street banks.
Paul Craig Roberts & Michael Hudson are far behind the curve as far as Russia is concerned. As if Team Putin wouldn’t know these very basic and well understood points they make in this article.
But if fighting the Global Dollar Hegemony would be so easy, as Roberts & Hudson naively seem to assume, how come Italy, France, Belgium, Germany, Norway, Canada, Mexico, South-Korea, Japan, Holland, Switzerland, Spain, France, Brazil, the US – do i need to go on? – how come basically all nation states have completely lost their sovereignty since the founding of the FED?
Kicking out all Atlantists is as ridiculous a suggestion as nuking this or that country. Successfully resisting the Global Banking Mafia is a feat so far no nation state has managed. On the contrary, almost all nation states haven been utterly defeated, most even without realizing it, for heaven’s sake!
Russia, Iran and China are the last countries standing, partially. China with Xi Jinping seems going about their business quite confidently.
And as far Russia and Team Putin is concerned, it is my hope they will continue to come up with far more surprising, sophisticated, artful, masterly moves than the hopelessly simplistic wooden hammer methods Roberts & Hudson are suggesting.
Actually, one nation state which did this for many years was the Soviet Union itself. Integration into the international financial system and assumption of foreign debt will inevitably result in such loss of sovereignty as you describe. Some steps have been made to undo the damage created since the early nineties but undoing more of the policies and institutions adopted since that time are need to reach financial independence.
Indeed, these simple methods by which the global banking mafia is controlling many nations have been well explained and exposed for almost a decade by now, on the internet. There are many videos on youtube, there are many pdf versions of famous books. If V. Putin has the smallest interest to find out the “magic” behind money creation, he can do it in a few days.
Kennedy tried to have US government printing his own “federal notes”, through the executive order EO-1110 (or something like that). He was killed soon after that and the first thing that Lynden Johnson cancelled was exactly that order. Maybe Putin is afraid for his life because he knows there are still traitors even next to his office ? So, maybe he will never challenge the global banking mafia.
The only person that I know of, who exposed this global mafia and their methods, and who came with a plan to get rid of it was general Konstantin Petrov. He was probably the Real Deal for Russia and the rest of the world. But he never got a chance to join the circles of power, his political movement got marginalized and Putin somehow ignored him. He died in 2009, unfortunately.
MD, Starikov also addresses the way to financial sovereignty for Russia– and much else– in his free online book: http://lit.md/files/nstarikov/rouble_nationalization-the_way_to_russia's_freedom.pdf
Kennedy also planned to poke around in the black bag of the Shadow Government, the Exchange Stabilization Fund. The ESF deals in endless supplies of global currencies with no oversight, including bonds, gold swaps, and stuff. Few pilgrims survive these Happy Hunting Grounds.
Zweistein,
If Russia & China together leave the IMF they will take all of South America w them– w the exception of two countries. Plus Iran, some of the Asian countries. No isolation or trade sanctions would really work. The US/UK/EU & some chaotic Middle East countries couldn’t do anything about it, except all-out war. They cd all float their currencies, and issue moderate investment credits for development.
Rus, China, et al could leave the WTO, too & let nations choose to protect whatever industries are important to them & make bilateral trade agreements.
After they’re sovereign then we have to make them democratic again.
But it’s all a pipe dream because China doesn’t want it, and as far as I can tell, neither does Russia. I hope that all of Putin’s statements are just protective coloration.
I am not sure that there IS a powerful 5th column. If so, then how did Putin get a nearly unanimous vote on Crimea, and when he was supposedly defying the west by starting military action in Syria?
Well, I don’t have any of the answers, but I don’t think it will get any less difficult.
I read about this decision – or is it? – on RT a few days ago.
Alarm bells have been ringing ever since.
Not only will privatization result in the outcomes outlined above, despite caveats, it will also result in multiple ‘outsourcing’.
When British Railways wasprivatized, a host of secondary, even tertiary companies arose, with inevitable consequences both for the cost to the consumer (having to pay the increasing overheads in order to ensure profits to multiple entities) , it also resulted in serious issues regarding accountability and transparency.
For example, if an accident happened (much more likely with multiple actor all looking for profit) , tracing the root cause becomes all but impossible, even when the full facts are known.
This is because the operation of the railway was no longer centralized, but ‘balkanized’, with each company passing the buck of responsibility to the next, or invoking ‘commercial sensitivity’ to withhold crucial information, or even declaring bankruptcy to evade liability.
When a single entity is responsible, such as the state, it is much easier to prosecute in the public interest.
This is a timely and important article Saker – very well played.
I agree fully, Don’t sell the family silver…
Rather introduce an annual asset tax of 2.5% and a financial transaction tax of 1%. These will halt speculation and mow the elite (lawn)!
Russia CANNOT monetize government debt, unless it wants to become Zimbabwe. This mambo-jumbo about private vs public credit creation intentionaly distracts the attention from the simple and most important fact: you are saying is – when you don’t have money – JUST PRINT IT! The Central Bank can’t do that, Mr Saker, they cannot INCREASE QUANTITY OF MONEY in times of sharp inflation, without committing suicide. Even in good times, when currency is appreciating, printing money is outright THEFT, because it confiscates purchasing power from the holders of the currency, and nobody holds russian currency other than russians. You can make comparisons to USA only if you make the rubble a world reserve currency. Then the amount you print is a tiny amount of the total currency in circulation and inflation is really small (1), but more importantly there are more dollars OUTSIDE United States, than internally, so when you STEAL purchasing power, you actually steal from foreigners (2).
“… You can make comparisons to
USA only if you make the rubble a world
reserve currency.”
Oh?
I seem to be missing something here.
Surely ‘world reserve currency ‘ is always preceded by the definite article (‘the’?)
Are you saying several are possible ?
Yes, several are possible, but that’s not what I intended to place attention on. Gold and Silver were both concurrent world reserves for the longest time, some countries using one, some the other, and some both. The point is, if you print a trillion rubles when you have 5 trillion in circulation, you increased the money supply by 20%. The Federal Reserve in comparison can print a trillion USD in a single year, and since there is more than 20 trillion hard USD money in the world, the money supply will increase less than 5% – an inflation that is easy to tolerate by the plebs.
eimar,
did you enjoy that big, fat, juicy steak?
Ewan,
“What is
intrinsic about value? ”
That is a philosophical question, with a psychological component.
I’ll venture a reply.
Economic value is a function of:
a) Desirability + rarity (eg precious gems).
b) The materials/resources needed for survival (water most evidently).
Now a question for you – how to prevent the concentration of power that controls access to all that is valued through human need?
Eimar
You know, I think introducing psychology is what neo-classical economists did when they moved away from the classical economics of Ricardo, Mill, Marx et al. But that’s getting into the history of economic theory, where I’m definitely well qualified not to go.
As for your question, I wish I knew. That’s why I’ve been asking what coherent and practical alternatives to mainstream economics people can recommend.
Eimar
And what is it stops money having a value because people want it in order to undertake transactions for stuff they want that have “intrinsic” value?
This type of privatization was also used in most of the Eastern European countries for the last 20 years as a method to destroy national economies. They achieve several goals:
– they extract profits from local population through all kind of schemes (like the renting one explained here),
– they eliminate possible competition by deliberately collapsing certain businesses or factories (selling them by pieces or simply demolishing)
– they impoverish the countries so much, that eventually these countries will be forced to sell raw materials (oil, wood, minerals, iron ore, even mineral water …) at ridiculous prices, instead of selling high-value fabricated goods
– they create from those eastern countries a permanent source of human resources to do most of the low level and unqualified jobs in the western countries (sometimes poorly paid and in humiliating conditions)
– by secretly encouraging corruption they create a vicious circle of economic failures from which those countries cannot escape for decades
Russia is seen by some people as the last hope for a different world of economic systems. The scam of creating money/debt “out of thin air” must be exposed, if possible, by even Vladimir Putin in person. Government organised propaganda and teaching materials about this scam for the masses, should be initiated as soon as possible. V. Putin should encourage a system of currency swap as the norm of trading between two countries.
The Bank of International Settlements from Basel needs to be exposed in broad light.
Why many heads of National Central Banks stay in power for almost decades in some countries should also be explained to the masses. They might understand who has the real power in destroying the economy of a country.
Send the message off to the RF. They have a web page.
There is some sort of catch that to belong to the Bank of International Settlements money must be borrowed from private sources.
RR
Roberts and Hudson are simply restating what Putin already knows and what Glazyev already has said ‘We Need Large Scale Nationalization’
http://www.fort-russ.com/2016/02/glazyev-we-need-large-scale.html
Excellent article,and excellent commentary on it by Saker. I hope it will have an impact in Russia. But I get discouraged when I see things like this. Its obvious that Putin hasn’t decided (if he ever even intended to) to break the Western economic grip on Russia. Why he hasn’t I don’t know. Does he not feel strong enough to? And with 85% to 90% popular support. And control of the security and military forces.Just how much stronger does he need to feel to do it? Then there is the theory that he actually believes himself in the neo-liberal economic model. And in which case doesn’t believe in doing more than “tinker” with it once and a while? If that is true. Then the Russian people are in for some harder times. And they may have to consider replacing the current leadership with one that does “really” want change. Restoring Russia’s military influence. And being good at projecting Russian diplomatic influence Worldwide.Quickly fades in peoples thinking if you stand around and do nothing while the country economically fails. The last years of the USSR should have been all the warning needed about that. But maybe it wasn’t.
Maybe Putin and his allies have to compensate the oligarchs for all the losses they have suffered due to the Kremlin’s Ukrainian policies. Perhaps something was required to keep them on board. And privatization would be the obvious thing to offer them.
Of course, this would be going the wrong way, but that is part of having a consensus government. Didn’t Putin talk about taxing some of the ill-gotten gains from the earlier privatizations? That never went anywhere. They would try to organize a coup or collapse the economy and then organize a coup.
Finally, maybe Putin isn’t a neoliberal or a national development type. Maybe he is just a pragmatist from a political point of view.
This is one of the best movies (“The Money Masters”) about how the global banking system was created in the 19th century:
https://www.youtube.com/watch?v=UrJGlXEs8nI
For the ones who are interested to find out more, I will name a few more key names and books. No offence, but what Paul Craig and Michael Hudson “revealed and advised” are just “peanuts” for amateurs.
Here is just a small example of real stuff (about 1% from what I studied over the past 10 years): “The creature from Jekyll Island”, “The shock doctrine”, “Confessions of an economic hitman”, Konstantin Petrov, Eustace Mullins, Anthony Sutton, John Perkins
If Putin does nothing to change the financial system of Russia, he is most likely working for the global banking gang, despite so many other actions that might look as if he fights against them.
Or, he is simply afraid to die like Kennedy.
@MD
Well, probably VVP works for the global banking gang. Not a long time ago he said he had no problem with the question some people becoming rich. That must be opposed to nationalisation.
Do we really know who he is?
Russia may have a good foreign policy but sometimes react to slowly, and says things like “our partners” even when everybody understands that those so called partners are not partners anymore.
I really have a mixed feeling about Russia and China. They are both capitalist countries and the oligarchs inside the system want to get richer. Capitalists from various countries are always fighting each other, more or less, and that has previously ended in two world wars.
VVS succeded Yeltsin, who always was so drunk that he didn’t understand who Putin was? Or….?
I hope Putin learned the hard way, the situation for ordinary russians, when he as a young boy was fighting in the streets of Leningrad, and therefore will not betray his people (even if that will risk his life). But I am not sure. Are You?
Please tell me why he will not betray the people, including nonrussians like me?
He must fight neoliberalism and I haven’t seen any sign of that. Have You?
Well, we have to wait and see, and until then…..????
4/27/15 On Monday, Russia’s Security Council proposed to develop the financial market in order to expand the use of the Russian ruble for international payments and reduce the use of foreign currency in the country.
The Security Council suggested that the Central Bank of Russia and the Russian government should develop measures to improve liquidity and capitalization of the banking system and measures to ensure.
11/2/15 http://johnhelmer.net/?p=14441#more-14441/
“Through the collapse of the international commodity trade and the cutoff of their international financing, the indebtedness of the oligarchs has resulted in their virtual nationalization by the Russian state banks. Individually, oligarchs remain for as long as Putin and the security services judge them to be patriotic and loyal; and on condition they accept their new role as state trustees rather than entrepreneurial capitalists.”
There will never be a perfect time for Russia to break out of the control of the IMF/Fed system by, in effect, nationalizing her own Central Bank and ruble. If she does it together w S. America, Iran & whatever Asian countries will go w her, we would have an end to the global oligarchy’s control of monetary and economic policy. If the group also steps out of WTO and the other supranational trade institutions, nations could complete their restoration of sovereignty.
But Putin has spoken repeatedly of wanting a “free trade” zone from Lisbon to Vladivostok. And even of joining the EU!
An EU-Eurasian Union alliance or a free trade deal from Lisbon to Vladivostok would seriously damage if not destroy the Anglo-American Empire’s influence in Europe and a large part of Asia. Russia’s choices are not perfect, so, if the choice is the US controlling Europe through the TTIP or an EU-EurU deal, which is better?
Paul II, When nations join in supranational institutions, the vote of their citizens can not even theoretically reach the decision-makers. Greece together w all of Southern Europe has been impoverished by forming EU. Free trade unions or zones always kill the industries of the less-developed because without protection they cannot compete. It is the same argument that Britain used against colonial America to try to keep her a supplier of raw materials who wd then buy expensive British finished goods.
Your suggestion is like suggesting that one way to poverty & subjection is better than another. The only way to productivity and freedom is to break the monetary and trade control system by leaving it. The basis for personal sovereignty is a sovereign nation-state.
Privatization is a theft, and as a crime should be punished. Stolen property must be returned to its legal and only owner — the Russian people. Natural resources and strategic industries must always be in the property of the people, the state. Westerners are dumb people who have been brainwashed into supporting their own serfdom by allowing oligarchs to own practically everything, for not only do they pay more (in the terms of price of goods and services) than they do when the people are the owners, but they are also slitting their own throat because oligarchs now have enough power to buy politicians, and thus they end up practically owning the whole socio-political-economic system, the whole society that is. You end up in fascism, in other words, for fascism is by definition the merger of state and big businesses. Natural monopolies like transportation, post office, broadcasting and media companies, roads, tel/mobile companies, etc. must always be owned by the people. That way the people have guaranteed the lowest possible prices on those goods and services as well as safeness and protection from the oligarchic aristocracy which is always working on our enslavement. Dumb Anglos cannot understand that simple facts. Those idiots would rather keep sucking their oligarchs’ brainwashing propaganda programs, than to be free from their paws and live a dignified life worthy of human technological and scientific achievements of this age. They prefer indoctrination willingly.
With that said, here are some very exceptional thoughts of Michael Hudson:
I should point out that there’s often a misinterpretation of the context in which the labor theory of value was formulated and refined. The reason why Marx and the other classical economists – William Petty, Smith, Mill and the others – talked about the labor theory of value was to isolate that part of price that wasn’tvalue. Their purpose was to define economic rent as something that was not value. It was extraneous to production, and was a free lunch – the element of price that is charged to consumers and others that has no basis in labor, no basis in real cost, but is purely a monopoly price or return to privilege. This was mainly a survival of the feudal epoch, above all of the landed aristocracy who were the heirs of the military conquers, and also the financial sector of banking families and theirheirs.
The aim of the labor theory of value was to divide the economy between excessive price gouging and labor. The objective of the classical economists was to bring prices in line with value to prevent a free ride, to prevent monopolies, to prevent an absentee landlord class so as to free society from the legacy of feudalism and the military conquests that carved up Europe’s land a thousand years ago and that still underlies our property relations.
People are unexposed to the concept of economic rent as unearned income. It’s a concept that has been turned on its head by “free market” ideologues who use “rent seeking” mainly to characterize government bureaucrats taxing the private sector to enhance their authority – not free lunchers seeking to untax their unearned income. Or, neoclassical economists define rent as “imperfect competition” (as if their myth of “perfect competition” really existed) stemming from “insufficient knowledge of the market,” patents and so forth.
The word “rent” originally was French, for a government bond (rente). Owners received a regular income every quarter or every year. A lot of bonds used to have coupons, and you would clip off the coupon and collect your interest. It’s passively earned income, that is, income not actually earned by your own labor or enterprise. It’s just a claim that society has to pay, whether you’re a government bond holder or whether you own land,
This concept of income without labor – but simply from privileges that had been made hereditary – was extended to the ideas of monopolies like the East India Company and other trade monopolies. They could produce or buy goods for, let’s say, a dollar a unit, and sell them for whatever the market will bear – say, $4.00. The markup is “empty pricing.” It’s pure price gouging by a natural monopoly, like today’s drug companies.
To prevent such price gouging and to keep economies competitive with low costs of living and doing business, European kept the most important natural monopolies in the public domain: the post office, the BBC and other state broadcasting companies, roads and basic transportation, as well as early national airlines. European governments prevented monopoly rent by providing basic infrastructure services at cost, or even at subsidized prices or freely in the case of roads. The guiding idea is for public infrastructure – which you should think of as a factor of production along with labor and capital – was to lower the cost of living and doing business.
But since Margaret Thatcher led Britain down the road to debt peonage and rent serfdom by privatizing this infrastructure, she and her emulators other countries turned them into tollbooth economies. The resulting economic rent takes the form of a rise in prices to cover interest, stock options, soaring executive salaries and underwriting fees. The economy ends up being turned into a collection of tollbooths instead of factories. So, you can think of rent as the “right” or special legal privilege to erect a tollbooth and say, “You can’t get television over your cable channel unless you pay us, and what we charge you is anything we can get from you.”
This price doesn’t have any relation to what it costs to produce what they sell. Such extortionate pricing is now sponsored by U.S. diplomacy, the World Bank, and what’s called the Washington Consensus forcing governments to privatize the public domain and create such rent-extracting opportunities.
In Mexico, when they told it to be more “efficient” and privatize its telephone monopoly, the government sold it to Carlos Slim, who became one of the richest people in the world by making Mexico’s phones among the highest priced in the world. The government provided an opportunity for price gouging. Similar high-priced privatized phone systems plague the neoliberalized post-Soviet economies. Classical economists viewed this as a kind of theft. The French novelist Balzac wrote about this more clearly than most economists when he said that every family fortune originates in a great theft. He added that this not only was undiscovered, but has come taken for granted so naturally that it just doesn’t matter.
If you look at the Forbes 100 or 500 lists of each nation’s richest people, most made their fortunes through insider dealing to obtain land, mineral rights or monopolies. If you look at American history, early real estate fortunes were made by insiders bribing the British Colonial governors. The railroad barrens bribed Congressmen and other public officials to let them privatize the railroads and rip off the country. Frank Norris’s The Octopus is a great novel about this, and many Hollywood movies describe the kind of real estate and banking rip-offs that made America what it is. The nation’s power elite basically begun as robber barons, as they did in England, France and other countries.
The difference, of course, is that in past centuries this was viewed as corrupt and a crime. Today, neoliberal economists recommend it as the way to raise “productivity” and make countries wealthier, as if it were not the road to neofeudal serfdom.
I’m a dumb Anglo, and understand your ‘simple facts’ perfectly well.
Your racism and hatred only serves to divide like minded people even further.
So you say, although you can hardly be dumb too if you know perfectly well as you state. I will tell you a secret, Anglo. Love and hate are the same things; they are just sitting on the opposite sides of something, and that is all. It is by the grace of your delusional and poor upbringing which haven’t thought you of morality and the proper dealings with your emotions and the sense of self-importance, do you see one thing as good, wanted and permissible, and the other as bad, unwanted, unacceptable and wrong. I will give you a simple example, so you can see how the plain the truth of it is. Lets say you behave in a way that intrudes or transgress into someone’s property or sovereignty. Your behavior will generate the hate of the victim,and you will probably even understand how “justifiable” it is. Or you don’t have to do anything. Some people will simply not like you no matter what you do or don’t do, in the same way some others will like you for the same reason (or lack of evident reason(s)). Like you see, Anglo, hate holds just as natural existence in the nature as love has: they are just different parts of the same thing — an open show of your emotions which have someone’s behavior generated or simply a sign of dislike. The one is not better of the other. Showing love to your enemy is suicidal, not to mention stupid. You see how perfect defensive mechanism that particular emotion is, hm? They, (those 2 emotions) just as those old stupid Western philosophers would say, “are.” Now you have received a lesson in common sense which you should have been given as a child. You don’t have to thank me, Anglo. Just count yourself lucky I was in the mood to show you the wisdom. :)
And you accuse me of racism, I see, hm, Anglo? Well, of course I am racist, Anglo. I love my race, but, mind you, it is not your race. I very much despise your race characterized by the total lack of morality and your propensity for deviant and perverse behavior, especially of sexual nature, and your lack of courage and loyalty too, I must add. It is not by chance that degeneracy stems from your English speaking world, Anglo, and it is not by chance that your oligarchs can rape you as they wish, you being so servile and cowardly. You are dysfunctional, and from that disfunctionality, disease arose. Now you protest why I show my dislike toward your liberal world and you as holders of that world. Tut-tut, Anglo.
Bodin,
You can pretty much trace English Anglo-Zionism to 1694, when the Bank of England was privatized. This bank emitted bank credit as money, creating debt instruments and putting the people in hock. Political Zionism came later with Herzyl, when Rothschild joined.
The parasite jumped from Amsterdam (stock market capital) to London, as part of a centuries long plot.
The message is that Mammon is a God that is very powerful and hard to resist. I will point out that Bolsheveiks, funded by Wall Street Capital, managed to parasite the brain of Slavic Russia.
So, the Russian people are not immune.
It takes a particular kind of institutionalized knowledge to create bulwarks against money power and false economic doctrine.
I recommend a fourth branch of government, which can issue both money and credit into productivity channels. This fourth branch is to issue lawful money that does not take rents and usury for its right to exist. .
I also recommend a Bancor system, so one nation’s money no longer trades for another nations money. All foreign trade is only barter, and a bancor as accounting device marks the trade. Debts and trading moneys always leads to exchange rate problems.
Note carefully, that both Hudson and Roberts describe exchange rate mechanisms that will be Russia’s undoing.
Some of the commentators here are “hard money” types. Hudson and PCR are speaking from the perspective of Modern Money Theory, which explains the actual workings of central bank operations in fiat money regimes (those of the entire world today, except those who peg their currency to the dollar, and the Euro countries, which gave away their sovereignty).
The key distinction is between countries that are sovereign issuers of their currency and those who are not (the Euro countries). All dollars are issued by the US gov’t and their licensed banks. The banks create money by creating loans. Many people seem not to be able to wrap their heads around this, and imagine that “money is created out of nothing” and therefore worthless, or that countries are “in debt” the way private entities are in debt, and therefore have to “balance their books” and even preferably run a surplus, etc. Private entities, county and state governments,the Euro countries, are all currency users and not currency issuers. To get currency to finance their operations they have to issue debt instruments or sell things. There is a fundamental difference between the debt of a currency user and the “debt” of a currency issuer, which is actually merely an accounting debit, since the amount of the debit on the issuer’s books is precisely the amount of money in the private sector, by definition. This is inflationary only when the quantity of dollars exceeds the productive capacity of the private sector (I’m simplifying).
Suggested reading:
Seven Deadly Frauds of Economic Policy (June 17, PDF Link)
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
How to discuss Modern Monetary Theory
http://bilbo.economicoutlook.net/blog/?p=25961
Zimbabwe! Weimar Republic! How Modern Money Theory Replies to Hyperinflation Hyperventilators (2 parts) –
http://www.economonitor.com/lrwray/2011/08/24/zimbabwe-weimer-republic-how-modern-money-theory-replies-to-hyperinflation-hyperventilators-part-1/#sthash.UzqCrn9Q.dpuf
http://www.economonitor.com/lrwray/2011/08/31/not-worth-a-continental-how-modern-money-theory-replies-to-hyperinflation-hyperventilators-part-2/#sthash.roKHY1yV.dpuf
Zimbabwe for hyperventilators 101
http://bilbo.economicoutlook.net/blog/?p=3773
Sovereign Spending in a Market Economy
http://neweconomicperspectives.org/2016/01/sovereign-spending-market-economy.html
Fifteen Fatal Fallacies of Financial Fundamentalism
http://www.columbia.edu/dlc/wp/econ/vickrey.html
More Advanced:
MMT Primer
http://neweconomicperspectives.org/modern-monetary-theory-primer.html
Several part series on Money and Banking by Eric Tymoigne – Part 1
http://neweconomicperspectives.org/2016/01/money-banking-part-1.html
James
I am working my way through the links you have provided. Thank you. I may be back with questions or squawks of dissent.
I don’t think you are quite right about what you call the key distinction. Is it not between those governments who borrow in a foreign currency, those who borrow in the currency of a monetary union they are members of without having full control of its central bank, and those who borrow in their own currency with full control of their central bank.
The last of these can still be in debt to the rest of the world. They can delay default by repaying debt in devalued currency i.e. “printing money”. If they persist, the result is hyperinflation.
James
A couple of the links you provide contain lists of propositions allegedly affirmed by “monetary fundamentalism” and counter-propositions affirmed by “Modern Monetary Theory”.
“Monetary fundamentalism” is intended to be derogatory. It picks out no particular theory in the real world. There is no school of monetary theory that would subscribe to all of the propositions. Indeed, as formulated on the links you provide, I doubt there is any school would subscribe to any of them. What we have is a composite straw man the only thing about which we can determine is that advocates of “Modern Monetary Theory” disapprove of it.
Likewise, the counter-propositions sound dodgy. Keynesians, neo-Keynesians, new Keynesians, and post Keynesians have all had interesting and controversial things to say. By comparison, this seems pie in the sky.
It appears that much of what these economists assert depends on lenders never learning – each time the government decides to borrow, they are happy to lend, at whatever interest rate the government proposes. They have no notion that inflation might accelerate, so they demand no inflation premium to protect their real return.
As I said at the outset, I’m no economist, and my brain cells start to die when I read economic papers. Perhaps I’ve just missed the point. I’ll continue reading (though with dwindling expectations of enlightenment).
“It appears that much of what these economists assert depends on lenders never learning – each time the government decides to borrow, they are happy to lend, at whatever interest rate the government proposes. ”
Bond issues are used to establish the government’s target interest rate across the yield curve. The coupon is set by the issuer.
The market has no power. The government could just establish its desired rate by offering interest on excess reserves and do away with ‘debt’ issues altogether.
The usual state of affairs is monetary policy is used to keep interest rates in the payments system going to zero. Which is the natural rate.
You seem to have everyone on both sides of the balance sheet. It can’t be so.
The government sets the term and coupon and how much it wants to sell. It then either invites the market to bid or it sets a price and waits to see if anyone buys. If no-one buys, it must change its price.
The central bank sets the short-term interest rates at which it is willing to deal with the banking sector. The rest of the term structure is determined in the market, given the short-term rates set by the central bank.
The natural rate of interest (if there is such a thing) would only be zero if there were no growth in the economy i.e. no prospect of a return on investment, and if economic agents were indifferent between consumption now and consumption later.
Nope. The CB can and does manipulate the target rate across the yield curve with open market operations.
If there are excess reserves (from government spending) in the payments system the interbank rate will fall to zero without support from the CB.
John G.
You are of course correct. The central bank can indeed influence yields across the curve by its own buying and selling. I was wrong not to mention it. Recall that you said that “the market has no power”, which is something else again. The central bank can influence yields; it can’t control them. What it can control is the short term rates it is willing to deal at in the money market with the commercial banks. It controls the short term rate by borrowing from and lending to the eligible commercial banks (reverse repo and repo). This is the only part of the curve where the central bank has such control over market rates, because of its ability to create and destroy money.
I’m not clear why you say that government spending would cause the commercial banks to have excess reserves, unless the government were to borrow directly from the commercial banks itself, which isn’t the normal way of things.
“I’m not clear why you say that government spending would cause the commercial banks to have excess reserves, unless the government were to borrow directly from the commercial banks itself, which isn’t the normal way of things.”
When the government spends it marks up numbers in the banks’ reserve accounts and the bank marks up the numbers in the payee’s account. The bank has no corresponding liability to the central bank for the reserves that have been issued to its account i.e. excess reserves.
Maybe you need to do some reading on vertical vs horizontal money.
Vertical/Horizontal vs Exogenous/Endogenous
http://heteconomist.com/verticalhorizontal-vs-exogenousendogenous/
John G.
If the government borrows from the central bank and spends on private sector goods and services, the money is paid to the private sector who themselves spend it or deposit it with a commercial bank. Commercial banks take in deposits and extend credit. In a fractional banking system, they extend credit that is a multiple of the deposits they attract. The reserves they are required to hold are a very small part of their balance sheet. If a bank an excess of the assets designated as acceptable as reserves, it sells them if it can earn a higher return on other assets.
I’m still not clear why you think the “natural” rate of interest in a growing economy is zero..
The central bank is the government, so the term ‘borrowing from the central bank’ is misleading.
Banks do not lend deposits. They create deposits when they extend credit. The FRB model and the money multiplier are myths.
Reserves are the government money in the payments system that are used in interbank transactions and all interactions with the government.
John G.
The government borrows from the central bank or from the commercial banks or from the private sector. Not misleading, clarifying. (It is a relief that, unlike so many others, you don’t assert that the central bank is a private enterprise for the profit of bankers – usually the Rothschilds. Yes, the central bank is a part of government. It is sometimes helpful to be specific about what the different branches of government do e.g. the Treasury does not manage the military, the Pentagon does.)
When a bank extends credit, the other side is indeed a deposit. When a bank accepts a deposit (for instance when my grandson takes the pocket money he’s saved and opens an account) – ?
Banking regulation stipulates one or all of capital/asset ratio, liquidity ratio, and minimum reserve requirement. The last is the amount the bank must hold in securities the central bank will accept in return for cash in repo transactions etc. Until 2007, for example, mortgage-backed securities rated AAA by the rating agencies were deemed acceptable by many central banks. These are decidedly not “government money”. They are assets used as collateral between the banks and the central bank when borrowing and lending.
Several countries have no reserve requirement.
Whether or not you consider fractional banking a myth, it is nevertheless the case that bank lending is a multiple of bank equity, cash held by the bank, or reserves.
I can only suggest that advocates of Modern Money Theory spend some more time in a bank, a central bank, or the bond and money markets markets.
I lived in ex-soviet republic, and now live in Chicago.
The example with the sale of public parkings in Chicago was a great move on Saker’s side. Hard to find a better example that so easy gets everybody on your side. That was a horrific ‘deal’ that should be broken in court. I actually don’t mind privatizing the parkings, but that should have been done in a series of auctions, where every property can be bid by different buyers and everyone can bid and the city can collect the market price of the propery, and further more you end up with many owners that will compete with price and provide better and cheaper service than the government did. Instead they sold it to their friends for a fraction of the market price, to a single owner, who can easily exploit monopoly of a good with inelastic demand. Had they sold them the right way, we would certainly be better off than having government run parkings.
However you don’t know the end of that story. The free market is still finding ways to put pressure on those corrupt dastards. Somebody came up with an app, where you ask for parking, and somebody waits for you downtown, and you pay him 15 bucks instead of 35, and they take your car outside of downtown, and find free parking on some street, and ask you when you want it back. The POWER of freedom baby! No government parasite can ever come up with such great idea!
Anonymous, the unpaid bills you were talking about … you got that wrong dude. The unpaid bills is actually an incredibly positive and inspiring story! Huh? Uh-huh! I am telling you dude, you like to sound confident, but you are very vulnerable on economic issues, not because of lack of intelligence, but because your love of socialism is always the losing position in an argument.
The State of IL elected a Republican governor in the last elections – Bruce Rauner. I voted for him, and all my friends, and we are nothing but thrilled with this guy. My property taxes have been going up every year, and that on top of increasing state income tax and state sales tax. It was up to the point of me deciding to leave the state. The whole state is infested with all kinds of parasites – blacks in the south, the most powerful teachers union in the country, and we have the most government clerics per capita in the whole country. Too many people sit inside the cart, and not enough people pull the cart. When Rauner came he said : NO MORE TAXES. We have to now cut. Of course Madigan and the democrats will never cut a single parasite, but Rauner has been standing firm, half a year now, and has refused to approve those outrageous budgets. Those unpaid bills you talk about… you can remove half of those services and nobody would know, except the parasites that were fired.
http://www.counterpunch.org/2015/09/01/how-wall-street-parasites-have-devoured-their-hosts-your-retirement-plan-and-the-u-s-economy/
About another article/book by Michael Hudson. Very interesting reading.
Eimar, About the “privatizations:” It looks like it’s ok, or nearly so.
It isn’t what it seems. See Dmitry’s link, here http://politrussia.com/ekonomika/pravilnaya-putinskaya-privatizatsiya-967/ (in Russian).. Then see my Helmer link & you’ll see everything is ok about the “privatizations.” 11/2/15 http://johnhelmer.net/?p=14441#more-14441/
Regards,
Penelope
—
Paul II,
The people of the world don’t wish to spread the power among more oligarchs; they wish to bring it home to their own control. A multipolar oligarch rather than a dictator– No to either.
Penelope,
I am with you on that, but the world is a flawed place. In WWII, there were perhaps only three choices: pro-Germany, pro-USSR, and neutral. There wasn’t a pro-Iceland/Switzerland/Uruguay choice. And this blog seems to be more about the real and ugly world than the ideal world that we would all wish for. As an example, there is no good choice or situation for the Ukraine. Depopulation, destruction, and disease are likely coming. And, sadly, most of the idealists in the Donbass seem to have ended up dead.
A cynic would say the vision of the BRICS/Eurasian Union is that regional elites control things instead of the Western banksters. It doesn’t mean the people get any say. We just hope that they aren’t quite the sick Satanists that we are used to in the West and that we can avoid huge wars.
“We just hope that they aren’t quite the sick Satanists that we are used to in the West and that we can avoid huge wars.”
Huge wars is nearly certainly not an issue now (you really think those rich guys would want to live underground) but this is:
http://thesaker.is/to-refugee-or-not-to-refugee-that-is-the-question/comment-page-1/#comment-207323
so, one way or another when Penelope says:
“The people of the world don’t wish to spread the power among more oligarchs; they wish to bring it home to their own control. A multipolar oligarch rather than a dictator– No to either.”
she is addressing the real problem 100% head on.
Glazyev had this to say in an interview:
…
Q— How do you assess the consequences for the economy? Privatization was associated increased efficiency in the management of the property and ultimately the growth of the economy…
A— How do you know if the property stolen and not earned, the owner is unlikely to be its judicious use. Likely to sell at the first opportunity and hide money abroad. This is what happened with most of the manufacturing industries. Privatizers seldom bothered with the development of production. Typical was a different picture: the assignment of working capital, sale of stocks, unpaid wages and dismissal of workers, then dismantling and sale of the equipment loans and the bankruptcy of the enterprise. After that it converted it into a warehouse, trade, import or office space. So if any growth occurred, it was the growth of the economy offshorization, warehouse and retail space. Let’s not forget about the so-called foreign advisers who worked in the state property Committee, who have abused his official position and was involved in the privatization. They acquired Russian assets, using confidential information for personal advantage. On this account, by the way, there is a decision of American justice, which recognized, in particular, guilty of two Harvard advisors chief privatizator fraud. From the beginning, privatization was carried out with the most favorable conditions for foreign capital that had huge advantages due to multiple incomplete cost privatezirovana enterprises. Not accidentally, the chief financial operator in the market of privatisation deals turned out to be one of the American-Swiss banks.
And most importantly, the privatization of the 90s led to enormous chaos in the economy and a sharp decline in industrial production because of the destruction of production chains.
Q— Explain, please.
A— The Soviet economy was formed a large production and scientific production associations. Each of them consisted of serial and experienced factories, design bureaus and design institutes. Such industrial associations was about five thousand in the country. Each of them consisted of from five to a hundred thousand workers, depending on industry.
If privatized, these industrial-technological complexes as a whole, we wouldn’t have gotten a sharp drop in economic efficiency, would still be a workable structure.
And when privatized production plant separately, and separate pilot plant, and design Bureau separately, this has led to a sharp rise in transaction costs, to the destruction of cooperation, and ultimately to the collapse of manufacturing and technological systems and economic collapse of the entire high-tech industry.
That is, the original strategic fallacy of the privatization, which I, incidentally, said before it began, in 1991, was what was not privatized holistic industrial-technological complexes that are capable of independent reproduction, and were privatized legal entities, most of which were productive units and never functioned as a holistic enterprise.
…
http://vpk.name/news/149243_beneficiarom_etoi_privatizacii_mogut_stat_spekulyantyi.html
MD, Starikov also addresses the way to financial sovereignty for Russia– and much else– in his free online book: http://lit.md/files/nstarikov/rouble_nationalization-the_way_to_russia's_freedom.pdf
Some facts about USSR economy:
1) Soviet Union was self-sufficient, 2) USSR had minimal trade contacts with the capitalist non-socialist World,
3) Soviet industries and resources were nationalised, 4) Soviet economy run on principles very different to the western capitalist economies. There was central planning, state ownership, full employment, trade protectionist policies.
Today’s Russia is very different to the USSR:
1) Russian economy is a lot smaller,
2) The majority of the soviet state owned enterprises has been privatised and state property of significant value has been plundered by oligarchs,
3) liberal reforms caused bankruptcy of state industries and there was significant
de-industrialisation during the Yeltsin years
4) Russia is more integrated and open to global economy and has joined WTO. Therefore, it is more vulnerable to western blackmail and pressure , 5) Unemployment and poverty are widespread (as opposed to the soviet years)
6) The economic institutions and policies are western inspired
Nevertheless, Russia is still one of the last sovereign powers that still exists in today’s globalised neoliberal economy.
It is not fully integrated into NWO.
State control of economy is more significant as opposed to European countries.
It has a powerful military.
For Russia to resist NWO, a complete reversal of neoliberalism needs to be implemented.
That means:
Exit from WTO/IMF, stopping any further privatisation, nationalization of natural monopolies and of important industries, policies for the promotion of full employment,
more trade protection and elimination of free trade agreements, rebuilding of the industrial and agricultural industries so as to achieve self sufficiency, reintroduction of some aspects of soviet economic policies, agreements with countries that resist NWO etc
to follow your advice is the equivalent of russia dropping 20 nuclear bombs on itself. The destruction on economy and population would be the same.
back2″freedom” What absurd hyperbole. Let’s hear how you explain China raising 600 million poor into the middle class in a decade or two. Did they do that following your monetarist “wisdom”??
‘Let’s hear how you explain China raising 600 million poor into the middle class in a decade or two.’
It is funny that you used the correct time frame during which this happened. That is good, we agree on the facts, that did happen, and it was in the last decade or two.
Now lets look at what happened in China since the communists took over after WW2 until the 1990s. The communist party set an all time record for mass murder in peace years, killing over 100 million of its own population, refusing to acknowledge people have any rights at all, standard of life during the entire time was that of a miserable rat.
Now WHAT happened about two decades ago? The communist party went through a transformation. They opened borders. Cut corporate taxes to a level much lower than United States. Allowed private property. Allowed internet, yes, with filters, but still. Chinese do have some rights now. Today China is totalitarian country, but not communist, and less socialist than United States, when you measure socialism by what % of the national economy does the government consume. Foreign capital flew into the country, and all kinds of factories were created, along with hundreds of millions of jobs, where people could be ‘exploited’ by the west. Yes, the standard of life raised dramatically in China, simultaneously with that of Russia, simultaneously with the DUMPING OF COMMUNISM. You feel the drift.
Good job! But the impression you give is that there are only 2 choices, Communism or Adam Smith, economist for the British East Indies Company, at the time that the British Empire decided to go with the Bank of England and “the company”.
That is a false dichotomy. Not only is there a 3rd way, a 4th way etc, but other ways that have not even evolved yet.
There is no other way, but to reverse neoliberalism and to return to policies reminiscent of 1950s-1960s social-democracy ( or even of soviet socialism ).
What that means is that Russian governments will have to proceed with re-nationalisations of industry/banking/transport/resources, trade protection of local production, significant increase of taxation on multinational corporations and oligarchs, stricter capital controls, monetary reform and nationalisation of the ruble, and a gradual disconnect from the global neoliberal economy.
Otherwise, Russia cannot defend itself from western aggression and sooner or later it will have to surrender not because of any western military aggression but because of the western economic pressure……
Aren’t we all just being a bunch of “backseat drivers” here?
Penelope and Dmitry have posted links that show the “privatizations” are, in fact, forced investments schemes for oligarchs who will need to “buy” the assets far above market price.
Not sure if this info is true but isn’t this more in line with everything we know about Putin?
The government doesn’t need a fire sale of strategic assets. They can sell their gold or print up the money to buy locally produced gold which they can sell on the gold exchange market.
So I suggest we keep calm and let Putin do the driving. And would be great if someone could verify / provide additional links re Penelope’s and Dmitry’s info..
This is a good article, with great comments by Bodin, MD, and others.
As some other readers, I’m sure Russia won’t fall into this trap. Because the stuff that is known by ordinary people who doubt the System and read the Internet is sure known by the Russian president’s advisers. I trust Team Putin to find the best solution for Russia … because I’ve been following him since ~2005, and look at all his great moves.
One comment on privatizations:
Privatizations, apparently dictated from abroad in the wake of the Fall of the Wall, have had no positive effects in Germany (although I think other countries have fared worse than Germany). Among others, privatizations delocalize and anonymize business ownership so the owner doesn’t care for the region and profitability becomes the sole point of interest. They have erected oligopolies, and while I would not say that these have degenerated into cartels, a public monopoly of telecommunications and other utilities would be more efficient and overall cheaper to the citizen because there is no need for anyone to extract profit from the system.
Another comment on the lingo:
Just what is the meaning of the verb monetize as used by the authors? From the context, I inferred that it means to use the (electronic) printing press to create money (out of thin air). Which is plain and clear English and easy to understand for the average layperson. But the verb monetize is not. Because it sends you to the land of economic jargon. Why not use plain and clear English directly so laymen can understand more easily what’s going on?
And one comment on thin air and how it can be exported:
There’s nothing per se wrong with creating money out of thin air. It just needs to be transparent so others know how much is printed. Users of the money will judge the value depending on the printing habits. But there are at least two blatant problems. One is when this power is privatized for profit extraction. And the other is when one exceptional country employs fraudulent and even violent means to force others to accept and gobble up the currency that it prints.
This is why the U.S. experiences only moderate price spikes despite an exorbitant inflation in the amount of money. They inflate their dollars abroad (=> trade deficit => Germany, Japan, China) and thus get a free lunch on the world economy, which they use to pay for their – again – exorbitant military apparatus, which they have used during the past 25 years to destroy countries that wanted to break free from the dollar. By accepting and using the USD the world pays for the US military. It is a simple scheme in essence, but many people don’t understand it or cannot believe it.
http://www.tradingeconomics.com/united-states/balance-of-trade
Click on MAX. You’ll see a sustained deficit. Currently ~40 billion USD per month. What it means is that, on average, every single person in the USA gets 4 $ freebies per day, which no one in the US needs to work for. What it also means is that the aforementioned surplus runners supply the U.S. with a high standard of living for free. Note that in Germany this absurd surplus is framed as “Germany, the export champion”. And MSM and gov constantly refer to it as a good thing rather than a tribute.
Why do otherwise smart and literate people are so blind on economic issues?
Here are some fore facts about the USSR. Millions of people starved to death. More people died in USSR in ‘peace’ years than Hitler killed in WW2. No technology of any kind outside military. Juguli, Lada and Moskvich and Volga were produced for 30 years without any kind of technological improvement, when the west was just tearing there. Human rights? Ha! Stalin was famous with human rights. Slavery. There were years in the Soviet Union when people were actually slaves, even when slavery was already abolished in US. Russia has never recognized that it enslaved its own population, but it was indeed slavery, BUT the slave ownership was not PRIVATE but STATE. All citizens were slaves, and were property of the party. Here is how it worked: central planning started with a plan for grain production – say 1 million tons. That goal was cascaded down to the regions, then towns, then villages. People with connections in the party arranged that they get a more manageable goal, but not every one was lucky. Some villages had goals of 1000 tons and they could only produce 300. Not producing your goal led to rounding up the people in the village, and SHOOTING a dozen of them for inspiration to the others. Then people in areas with unmanageable goals began to flee. And then slavery began. They couldn’t allow people to just run away, so everybody was given ‘papers’, and nobody was allowed to leave their village without permission from the party. At the end of the year the party would collect all grain and export it to get some money to finance its enormous body, leaving millions of people in starvation. If they catch you that you try to save some grain for yourself, they take you and shoot you in front of everybody. There is a famous story about a little boy who went and told the party secretary that his dad hid a bag of grain in his basement. His dad was shot in front of everybody and the kid was made a national hero and the town took that kid’s name and the party gave his example to everybody.
The life expectancy of males in USSR dropped to about 40 years. Interestingly, the life expectancy of slaves in USA was much higher, slaves in USA never starved, and received regular medical attention simply because they were private property and their owners cared about their stock. Russian population after WW2 continued to decline even while the West experienced its fastest growth in history, with biggest increase in standard of living of average people in history.
These are the facts of the Soviet Union. The entire existence of the USSR was a crime against humanity. Russians today are so lucky to have Putin. I have listened to him and he understands that Russia will NEVER have a rich STATE-RUN economy. There will never be a ‘silicone valley’ in a state-run industry. Russians need freedom, need their ingenuity encouraged and harnessed and channeled into a free market economy. Why can’t russians make computers? Germans and Americans are not smarter! But they are freeer! The State has never invented anything good, and Russian State, even under Putin, will never be a competitive economy in the world, and without competitive economy everything else is doomed, even military.
re: “There will never be a ‘silicone valley’ in a state-run industry. Russians need freedom, need their ingenuity encouraged and harnessed and channeled into a free market economy. Why can’t russians make computers? Germans and Americans are not smarter! But they are freeer!”
The idea that Germans are freer than Russians today is a bit interesting. In any case, the Silicon Valley was a military-industrial complex success story. Plenty of guidance and policy, but let the hungry sharks compete. Kind of like many countries in Asia have used since WWII. Isn’t this what Russia needs?
By the way, I suspect that your screed against the USSR is actually a spoof to make the case for all of its accomplishments. It was brought down by a corrupt elite who wanted to steal everything, which may happen in the West, too. Disaster capitalism coming home to roost. And the fact remains that Western neoliberal freedom and capitalism of the last twenty years or so are enough to make us question this kind of freedom. It is freedom for pirates. On the other hand, Stalin took a nation of plows and left a nation of nukes and a first-rate educational system for the future. Do you really think a free market leader could have lasted a month against the coming Nazi onslaught?
From my Russia correspondent, on this article:
“I agree with your point of view. The Russian state could impose a more effective control and management of public assets rather than privatize a big piece of these assets at very low prices. As I said the state has huge foreign reserves that have appreciated very much due to the ruble devaluation. The government can also borrow to cover the budget deficit. The last year deficit was not so large, and the oil price can revert to a higher level. So there is no need to hasten with privatization. It can be used only in the extreme case, if the oil price remains very low until the next year.
To some extent, the approach of the Russian neo-liberal government reminds me Russian privatizations of the 1990’s like notorious “shares-for-loans” scheme that created the oligarchic rule that Putin abolished when he came to power. Ukraine now is governed by oligarchs. This catastrophic outcome could have been a destiny of Russia. ”
Katherine
Couldn’t agree more. Usually on economic matters I have something to add, but really, this article laid it out pretty categorically.
Open Joint Stock Company Russian Railways Key Developments
Russian Railways Privatization In A Year Or Foreign Invertors Are Hardly Probable
Feb 6 16
The privatization of Open Joint Stock Company Russian Railways is not probable within a year and foreign investors are not a very likely scenario. Russia’s Transport Minister Maxim Sokolov said on February 6, 2016, “We have not discussed either parameters or approaches, and here we should handle the case with care.” Sokolov adds, that he was not ready to discuss options of selling packets to foreign investors, adding the ministry had not considered this option in full detail yet. Itar-Tass reports.
Open Joint Stock Company Russian Railways Presents at Russian and CIS Industrial Metals Summit, Feb-09-2016 through Feb-11-2016
Jan 27 16
Open Joint Stock Company Russian Railways Presents at Russian and CIS Industrial Metals Summit, Feb-09-2016 through Feb-11-2016. Venue: Metropol Hotel, Moscow, Russia. Presentation Date & Speakers: Feb-09-2016, Anatoliy Kuzhel, Deputy Director, Central Logistics – CFTO.
Russian Railways to Increase Investment in Purchase and Renovation of Electric Trains in 2016
Jan 27 16
Russian Railways announced that it will invest RUB 3 billion in new motorised multiple engine and carriage units In 2016. The company intends to purchase 82 ED4M and ED9E series electric train carriages manufactured by the Demikhovo Machine-Building Plant. In addition to purchasing suburban rolling stock, Russian Railways also conducts an annual overhaul of its commuter fleet. In 2016, the company plans to overhaul 956 cars of suburban railway carriages
http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=8683834
Putin has always veered to the neoliberal pseudo-economic model dogma that places monetary policy above fiscal policy in the grand scheme i.e. worrying about budget outcomes rather than employment and wage growth.
I’d like to think he’s smart enough to jettison the ideology, given what happened in 2008 and has been happening since in countries that have adhered to the dogma.
Fiscal balances are just numbers on a spreadsheet. They don’t mean anything in and of themselves. They tell a story of what is happening in the real economy.
Russia is the monopoly issuer of the rouble and it can create as many of them as it wants, to the point of buying up all available resources available for sale in roubles.
John G, Russia may NOT issue the rubles or credits that she so desperately needs to invest in the economy, or even to finish the pipelines to China. The IMF/Fed system to which she belongs mandates that all countries labelled “developing” (most of them incl Russia) are limited: They may issue currency only in an amount equal to the value of their exports! Starikov goes into this in his free online book which I mentioned in my last comment. The central banks regulate currency issuance and are NOT under the control of their govts. The ruble makes up only –if I remember correctly– 25% of the circulating currency. Rest is dollars and euros
This is the reason that countries are so avid to export and don’t give first priority to the domestic market, domestic needs. This is why they borrow money to try to develop, instead of issuing the credit to enterprises themselves. They go into debt, with all its risks, to obtain the worthless paper currencies of other countries instead of printing their own or making their own keybord entries to credit a borrower. The IMF/Fed system requires this; they may not even use their foreign currency reserves as collateral.
The emerging global oligarchy is comprised of supranational institutions: The IMF/Fed system, the WTO, the trade agreements like NAFTA, TTIP, and the World Bank, and BIS. Step out of the control of these institutions and our nations are again sovereign. Then we’ve only to regain control over them>
Penelope
I think your first paragraph is simply wrong. No central bank “issues currency only in an amount equal to the value of exports”. I doubt that only a quarter of the currency in circulation in Russia comprises rubles.
That has to do with IMF conditions, The amount of currency can only be equal to their dollar reserves. I think that happened when Russia defaulted and the loans from the IMF had those conditions just like in Argentina. Not following their rules makes you ineligible for loans. But as we see in Ukraine, the rules can be changed when ever they wish.. Also why is all the gold immediately shipped off to NY when ever the US takes control of a countries finances? In every country even before anyone gets appointed the gold is on a plane to NY.. Not like NY is safe, all the gold in the WTC disappeared..
mmiriww
I’ve found an IMF working paper looking at the proposal in the 1930s by the likes of Irving Fisher that bank deposits should be fully backed by reserves, the “Chicago Plan” (which I was unaware of). Reserves would normally be assets stipulated by the central bank. Full reserve banking is a respectable but controversial alternative to fractional banking. Has the IMF actually imposed it on anyone it lends to? And has it insisted that reserves have to be U$ denominated? My memory gets ever more like a Swiss cheese, but I seem to remember that Argentina after its default agreed to go one step beyond a fixed exchange rate and institute a currency board. The currency board fell apart in 2002 (I think). Like monetary union in the EU, a currency board can be a very bad idea, although slightly easier to get out of…The penny has finally dropped that this is what Penelope is referring to. After its default, Russia did not institute a currency board, but retained a (managed) floating exchange rate, in effect, inflation targeting. This is a reasonable and practical policy if the monetary authorities know their job. It gives the country some flexibility in adjusting to shocks (like a collapse in oil prices for an oil producer).
Ewan, I have posted the link to Starikov’s free, online book at least 20 times on this site. He shows you step-by-step the constitutional basis of the Russian’s Central Bank’s independence from the Russian govt. Thru the rules of the Fed/IMF system of which Russia is a member, she is categorized as “developing,” and hence is subject to the rule that she may not issue currency/credits except in an amount equal to her exports. Glazyev speaks of the necessity of issuing “liquidity”.
This is so counter-intuitive that I know it’s hard to believe. Read Starikov. Do you think all those countries who take the immense risk of borrowing from the West are just stupid? Why are they all in debt? Just because they mistakenly believe in the neoliberal economic theory that prevents issuing their own development credits? They are compelled by the IMF rules, as is Russia.
Penelope
I have tried to read Chapter 12 of his book (the one you were mainly referring to, I take it). No need to worry that it appears counter-intuitive. It is not only counter-intuitive, but false. I’m surprised he has an economics degree. It is important to know your enemy and not tilt at windmills. The US is out to nobble Russia and is using the international financial system to that end. Russia and its friends had better study how the system works. Juan C. Zarate, one of the architects of the US Treasury’s use (abuse) of the financial system to take down those the US deems enemies, has written a book boasting how it is done, “Treasury’s War”. It had better be read in conjunction with a primer on economics and finance, to inoculate against Starikov’s nonsense.
Russia is not part of the Fed system. It issues roubles in accord within its own fiscal spending decisions i.e. they have the power, not the money markets. Whether they know that or not is the question.
And that’s Michael Hudson’s point, I believe.
There is no such thing as an IMF system. The IMF is a bank that issues its own currency i.e. SDR’s that it pegs to a basket of other currencies.
I think it is fair to say that Russia and Russians are more wary of credit than any country or people on earth. I speak not from any firsthand knowledge but from the record. Russia has never accumulated debt like other developed nations. If others think this is wrong and the result is simply a matter of the lack of opportunity to get and use credit please let us know.
I believe whatever the reason is for the lack of debt and the seeming unwillingness to accumulate it this is the one single thing that is unacceptable to American elites and is the cause of Americas determination to crush Russia. Make no mistake, for America’s elites the goal is to crush any Russian government not willing to allow in the bankers and take on debt and thus join the neoliberal world.
The banking question is the litmus test for a leader if they want to really break free of the shackles of the globalists/NWO. Donbass was able to pull it off..that was quite hopeful. The Saker article a week ago or so regarding the Glazyev faction as surging in the media is encouraging as well.
That said, I don’t think Putin is in prime position to take not this beyond dangerous challenge. Russia still has debt, and 2 wars it is involved in. If it could win those outright and gain the full co-opertation of China they might be strong enough to make a serious move and Putin may not meet Kennedy’s fate.
The fifth columnists need to be degraded further, hopefully Putin is doing that. maybe the nationalizations of industry are something planned for over a period of years.
I think hope exists, but it would be utopian to think all the Russian atlanticists
will be gone next week.
This is exactly the platform I have been involved with for the past decade. The Monetary Reform movement as espoused by the American Monetary Institute. Privately controlled central banks and private banking in general have usurped the power of money creation; which they create almost out of thin air by issuing debt/loans. A truly Sovereign state must eliminate the private central banks and have their own Treasury Departments create money by spending it directly into the economy; interest free. Congressman Dennis Kucinich, prior to being jerrymandered out of the legislature here in the land of plutocracy, brought a bill before congress, the NEED ACT, which would have established such a system of money creation. It’s surely worth a look. As well as becoming aware of what money is. Those that control the creation of money control governments.
No. Michael Hudson has an MMT view of the monetary system.
The AMI and Positive Money people believe something quite different and quite at odds with what MMT prescribes.
Some very interesting and insightful comments above, in response to a pair of wise economists and good people who understand that the Posturing Powers that Be have led the West on a path of ruination for themselves and others, and in many respects, even creation itself.
Quite agree that there are many functions in a society the control of which belong in the democratic or public realm, and not in the private or oligarchical realm. The primary control of the financial system ought surely to be a public utility, not a private privilege. The current private clique control of the global financial system is at the heart of the global human crisis.
That said, in the economy generally there are very different types of privatization, from the extremes of monopoly and intertwined, very concentrated, private ownership to extremely diverse ownership with decisive political nourishment of healthy competition.
And there are different forms of ‘public utility’: for example, there is the question of a healthy vs unhealthy regulatory system, oversight.
In Canada, a little known book, about the experience of a long time employee of the national entity known as Health Canada, is titled “Corrupt to the Core’. Here the title perhaps overstates the situation a trifle, but not much from my own experience. A key problem identified was the appointment of people to key executive positions whose primary allegiance leaned towards corporate interests, and away from the broad public interest. One way this problem could perhaps be mitigated is by a more transparent, debated and democratic procedure for selecting the executives of key regulatory agencies.
Unless there is an effective social awareness of, and effective political and social resistance to the tendency for corporate power to metastasize, , powerful corporate interests will over time, inch by inch and leap by leap, acquire more influence within any more or less posturing as ‘democratic’ political system: via lobbyists, campaign contributions, media influence and control, etc.
One great coup that transnational corporations in many countries have achieved is to acquire ‘corporate personhood’, and thus political rights and powers and influence and advantages that are superhuman and decisive on behalf of private interest, not the public interest. The penalty for crime is often a fine which is regarded as the price of doing business. So, in addition to the key concept of the need for a financial system that serves as ‘public utility’ rather than ‘private financial Aladdin’s lamp’, the problem of the corporate juggernaut as an inherently self-serving super-person in law, and often antithetical to the deepest public and national good, is a fundamental problem.
Canuck,
Just a few thoughts.
Re: Lessening corporate power: Break large conglomerates into their individual companies. In early American times corporations existed at the people’s pleasure and could be disbanded if they did not perform in the people’s interest. That should probably be re-enacted for corporations of a certain size.
Re: Getting non-corrupt heads for our agencies like Health Canada, FDA, FCC, etc.: Allow the workers in each federal agency to elect their own chief or triumvirate, rather than permitting corrupt political appointees. Of course by secret ballot.
I think that people everywhere ought to start getting together a political platform of what we want. Having specific intentions is a great motivator. By enlarge we want sovereign nations that the people control. Surely we ought to start thinking about the means by which this will be accomplished After The Revolution (ATR). Public financing of campaigns and a totally nonconcentrated media. What else?
” the latest privatization plan is a direct attack by the Russian 5th column against President Putin and against Russia. ”
Maybe so. But contrary to Paul Craig Robert and Michael Hudson, crimson_alter, a fine Russian blogger, has read the small print of the relevant documents, and comes to a quite different – and for some very surprising – conclusion. A must read!
crimson_alter – Privatization Putin style
http://southfront.org/privatization-putin-style/
The key parts:
“… if the shares are bought by a Russian firm under the scrutiny of Russian law, then all of the subsequent conflicts with the state or potential expropriations will be dealt with in accordance with Russian law, with the Russian holding company being a party to the proceedings. this makes the Yukos situation, where the shares were held to foreign offshore firms, impossible to be repeat.
So it turns out that the only foreign investors who will participate in the privatization are those who are not afraid of Russian law and are not afraid to play in accordance with the rules set by the Russian state.”
“… The state retains control over the enterprises, which Putin clearly stated. Overall, the oligarchs are being compelled to put their money into the budget and also invest in firms where they will be minority shareholders”
And the “lucky” oligarch-buyer of this minority stake in a Russian state company, issued under Russian law, at a strike price far above market value, also “wins” the right to wash windows at the Kremlin..
U.S. goverment is not crearing its own money. Now everyone shouod know that U.S. gov. is borrowing money from the “Federal Reserve System”, private, foreigh (Rotschild & co.) cartel. Just see whose notes are on your dollar bills; “Federal Reserve Notes”.
So if Russian gov. would allow private bank to creare money, Rubles, it’d meant to get under financial control of some crypto mafiosos, same as in U.S. case.
removed. No insulting or baiting guest author. Mod TR …
Anonymous, No one’s suggesting that some other private bank in addition to the Fed should be empowered to have money created. MMT (Modern Monetary Theory) says the govt should issue its own interest-free money– as in the constitution.
Ronald Wray’s book: Modern Monetary Theory
http://bilboeconomicoutlook.net/blog
http://neweconomicperspectives.org
https://www.youtube.com/watch?v=JGuNpqYBkZk video Warren Mosler
https://www.youtube.com/watch?v=YnyDRwSqp2E video writer of bilbo
Fractional reserve banking with its perverse incentive to commercial banks to create money and to destroy money serving their business model instead of society is the core reason for the boom bust cycle of capitalist economies.
A moral question too why would a society grant commercial banks to create money?
Iceland has with “sovereign money” a quite different approach, but Iceland also recovered spectacularly after the last crises even after rejecting IMF “assistance” and also jailed 22 bankers for up to 70 years in total.
https://eng.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf
Are you, by chance, the same JR that comments at ZeroHedge?
In the article opposing privatization, I can find no mention of the following crucial facts:
According to his recent statements, Putin said that in any privatization of industry, the State would maintain controlling interest. In fact, most of Russia’s largest companies are already partially privatized, most listed on the London Stock Exchange, including Gazprom, Rosneft, Sperbank, etc, while the State maintains controlling interest.
Putin should privatize everything that even remotely depends on technology. ‘The State’ that everybody here admires so much has proven a 100 times in the last 60 years that it can’t do anything efficient. Russia will never have an economic boom as long as the economy is state controlled and corruption infested. The people of Russia will have to create the economic powerhouse, not the State. All Putin can do is reduce the size of the government (that is the only way to remove corruption, no exceptions), reduce taxes and encourage foreign capital inflow and capital accumulation. You all need to know that labor productivity does not depend on the State, EVEN when Putin is the state. Labor productivity depends on capital accumulation. If you have big machines and nice engineering software 10 people can build a dam for a month that would take the Soviet Union 3 months and 10 thousand people.
It is very sad to see all of you put all of your hopes in ‘THE STATE’. What is the point of fighting all these wars if russians will continue to live in poverty and lag behind the rest of the white race? You need to embrace personal freedom, and not State. It is scary, but the only way.
The only good thing in all of this is that Putin seems to know better than you all.
@back2freedom: I strongly disagree. And the true facts look different.
Or how do you explain the magic age of comrade Stalion’s powerhouse Soviet Union?
What you want is as much “freedom” as we got all over the world since the neocons took over.
How can such comments like yours stand unchallenged?????
Although I am in general in favour of a mixed economy (private + public), natural monopolies should not be privatized. In my country we now have Goldman Sachs pondering to buy up a large share of our electrical grid networks. Our highly privatized healthcare is owned by global corporations who transfer the profits (=taxpayer money) to offshore tax havens. Meanwhile, of course, healthcare and electricity prices for consumers are skyrocketing.
Putin’s government should, if it can, just nationalize the Russian Central Bank already. The story has been out for a while now from a number of different sources.
http://new.euro-med.dk/20141215-putins-confident-putin-to-nationalize-rothschilds-central-bank-and-purge-collaborators-with-west-war-till-one-side-collapses-inevitable.php
In Canada there’s a lawsuit to return the Bank of Canada to being a public bank. The idea that the government has to borrow money from private banks has always been a bit of a farce.
“But in 1974, the central bank stopped providing interest-free loans to government so it could join the Bank for International Settlements, a kind of central bank of central banks.”
http://www.cbc.ca/news/business/rocco-galati-challenges-bank-of-canada-to-offer-interest-free-loans-1.3065650
http://www.comer.org/
When government creates money, printed directly or pretending to ‘borrow’ money from a private bank, money is created, not necessarily out of thin air, but against the future wealth created by the loan. Failure is backed by the collateral of existing wealth/promises of future wealth (other loans). For a money rentier, a banker, liability is a problem solved by foisting upon the public sector.
Governments going through a private bank is an unnecessary step that contrives the public as the borrower, and banker the lender. Its completely false.
The actual relationship is private banks borrowing from the People through the government, and pretending its public debt to them.
The government goes through the extra step of issuing debt instead of printing money based on its needs and assets.
The Bank if International Settlements, ‘Sauron’s Ring’, one bank to rule them all, somehow has kept the Russian and Chinese governments from pulling out. Sauron’s ring worked by promising its Ringwraiths great power. Whatever the excuse, however noble or venal, good never survived the Ring.
http://www.globalresearch.ca/one-bank-to-rule-them-all-the-bank-for-international-settlements/5480852
https://en.wikipedia.org/wiki/Nazg%C3%BBl
The future of finance, if there is to be one, lies in public banking. Real public banking, not just the printing of sovereign cash into bottomless private debt-coffers.
http://ellenbrown.com/books/the-public-bank-solution/
http://www.publicbankinginstitute.org/intro_to_public_banking
However, there is another threat. The West is no longer democratic. Russia is becoming democratic. The Western oligarchs need to shut Russian democracy down.
Russian democracy is not only a threatening example when it succeeds, but also, real democracy as Putin’s legacy is a real long-term threat to a neo-fascist neocon world order. There has never been a nation as vast and powerful as Russia governed by rule of law moderated by proportional democracy. Now imagine Russia governed as socially democratic Sweden or Norway.
I saw an RT article where some Russian politicians proposed suspending elections on account of foreign interference, but I can’t find it. Still, the threat to Russia is the threat to end its democracy. Foreign interference can be dealt far easier than the disaster of not having elections at all.
The Soviet Union was twice-blind. Central economic planning did not allow price discovery; there was no rational way to allocate economic resources efficiently. There also was no free market in socio-political ideas; ruling elites had no more understanding of the currents of real social capital than they did the currents of real economic capital.
Halford Mackinder laid down the groundwork for geopolitics with his heartland theory. There were limits to the power of the heartland; the Soviet Union lasted barely 70 years under the worst political economic system then known. The North American Heartland, competing directly now with the Eurasian Heartland, thrived pretending to be a liberal democracy. Today the mask of the psychopath crumbled and revealed the new worst political economic system ever, crony capitalist imperialism.
Competition is to nice a word. Western crony capitalist intent is genocidal. They have to prevent the rise of something better than the social disasters they prosper under.
Its not just McKinderism anymore; a genuine democratic market economy with a smaller heartland would blow neo-fascism out of the water in performance. Of course, there are only two major geopolitical heartlands; North America and the far larger Eurasian.
Russia theoretically now has two eyes open; the free market of capitalism and the free market of socio-political ideas backed by, en masse, thinking brains with conscience. There are those in the West who want those lights put out because they can’t live under such scrutiny at home or abroad.
You made some good arguments why the soviet union self destroyed.
What do you mean by ‘banking should be public’? Every Single Poster here said that. What do you people mean? That banking should be monopolized by the State? There is no public actor, you have the State, which acts through coercion, and you have each of the citizens. The State can’t even deliver the mail right. Can you compare State (public) schools and private schools? Can you compare State provided healthcare and private clinics? What Russian government official goes to State hospital? : ) How many TV’s or iPhones has the State created? Can ANYBODY tell me one thing the State can do better than the free market? Why would banking be different? First of all, the State is not even CAPABLE of providing banking services for everybody. It is beyond its capacity to organize and manage. Banking can only be provided by the free market. What everyone is talking about is the Central bank having a coercive monopoly on creating money, controlling/distorting interest rates and bank reserve ratios. No bank in its right mind will lend 97% of its capital without a central bank guarantee. Central banks are the MAIN REASON for boom and bust. Without them, each private bank would boom and bust on its own, without a national sync, and nobody would care.
back to freedom…you are little confused. The State has a role, and must be constrained to its role. Natural and Public monopolies should not be privatized, so predators can take rents in perpetuity. The State’s role is to regulate or own inelastic markets (natural monopolies).
Here is recent historical example that your worldview cannot explain:
Canada had a “quasi” sovereign money system from 38 to 74. They effectively issued their money debt free.
That money went on to build Canal systems in the Great Lake regions almost equivalent to the panama canal. They built a cross continental highway. They built a cross continental railroad without monopolist railroad barons trying to take over.
Their Population was only about 40M in 38 raising to about 78M or so in 74 (off the top of my head, but it wasn’t a lot of people… and their output was astonishing).
They funneled sovereign money into schools, helping defray costs. Colleges and Universities also had infrastructure built, lowering the costs of people to go to school. Low cost college improved the labor value of the population. (People still paid for college, but the infrastructure was defrayed cost.)
By 74, many Canadian industries were world beating and had low to no debt. Neighbors and family had seed capital to loan for enterprise – so banks were circumvented.
The economic surplus paid for free medical care.
To buy a home, one had to go to a trust. This would be existing ‘savers’ money, usually old people, who would loan it out to young people. In this way, savers became capitalists, and it was part of a renewal cycle.
Private banks were limited in their ability to issue private bank credit. BOC prevented private banks from engaging in predatory loans.
Even short term overnight type capital was done with trusts, loaning out existing money rather than new private credit, so in this way, the population shared in capitalism.
When you rant about central banks, you need to define the character and law surrounding that bank. In most cases, the modern world has central banks who are agents for their private banking owners. They are stock owned corporations.
For example, the Reichsbank was under private control during the hyperinflation, but came under government control to stop the inflation. Most knowledgeable observers know about the FED, and I don’t need to re-hash it here.
Bottom line, a lot of people are confused about money and its nature, or even how money systems work. This hypnosis spreading is funded by usury out of private banking.
You started saying that I am confused, and then went on to concoct a long story, very little of which is true, and never mentioning what part of my post was untrue or what am I confused about.
That free canadian healthcare you can bring only in front of a crowd of completely ignorant people. Everyone who has studied the subject even vaguely knows canadian healthcare is a disaster. Tell me one rich canadien who doesn’t do their medical procedures in United States? You can die before your turn comes in those lines. The fact that you bring this up makes me question your integrity in the conversation. Furthermore, healthcare in United States in this period was not yet affected by the US government and was the highest quality and also cheapest. The price of health insurance was trivial. Nobody was talking about insurance costs in United States before all those events started in 1964. God forbid the government gets invested in some area to ‘fix’ it – total destruction always occurs. The government is so incompetent and corrupt that no society should allow the government to do anything important. Education.. this is such a mistake,.. we are brainwashing kids in america identically to the brainwashing in the soviet union. Healthcare – we should have never let the government IN in such important area. Definitely should be out of money and banking. The market should decide what is money – bitcoin or gold or silver or diamonds or whatever, and different money should compete the same way they have competed in history. Government money is really a new phenomenon. Even in united states before the revolution we had competing money. Once you establish monopoly of government money, then there is no protection of confiscation of purchasing power through inflation. THere is a lot of bullsheet about inflation that is spread intentionaly. Inflation is IMMEDIATE and PERFECTLY PROPORTIONAL to the money supply. The only caveat is to follow where the money is. When the FED printed a few trillion USD over the last years the money didn’t go to the people, so inflation on goods which people bid was very low, because people didn’t have more money to bid for goods. The new money went to bankers. So the goods for which bankers bid ALL went up – stocks, bonds, high end real estate. Then you have some simultaneous deflationary pressures that counteract inflation – poor economy, chasing capital makes it hide underground, so velocity drops.
One last interesting fact. It is estimated that in the russian economy – legal and underground – the vallue of dollars in circulation is higher than the value of rubbles in circulation. People will not hang on to a currency that is losing value and that is severely crippling that actions that the russian central bank can take.
It is crazy. Everybody here is on the same intention wise, but the suggested routes lead in opposite direction. I am afraid some of the routes lead back to state controlled economy, miserable living conditions and further falling behind the rest of the white people.
Your words back2freedom “That free canadian healthcare you can bring only in front of a crowd of completely ignorant people. Everyone who has studied the subject even vaguely knows canadian healthcare is a disaster. Tell me one rich canadien who doesn’t do their medical procedures in United States? You can die before your turn comes in those lines.”
Your words are pure foolishness and falsehood: Personal examples: Before the Canada health Act was implemented here in Canada our family lost our home to pay for my mother’s necessary operation. As an eighty year old she was diagnosed with kidney cancer: the operation was done immediately, extremely well, and she lived well into her nineties. There was no financial setback. My wife a decade ago was diagnosed with a rare and extremely threatening form of acute leukemia. The medical system treated her promptly and she is alive and well today. There was no significant financial set back for us.
That said, of course there are defects, things to fix, refine etc in Canadian Health care: that goes with any medical system.
With some references to the Bank of Canada’s former role in providing interest free funds to the great benefit of Canada, an article of possible interest: http://www.globalresearch.ca/canadas-devolution-from-peace-seeker-to-war-crimes/5452759
Public banking is the ultimate weapon of a free people.
http://theinternationalreporter.org/2015/09/18/russias-ultimate-lethal-weapon-pepe-escobar/
The neocon motto is, Russia delenda est.*
The United States/American Empire is destroying itself much the same way the Soviets did, but from the other end of the spectrum. The ‘Deep State’ core, at the height of crony-capitalist monopoly, deliberately blinds itself to things its ruling cabals find objectionable, like the unsustainability of crony capitalist monopoly.
An all-seeing eye’s vast surveillance net may see the problem, but it can’t think. Even if there are a few brains behind it that can, (there would have to be someone doing real work) they aren’t allowed to.
The serpent that eats its own body starts by parsing its brain cells; removing as many thinking heads as possible that can identify and dissent to self-immolation. The citizenry are sidelined, so its just the cozy networks of insiders and their pawns. Really smart brains like Snowden and his supporters can think far enough ahead to place themselves further from the maw to kick the serpent in the teeth.
That only buys time and whether or not real reform happens, the serpent dies and takes with it as many as possible. Real reform reduces the casualties. However, the question of democratic reform of Western democracies is the West’s problem, not Putin’s. However much they may be prevailing upon him for a break behind closed doors.
The West has a trickster subculture that excels in illusion and escaping due consequences. They may be screwed, but the greatest mistake Russia or China could make and are making is to go easy on the U.S. and its patsy allies, trying to be reasonable with unreason. It will be merely regarded as God’s due gift of submission. Europe was in a deep hole before they discovered the Americas.
http://indiancountrytodaymedianetwork.com/2013/10/14/8-myths-and-atrocities-about-christopher-columbus-and-columbus-day-151653
https://www.youtube.com/watch?v=7FItlStGMY4
So, whatever Putin is waiting for, it better be good. He can perhaps save Russia, maybe Eurasia, but Panem is willfully losing itself and will kill anyone playing softball. Its written in the art it produces, in the games it plays. Its a pattern that is part of history.
American elections have no effective participatory component beyond party politics, and those shenanigans are hardly democratic. The least effective form of public democracy, ‘majority rule’, then decides electoral races from the leavings of party politics. In this ‘winner take all’ system, people who voted for a losing candidate have no voice at all in government.
Not surprisingly, ~60% of Americans don’t vote. Of the ~40% that do, only ~21% of the most partisan form/inform government and government policy. (Except the Electoral College reserves the right to screw against slender majorities it doesn’t like). Politically, America has blinded and lobotomized itself to the free market of ideas.
https://www.minnpost.com/eric-black-ink/2014/10/why-turnout-so-low-us-elections-we-make-it-more-difficult-vote-other-democrac
Economically, there is the hyper concentration of wealth in America and the West, to be furthered and protected by the TPP. Needless to say, the crony capitalist system is as effectively as blind as the Soviet command economy was to the free market. There’s been a lot written about the dangers of the TPP.
http://robertreich.org/post/107257859130
http://www.globalresearch.ca/the-tpp-if-ratified-corporations-will-overturn-u-s-laws-speed-up-destruction-of-the-environment-outsource-jobs/5506493
It may be correct that there is no ‘public sector’ in North America, only the government sector. Under fascism, the government and private sector are one in cronyism. However, the public does in fact exist in reality; its us, We the People, and we are under sever threat, however poorly represented our interests are.
http://www.globalresearch.ca/a-crisis-worse-than-isis-bank-bail-ins-begin-your-life-savings-could-be-wiped-out-in-a-massive-derivatives-collapse/5498376
http://www.globalresearch.ca/financial-oligarchy-vs-feudal-aristocracy-the-parasitic-nature-of-finance-capital/5507512
There are attempts in Canada and the U.S. to adopt proportional representative democracy, hotly opposed by political partisans who think they benefit from it. Certainly, a few do prospering from ‘winner-take-all’ politics, gaming a broken political system with declining real returns.
Canada does not operate in a vacuum. It stands astride the North American geopolitical pivot, the Great Plains heartland. What we do as a people has a greater impact on world affairs than either Canadian or American government care to admit publicly.
The failures of Canadian health care are mostly contrived administrative failures. Its like in corporate takeover games, where a company suddenly runs into trouble and has to cut jobs, reduce wages, and sell out to a competitor. Ownership, a fifth column, and/or creditors always wanted sellout. There was no way out of shareholder and union agreements but to fake insolvency and failure.
The art and science of selling out, games the Hegelian dialectic; problem, crisis, reaction, solution. The elitists have a problem with the popular interest and quietly devise a solution in elitist favour. Crisis is manufactured so the public – or more often, their ostensible representatives – reacts against the real popular interest. Sincerity does not matter so long as the scripted outcome is realized.
Then the premeditated solution against the popular interest is soberly imposed. The infamous Hostess Twinkies investor flip was one sweet Helelian dialectic on unions. Far more interesting than boring stories about Canadian medicare.
http://www.huffingtonpost.com/lawrence-j-hanley/hostess-sale_b_6250650.html
By accident or surprisingly astute political sophistication, Canada has retained its national health care system. In most other areas America can convince our elites to sell out to the ‘inevitable’, like when nuclear missiles supposedly rendered the Avro Arrow obsolete.
http://www.globalresearch.ca/medicare-the-privatization-of-healthcare-in-canada/26935
http://www.globalresearch.ca/articles/SAN303D.html
Some of us haven’t forgotten and some remember better than others.
Although public banking would work best under an efficient and genuine democratic system, that can be said for all aspects of a well-designed proportional representative government and a people attuned to liberty and responsibility.
Public banking would, under the present circumstances, at least remove the charade of money rentiers pretending the money they borrow from the public trust was borrowed from their private coffers, not our collective wealth via the government.
The only danger of sovereign money, is that sovereign money will not be spent on public projects, but instead used to pay off sovereign debt. Perhaps even as more national ‘debt’ is accumulated. Global sovereign debt already stands at US$100 trillion globally. The Bank of International Settlements would know.
http://www.bloomberg.com/news/articles/2014-03-09/global-debt-exceeds-100-trillion-as-governments-binge-bis-says
The planet is priceless, but $100 trillion and growing is quite a lot.
Interestingly, Syria’s public bank was cited by the Syrian democracy activist ‘Syrian girl’ as being one of the reasons for the contrived civil war in her country.
https://www.rt.com/op-edge/syria-world-hate-message-604/
She missed reason zero – Pepe Escobar’s ‘pipelineistan’, but she is otherwise astute.
http://www.strategic-culture.org/news/2015/12/07/syria-ultimate-pipelineistan-war.html
As justifiable as cynicism towards government may be, removing this vast public fraud of a corruption multiplier is a critical step closer to being able to allocate goods and services according to real needs of local peoples over the abstract needs of distant banksters.
Had Syria’s finances not been more or less in home-grown order when crisis broke out, Assad’s government likely would have fallen too quickly for any Russian intervention to save Syria. No country friendly country is large enough to rescue Russia in a crisis against the U.S..
Syria faced waves of critically timed defections from the government and military, but their treasury remained loyal. Can Russians count on nuts and bolts nationalism of their central bank, or does the central bank pretend allegiance to some artificial ideal of internationalism?
The United States military is needed to enforce the Neocon World Order (NWO), so nominal political stability can always be expected to persist in the U.S. regardless of its economic woes. Its just the American people who are dispensable.
Russia, government and people, is not anywhere near that indispensable. In fact the neocons are doing everything they can to dispense with Russia.
If Putin’s government does not succeed over the long term – beyond his mortal reign – then Russia will be subject to genocide. The neocons might prefer to let him see Russia die within his lifetime, just for kicks. They will attempt it regardless over what is being termed ‘The long war’; the chaos in the Middle East has but one end, getting Russia.
In 2003 one could speak of an Iraqi or a Libyan or a Syrian; a member of a pan-national lower, middle and upper class loyal to the nation if only because of the economic advantage of unitary geography. In 2016, maybe one could speak of a Syrian, but the other geographies are reduced to warring religion and tribe based enclaves. Iraq is a broad geographic label subject to partition.
Putin saved Russia from dissolution and partition to Western financialization. As far as neo-conned NATO is concerned, that is still the objective. Pan-Russian national identity must be destroyed. The neocon motto is, Russia delenda est.
From a warmongering Mackinderan perspective, its the only alternative.
http://www.sott.net/article/276668-Geopolitics-of-Empire-Mackinders-Heartland-Theory-and-the-Containment-of-Russia
The North American heartland is unlikely to adopt proportional representation and be able to, in any way, meaningfully act on popular goodwill towards Russia or China, such as it may exist, let alone peaceful antiwar sentiments.
Most of us aren’t even aware of the threat made in our collective name, and of those that are, no small number are in sociopathic agreement, the same way a faction will never be sorry about despoiling unto death without dignity Aboriginal North Americans. The attitude of “To bad, so sad, but I’ve got mine (and want/need more),” prevails.
Russia’s evolution towards pro rep democracy, reaching a peak in 2007, lifted a nation that was on its knees in 1991 to a global power able to challenge American bullying in 2016. It enabled Putin and his senior supporters to determine political realities beyond artificial filters imposed by powerful elites to see reality, then act effectively upon it.
https://www.rt.com/politics/duma-mixed-elections-bill-429/
The five percent election threshold for parties is fair and leaves room for independents, and seems to work for the Nordic democracies.
However, Vladmir Churov should be listened to when he can demonstrate that the new mixed electoral system for 2016 is less representative. The results will have to be closely watched.
Trudeau in Canada wants preferred ballot representation, which favours political parties. This is a problem; political parties, then, become the point where democracy can be circumvented through a variation of ‘regulatory capture’, the phenomenon where a government agency (political party) intended to regulate an industry (in this case political power) is captured by the industry insiders against the public good.
So, Russia seems to be facing a pincer action on the geopolitical triage. Economically its being squeezed, with sanctions and oil crash for show, and finance for dough; Putin’s achilles heel may be the Russian Central Bank. Militarily sabres are rattling across the NATO borders, but again, its the nukes that matter, and although America is re-arming, its all for show as NATO tries to solve the riddle of MAD.
The third leg of the geopolitical triage is political, and without proportional democracy, that aspect of the triage is undermined and the hammer will fall hard. Does Russia have the cultural wisdom to avoid the cauldron, or will the lid slam shut with them in the pot.
Putin had been compared to Peter the Great.
http://www.realclearpolitics.com/articles/2008/09/putin_wants_to_follow_peter_th.html
Peter the Great is not famous for fame’s sake, being celebrity Tsar. Pyotr Velikiy is remembered because of his enduring system of government and culture that endured and brought greater security, prosperity and peace than what went before. It was essentially an update of the monarchy to then-going European standards.
Today, the European standard of good government are the Nordic democracies, which although tiny, at least had the prescience not to surrender their democracies the anti-democratic EU.
Vladmir Putin is mortal. His legacy to the world are the people he will eventually have to leave behind.
A sound proportional representative democracy backed by a sound public central Russian bank are the greatest accomplishments Putin could leave for his people. Syria and Ukraine are transient wars. Economic crisis are transient. War comes and go. Economics cycles in boom and bust. The ability of a people to endure change and thrive upon it matters more.
The neocon motto is, Russia delenda est. The people of the West have no say in this nor are many fighting for such. There is possibly more tacit agreement than disagreement with sticking Russia and China with the bill for the excesses of our Deep State elitists.
Yanis Varoufakis comes the closest to leading a real resistance, and doesn’t even want to lead the movement he started. DiEm25 isn’t rallying around the EU Charter of Rights and rule by a republic based on such, just ‘democracy’, which alone without a binding constitution is just an empty protest label.
https://www.rt.com/news/331927-democracy-europe-movement-disintegration/
Putin’s government has laid down some groundwork for an enduring legacy. The move to become a leader in organic farming, for example.
https://www.rt.com/op-edge/324761-russia-putin-parliamentary-address-turkey/
For that, and for all great infrastructure projects, a public bank is needed. Former Canadian Prime Minister Pierre Trudeau’s greatest mistake, despite all the great social reforms and public works he sponsored, was failing to keep the Bank of Canada Canadian in 1974.
One of the lasting criticisms of Trudeau was that he didn’t understand the value of money and put the country into record debt. His legacy, was a country with a habit of setting record national debts, and that eventually lost to the United States its sovereignty and values, paving the way for continentalist sellout PMs Mulroney and Harper.
The neocon motto is, Russia delenda est.
*(Sometimes its China delenda est, but the Chinese are proving such pushovers it doesn’t have the same sense of drama. Any nation that stands in the neocon way however slightly is branded villainous, but only Russia can actually make good on such promise).
I said this article seemed garbled to me. I also freely admitted I’m not qualified to judge. But no-one has shown that it makes sense. (And I say that having read the links on Modern Monetary Theory.)
Some examples:
“…the disastrous Atlanticist myth that Russia must depend on foreign banks and bondholders to create money…” – Foreign banks could only create money for Russia if they had branches in Russia lending in rubles; and bondholders cannot create money (they have money which they use to buy bonds i.e. the existing money is transferred to the Russian issuer of the bonds). It is a myth that this is an Atlanticist myth.
“… as if the Russian central bank cannot do this itself by monetizing the budget deficit…” Of course the government can cover its deficit by borrowing direct from the central bank. In some circumstances, it’s a good idea; in others, not. When the economy is operating at capacity, persistent money creation will cause inflation. The retort from advocates of Modern Monetary Theory (at least, the retort I have so far been able to find on the links provided) is that printing money is not inflationary, ever. The reason given is that “money is created at the press of a button”, and that “the private sector also creates money at the press of a button”, so, if creating money caused inflation (and, at the limit, hyperinflation), there would be hyperinflation all the time, which there isn’t – QED. A description of the current technology for creating and accounting for bank balances – by entering them in a computer – is no substitute for a theory of money. It answers none of the substantive questions. It provides no counter-argument to the assertion that excessive growth in the supply of money results in inflation.
“…Russian economists have been inculcated with the Western belief that only commercial banks should create money and that governments should sell interest-bearing bonds to raise funds…” Again, this is not correct. The “Western” belief is that governments can finance their spending by raising taxes, by issuing bonds, by selling assets, and by “printing money”. All governments try to do a bit of each. L. Randall Wray has said that he does not rightly know how hyperinflation happens. A study of historical episodes shows that it happens when a government is no longer able to raise sufficient tax revenues, cannot issue bonds (buyers strike), has run out of assets anyone wants to buy, and has resorted to “printing money” to cover all its expenditures. Most monetary economists think this is not a coincidence. It also suggests why simply repeating the story of how fiat money works and how governments impose its status as legal tender will not do as a reason to think economic agents are always bound to accept all the money the government wishes to print.
“…monetization of budget deficits is precisely what the United States government has done…” What the United States government has done is levy taxes, issue bonds, sell assets, and “print money”.
“…the privatization discussion should be the question of what is money and why it should be created by private banks instead of central banks…” No, it shouldn’t. “What is money?” has no direct bearing on the question of privatization. Whether or not it sells these assets should depend on whether the assets are more efficiently used to provide goods and services for the Russian people in private ownership or public.
This should be enough by way of examples to motivate the question, In what way is this not garbled, or plain wrong?
“The retort from advocates of Modern Monetary Theory (at least, the retort I have so far been able to find on the links provided) is that printing money is not inflationary, ever. ”
That’s simply not true. MMT has never ever said any such thing and you didn’t read it on any MMT site.
John G.
Try “How Modern Money Theory Responds to Hyperinflation Hyperventilators”.
Is at the only point you wish to disagree with?
There is no such statement in any of the 3 parts of the article.
John G
In the first article, L. Randall Wray gives an account of Cagan’s “monetarist” explanation of inflation and hyperinflation (an account Cagan might struggle to recognise). He then says, “hyperinflation is caused by quite specific circumstances… I will not claim to fully understand the causes of hyperinflation – but the Monetarist account sheds almost no light on the experience.”
Now the Monetarist account is that “printing money” i.e creating an excess supply of money is the cause of inflation and a fortiori hyperinflation.
You appear to be protesting that Modern Money Theory does not deny that printing money is inflationary. Yet you also protest that inflation is not a matter of excess money supply.
I grant that in the rigmarole that L. Randall Wray claims provides a better explanation there are hints of the proposition that an excess of IOUs (created by government keystroke) tends to coincide with inflation. But I would be grateful if you could clarify just what Modern Money Theory explanation of inflation is, because repeated reading of the links has so far not proved enlightening.
“You appear to be protesting that Modern Money Theory does not deny that printing money is inflationary. ”
Any spending could be inflationary.
Your original assertion was thus:
“The retort from advocates of Modern Monetary Theory (at least, the retort I have so far been able to find on the links provided) is that printing money is not inflationary, ever. ”
Which is a fat out falsehood.
No, why should “any” spending be inflationary? Inflation only occurs in specific circumstances,
The monetarist argument is that inflation (a persistent increase in the price level) is caused by an excess supply of money.
Modern Money theory denies this. It argues that something other than excess money supply is the cause of inflation. I can’t make out what. Perhaps you can tell me. It would be more useful that hotly denying that it denies that inflation is a monetary phenomenon. (“Printing money” is an almost derogatory term used to warn against, for example, quantitative easing, by people who think inflation is a monetary phenomenon but are not quite sure how. To be clear, quantitative easing is sometimes a good thing and sometimes bad, depending on circumstances).
So, no, not a falsehood, but something you need to explain: does Modern Monetary Theory say both that monetarism is wrong to say that inflation is a monetary phenomenon (excess supply) and that money can cause inflation?
Total spending over and above the capacity of the economy to supply the goods and services will cause inflation. It is a flow issue, not a stock.
When supply is reaching capacity, and demand is approaching the level of supply firms will increase prices. If supply capacity is underutilised, firms will produce more goods.
Spending, whether from private credit creation or government spending that competes with the private sector for available resources will cause inflation by bidding up prices.
But net government spending i.e. running fiscal deficits is not ipso facto a cause of inflation. If the private sector wishes to save and/or the current account deficit is in deficit, increased fiscal deficits are indicated to maintain aggregate demand.
Otherwise you’ll get increased unemployment.
What you are describing, as far as I can tell, will cause changes in relative prices. It will only cause a persistent rise in the general price level if accommodated by the monetary authorities.
I don’t think anyone here has argued that a fiscal deficit is ipso facto a cause of inflation.
“What you are describing, as far as I can tell, will cause changes in relative prices.”
If the demand continues to outstrip supply?
“It will only cause a persistent rise in the general price level if accommodated by the monetary authorities.”
Why not banks and borrowers?
“L. Randall Wray has said that he does not rightly know how hyperinflation happens. A study of historical episodes shows that it happens when a government is no longer able to raise sufficient tax revenues, cannot issue bonds (buyers strike), has run out of assets anyone wants to buy, and has resorted to “printing money” to cover all its expenditures.”
Can you point to the quote of Randy Wray saying that?
Thorough historical study shows that hyperinflationary events have invariably been preceded by demand side shocks.
They usually involve foreign currency (or gold) debts and almost always come about in part by the government trying to ‘defend’ a fixed or notional exchange rate policy.
See “How Modern Money Theory Responds to Hyperinflation Hyperventilators”.
Tell me just how the demand shocks cause the inflation – what is the sequence of cause and effect?
And how does the foreign debt or the defence of a fixed exchange rate – the mechanism?
Is this the full extent of your defence of the article?
“Tell me just how the demand shocks cause the inflation ”
When there are less goods than demanded, prices go up.
“And how does the foreign debt or the defence of a fixed exchange rate – the mechanism?”
Clearly the government has to acquire foreign currency to service the debt.
With a fixed exchange rate it has to use foreign currency to buy its own currency in the market.
“Is this the full extent of your defence of the article?”
I’m not ‘defending the article’ per se. I’m wondering why you are building strawman arguments to burn down.
Demand shock: There is an excess demand for Good A; the excess demand causes it prices to go up; consumers spend more of their budget on Good A; consumers have less of their budget to spend on Good B; there is an excess supply of Good B; the price of Good B falls; the general price level stays the same.
Inflation is a persistent increase in the price level. How does your demand shock causes inflation?
Foreign debt: The country has to earn foreign currency to service the debt; it has to consume less and export more.
As many have found to their cost this can cause prolonged recession and deflation, to adjust the relative price of domestic goods versus exports. The UK drove itself into a deep recession in the early 1990s trying to defend a fixed exchange rate against the DM. Greece has gone one further and joined not the ERM, as was, but the euro.
Straw man: You mean L. Randall Wray does not deny that inflation is a monetary phenomenon? Messrs Roberts and Hudson do not say what I quote them as saying?
“Demand shock: There is an excess demand for Good A; the excess demand causes it prices to go up; consumers spend more of their budget on Good A; consumers have less of their budget to spend on Good B; there is an excess supply of Good B; the price of Good B falls; the general price level stays the same.
Inflation is a persistent increase in the price level. How does your demand shock causes inflation?”
Oh please. We’re not talking about a downtick in the supply of sirloin.
We’re talking major supply shortages in hyperinflationary events. Like losing a war and having your industrial heartland invaded.
Or losing 60% of your agricultural output.
John G.
And again, no explanation how such a demand shock causes inflation (a persistent increase in the general price level). You appear to assume what you are attempting to prove when you say that the shortage occurs in a hyperinflationary episode. Until you introduce some further explanatory variable into the argument, the toy example will suffice.
I think it’s self explanatory. If there is a general shortage of real goods, especially staples, then the general price level will be bid up.
John G.
Again, this is a one-off adjustment to the price level, not inflation.
“Again, this is a one-off adjustment to the price level, not inflation.”
That’s not a statement that can be made.
You seem to have the rigid monetarist approach that assumes that all other factors remain at some sort of equilibrium. It’s circular logic.
PS In the other thread, you are conflating capital ratios with reserves. Reserves are central bank liabilities in the payments system i.e. government dollars.
Any remaining ‘reserve ratio’ requirements (I think only the US still has them) pertain to ratios of demand deposits. Not loans.
John G.
I think you’re right that I got my ratios in a tangle. But, no, I didn’t conflate capital ratios with reserve requirements. I just flip-flopped in less than confidence-inspiring fashion between reserves/cash. I was trying to suggest both that capital is a very small portion of a bank’s total balance sheet, as are cash reserves (whether held by the bank or deposited with the central bank). Most of the money relevant to the workings of the economy falls outside the narrow definitions i.e. broad money is what is relevant to the economy as a whole. And I mentioned that the assets the central bank accepts in repo transactions include non-government securities. The purpose of the central bank is to ensure (through money market operations) that banks remain liquid; and to keep short-term interest rates at their target level (through money market operations). That is all.
John G.
Your retorts appear to assume that demand and supply do not respond to changes in price. And that the central bank has no influence on private sector money creation. Also, that a one-off shock causes a one-off price adjustment is textbook economics borne out by events. And, no the logic is not circular. It is how the world works. I can only say in conclusion that proponents of Modern Money Theory should start with a close study of how government spending and funding, central bank operations, money markets, bond markets, and commercial banks actually work. Those who work in the field would meet its precepts with blank incredulity.
I hope that the Saker has got this analysis to Putin and Glazyev by now! I have read it four or five times to understand it clearly. The globe needs to follow Putin’s lead. “Putin needs to ‘get the lead out!” Act quickly.Appoint Glazyev to make the changes ASAP.
These are two individuals that I listen to every chance I get. Dr. Michael Hudson’s work on Latvia was eye-opening. Look it over if you have the time. http://michael-hudson.com/?s=latvia
The other question not considered is, How ensure that the centralised authoritarian government acts in the interests of the people? Authoritarian regimes have at least as mixed a record as liberal democracies.
Mr. Ewan,
I don’t think many people on this thread are concerned about russian people. If Putin could become Stalin and mass murder another 50 million russians but in the process deals a military victory to the West, everybody here will vote for that. Every single post has been about the power of the Russian STATE, and I challenge you to find one post with concern about the russian people. It is really appalling.
In a nutshell: Short term gain, long term pain.
.
The West is leveraged to the hilt. This attitude about money is a scourge from the top all the way to the bottom. Look at the governmental debt in the West and the personal debt of it’s citizens. They’ve been snookered!
.
Don’t do it Mr. Putin. Resist the Western temptation for instant gratification. It indeed has a price.
To the extent that this is the wrong thing it’s hard to believe Putin doesn’t understand exactly what he’s doing. He appointed the two economic ministers. He appointed Nabuilina, who was previously an economic aide. I can’t think of an action he’s taken that can’t be subsumed under an intention for Western integration.
What is the power base of the 5th column since the military, intelligence, and the citizenry are all pro-Putin? If their only power-base is the West, then wdn’t it be clearer to say Putin is being pressured by the West, or the US?
If Russia is strapped for money, isn’t this a little much? 12/1/15 approx Generous $25 B loan to Egypt for Rus to build a nuke power plant; I think the first payment isn’t due til 2020 & it’s an extended payout.
I don’t get it.
Ewan, I think you need to read the literature before offering advice.
Further, I’d suggest that your arguments would be more effective if you didn’t engage in strawman constructions.
I don’t think you’re being honest.
Dear “Anonymous”
Would that be the “Anonymous” who briefly tried to engage? Or is it another “Anonymous” who prefers to blend in with all the others who like to comment but remain “Anonymous”?
When you or anyone else actually manages to refute what I say and provides a coherent defence of Modern Money Theory, then I will take seriously the “straw man” allegation. You may notice that when I make a mistake, I acknowledge it. When others are shown that their arguments don’t work, they move on to the next quibble or uncorroborated assertion. “Not honest”, in the circumstances, has the appearance of a despicable cop-out that allows a warm feeling of superiority without any intellectual effort. But I’m sure that wasn’t your intention. I suspect you thought it a stinging rebuke.
As I think John G. understands, there is a debate to be had that can be substantive and possibly fruitful. (I like to think it’s been a score draw so far, but he might well disagree!) Goodness knows, the Russians and Chinese etc. need to be very clear how things work if they are to defend themselves against the US.
The moderators have long since grown weary. I won’t torment them further.
Ewan, I’d have to disagree that you’ve argued honestly. You clearly have a dislike of MMT and are wedded to a monetarist view of the system but are unable to refute the points by other than obfuscatory arguments and muddying the waters.
It is difficult to get a man to believe the truth when his salary depends upon his not seeing it.
The mainstream economics profession is heavily invested in propagating a false narrative.
I can only say in conclusion that proponents of Modern Money Theory should start with a close study of how government spending and funding, central bank operations, money markets, bond markets, and commercial banks actually work. Those who work in the field would meet its precepts with blank incredulity.
Your superior tone speaks volumes. The disguised assertion (that MMT has not studied these issues) is plainly false.
I’ve followed this dialogue of the deaf the last few days. I have my opinion as to who has been more credible. Or at least who has been easier to follow. But what has taken me aback is the nonsense of brave Sir Anon. and Mr. G getting so righteous about honesty and dishonesty without any obvious reason.
By the way, Mr. G – “dislike MMT” and “wedded to” monetarism? Alternatively, accepts the arguments of one and finds those of t’other unpersuasive. Whether or not he managed to “refute the points”…well that’s a matter of opinion.
The “dishonesty”, now. As I take it, from reading the papers and such, “printing money” is journalistic shorthand for “printing too much money” – whatever “too much” means (it’s usually right-wing commentators threatening us with Weimar or left-wing commentators railing at the Fed or the Bank of England or the European bank for “bailing out” the bankers). As I understand it, hyperinflation is the locus classicus of “too-much-money”ism – if anything is going to confirm the “monetarist” theory, it’s “too much money” followed by hyperinflation. If too much money can’t be linked to inflation in a hyperinflation, when can it? I mean, if not in a hyperinflation, then not at all. And Mr. or Professor Wray says precisely that – monetarism or the quantity theory or too much money has little or no causal information to give us on hyperinflation. If not in hyperinflation, then never. It is saying this seems to have brought out all the baying about “dishonesty”. What’s dishonest? Paraphrase, certainly – but accurate, surely.
And Mr. G you seem to have (mysteriously) obtained biographical info. You insinuate that your opponent asserts what he does because his job requires he believe it. He does not appear to me dishonest. He appears to have argued with you in good faith – which, I get the impression, required some patience under provocation. So shame on you. Fight fair and accept with a good grace when you don’t manage to win.
I think his last comment more pertinent (although it turns out he gave you too much credit).
Well I’ll just have to disagree on all counts.
Misrepresentation of the opponent’s argument is dishonest.
And the parting paragraph is haughty and misleading. An appeal to authority without regard to the facts of MMT.
Those are exactly the issues that MMT involves itself in.
With over 35 years in the game, one learns the vocabulary and style of the monetarists quite well by the way. The economics profession is rife with this sort of subterfuge.
Mr. G
With over thirty five years in the game, you are no doubt well able by now (for the love of all that’s holy) to give us a clear and coherent account of MMT, preferably with some supporting evidence. Just a precis would be very welcome, please and thank you, plus a reference (other than the woeful blog entries you provided links for).
And tell me, finally, what is so misleading about saying that a proponent of MMT said that the monetarist explanation of inflation has no explanatory value.
If one tries to compare your theory to the world (the Treasury, the central bank, the clearing banks, the money markets and bond markets) – the striking thing is the world behaves nothing like your theory says it should. I can understand someone arguing that the world ought to behave as their theory requires, even though currently it doesn’t. It’s another thing to say that your theory explains how things really are, when in fact it bears no relation to what actually happens. How does that work?
To this casual observer of the discussion, your comments are regrettably reminiscent of the exasperated patience of a zealot or sectarist who cannot understand how a sinner can be so blind and recalcitrant and downright dishonest in failing to accept the revealed truths of the faith.
Just read the MMT literature, Ewan.
MMT is the accurate description of the operational realities of a sovereign, fiat, floating exchange rate, non-convertible currency.
It is how the system works in the modern world. Not what we want or wish it to be.
And MMT shows through solid balance sheet accounting methodology why the monetarist approach can not be true.
But the monetarist theology is still what is taught in undergraduate and graduate level economics courses to this day (45 years post Bretton Woods).
If you really wanted to find out what MMT is about, you would do so. Rather than casting aspersions.
John G.
I’ll assume your last comment was directed at me.
I asked for a simple summary and a good reference (not the links).
I asked you to explain what it is got you so hot under the collar about the claim that MMT says the monetarist story that inflation is to do with excessive money. (Here’s another paraphrase from the links – the government creates money at a key-stroke, so do we all, so if money caused inflation there would be inflation all the time.)
As it happens, I had the chance to ask a banking analyst about your claims (husband of wife’s oldest friend,who herself happens to be a finance director etc. etc.). Yes, he does work for the Enemy and his understanding is warped by his salary. Nevertheless, it wasn’t his ideology I was asking about, but the mechanics. He shook his head disbelievingly. He laughed incredulously. He got a bit narked (professional pride even among the salary slaves of the Enemy). He swore blind your claims are a very odd mix of accounting identities and fantasy.
Here’s some of your claims on this thread you avoided defending:
“The number of currency units has no effect on the ‘value'” – unless there is a stable demand for money.
“Fiscal balance exactly equals the change in private sector savings” – an accounting identity – the question is surely one of price.
“The coupon is set by the issuer. The market has no power” – it’s not the coupon matters bu the yield – and you should maybe join in a bond auction one day.
“That higher government spending can be associated with lower growth is a mathematical impossibility” – ! – er…not so.
How does growth come about? – “spending” and “spending = income” – !
“Interest rates go to zero, which is the natural rate” – how can the natural rate be zero in a growing economy?
“FRB is a myth” – you mean there is no such thing as broad money – or what?
A one-off adjustment in the price level is “not a statement that can be made” – yet economists have been making it since the beginnings of the discipline – what do you mean?
These are just a few of the assertions you went silent over. There are plenty more in the links.
A simple summary and a good reference, please.
Ewan, I’ve not avoided defending anything and as far as I recall I’ve provided no links.
a banking analyst about your claims (husband of wife’s oldest friend,who herself happens to be a finance director etc. etc.).
Not macroeconomists presumably.
This tactic of flooding the screen with red herrings and demanding that I give detailed responses is hardly honest debate.
Where is the rationale for your assertions? All you’ve done thus far is stick to the party line (the monetarist party) and appeal to authority.
Frankly, the authority of the monetarists is zero. Their models and their predictive record are in tatters.
You’ve been wrong about everything for decades.
John G.
Would you, for example, recommend L. Randall Wray “Modern Money Theory: a Primer…”? It looks more rigorous than the links you provided. It costs £20+ …
My banker friend fancies himself as something of an (amateur) economist. He suggested returning the favour:
Axel Leijonhuvhud and Daniel Heymann: “High Inflation” (Leijonhuvhud is a student of Keynes’ work and Heymann had experience of high inflations in S. America – the work looks at the complex inter-relationship between fiscal and monetary policy and inflation).
David Laidler: his books, academic papers, public policy papers, and work with the Bank of Canada. He is what tends to be called a “monetarist”, although more accurately he is in the long line of monetary theory from Thornton through Keynes. A very fair commentator on the work of others.
Tim Congdon: “Central Banking in a Free Society”. My friend says this one is not just him being provoking. He is “left-wing” and Congdon is “right-wing” (as the title suggests) – but the exposition of the history and practice of banking is (apparently) exemplary.
I can’t vouch for them – not elementary enough for me – but, what with your thirty five years, you will no doubt already have studied them (due diligence, and all that). Anyway, hope they’re of interest.
I’m not interested in reading any more monetarists or ‘New Keynesians”, thanks Ewan.
Garbage in, garbage out.
We have sovereign, fiat, non-convertible, floating exchange rate currencies these days.
The mathematics and the accounting are clear.
So I’ll continue to look at that and the permutations thereof.
John G
And again I’ll assume your talking to me – and take it as a measure of how closely you read what is addressed to you.
I’m sorry, did I say the links were yours? Apologies if I did. No, James provided them I think – to articles by L Randall Wray – the chap who wrote the primer I was wondering if you would recommend… (But there are indeed lots of claims like yours in the links as well – you’ve maybe read them before)
The “red herrings” I asked you to explain/defend – they’re quotes from your own comments, I believe. You said them, didn’t you? Curious (…no, bizarre) to call a request to explain yourself “dishonest debating”!
No,you are quite right, the banking analyst is not a macroeconomist, he’s someone who’s spent the last 30 years working with banks, in the money and bond markets, dealing with central banks and talking to the Treasury (and equivalents in other countries). So, is his experience relevant to judging the claims you’ve been making about how these things work (if you accept what’s written in previous comments as yours) ? Yes, of course it is. Couldn’t be more relevant.
After consultation, I have to say you appear to be misinformed. The likes of Leijonhuvhud and Laidler (so I’m told) have spent decades analysing the economics of “sovereign fiat floating exchange rate currencies” – so fiat floating etc is not a reason to evade due diligence by studying them.
BTW Leijon-what’s-it (Lion’s head, apparently) is not a New Keynesian – very much not – has spent a great deal of time and effort on pointing out the flaws thereof.
Accounting identities don’t give you the underlying causal mechanisms – or can be consistent with more than one possible mechanism – so more work is needed to determine which it is. Simply stating the identity in an ever louder more insistent voice really won’t do instead.
Your maths, you will remember, has led you astray at least once – mathematics will not tell you whether government investment spending is more or less efficient that private sector investment spending and therefore whether government spending is associated with lower economic growth. (One of the “red herrings” you refuse to explain.)
You are “not interested” in monetarists or “New Keynesians”. Oh, dear. Diagnosis: a worryingly closed mind. Here’s these people trying to get to the bottom of MMT and you won’t deign to explain your “red herrings” and won’t deign to read their counter-arguments. This is not how one avoids error and acquires knowledge.
What have you been doing these last three and a half decades? – talking only and exclusively to those who agree with and accusing anyone who tries to disagree with you “dishonest debaters”? Grow up, do! Robust debate is how this thing’s meant to work.
Signed,
ALI (That’s Ali – A-L-I)
Your maths, you will remember, has led you astray at least once, mathematics will not tell you whether government investment spending is more or less efficient that private sector investment spending
Moving the goalposts. ‘Relative efficiencies’ in investment spending was not the question at issue.
But nice try.
Oh, dear. Diagnosis: a worryingly closed mind.
I’m not interested in ‘diagnosis’ that starts with false premises. I wasted enough time being taught the falsehoods that underpin neoclassical ‘economics’ long ago.
As I said earlier, the models and the predictive record of these mainstream economists is utterly appalling. Nothing that the neoliberals have claimed has come to pass. So if having a closed mind means rejecting repeated failure and being open to new approaches backed up with scientific rigour, realistic mathematics and solid balance sheet analysis, then “guilty as charged”.
When I hear or read any economist whose basis for comment is ‘repairing government finances’ or ‘solving the deficit’ or ‘reducing government debt’, I know I’m reading or listening to a fantasist that hasn’t grown out of old gold standard type thinking.
Furthermore, the concentration on the intricacies of the monetary side of government operations only serves to obscure the reality that fiscal policy is, if not far more at the very least equal to, monetary policy in solving our vast economic problems at this late stage of the neoliberal period.
What I’ve been doing these last 3 decades is working in the real economy, resisting the neoclassical shysters and waiting for the general public to wake up to the fact that neoliberalism is a hoax.
Class warfare disguised as economics.
But according to you, the people that have been wrong all along have it right. People who use unnecessary unemployment and enforced poverty as a policy tool no less.
The last time I spoke to a bank economist at any length, he insisted that macroeconomics was irrelevant because macro is just the sum of all micro, and insisted that nothing would change his mind about that.
But no doubt he reads lots of academic papers from like minded economists and believes in the EZ’s ‘contractionary expansion’ policies etc because in his mind the paradox of thrift can’t exist.
So thanks for the advice, Ewan, but I’m happy to keep arguing for what is right.
Real jobs, real lives, real income, real prosperity for the many are far, far more important to me than big numbers on a government spreadsheet that in and of themselves have no bearing on anything much in the real world.
to John J, regarding
‘Real jobs, real lives, real income, real prosperity for the many are far, far more important to me than big numbers on a government spreadsheet that in and of themselves have no bearing on anything much in the real world.’
You know, you really don’t have the right to make such statements. All of a sudden you are concerned about the people. And yet, from the outset of this, you have stayed the position that money and banking should be STATE MONOPOLY. Ewan was the one who expressed concern that The State does has not always had the interests of the people at heart. ( How ensure that the centralised authoritarian government acts in the interests of the people? Authoritarian regimes have at least as mixed a record as liberal democracies.)
I lived in Bulgaria during the hyperinflation of 96/97. It really angers me when I read your posts full of transparent efforts to obfuscate VERY SIMPLE economic phenomena. There were no spikes of demand in Bulgaria in 96. The economy was trash. The newly elected socialist government was broke and decided to print money instead of taking loans. Prices went up, government workers demanded higher pay, and Videnov printed even more. Prices went up so much, that it became expensive to print so many banknotes, that the same notes from a year ago now had 3 zeros behind. 5 levs was 5000 levs just a year later.
Similar thing happened in Soviet Union several times. In 1961 Hrushchov ordered replacement of the old money with new, in 100:1 ratio (we did same in Bulgaria). Immediately following the money conversion, Hrushchov came out and proudly stated that the price level in the soviet union was the same like in 1929. They had some humor those guys.
In the Soviet Union, they ‘science’ of psychiatric deviations had a real decease called ‘Negation of the obvious achievement of the Soviet Union’. If diagnosed with that condition, you were to undergo a ‘treatment’.
Now try to create the same scenario in a free market, without government, where prices are in gold and silver.
With all due respect, I’m not interested in anything ‘libertarians’ have to say and I won’t respond to any further comments from you.
John G
That particular argument was whether growth could be slower with public spending rather than private sector.-so it was precisely the issue. Talk of “dishonesty” “subterfuge” “moving the goalposts” – ducking and weaving
I followed your to and fro here – no-one has said anything “neoliberal” – scatter gun. And no-one has said anything that only applies in a gold standard – scatter gun. No-one has said deficits always have to be reduced – misrepresentation. And apparently Congdon has forecast accurately every cycle in Britain since Labour in the 1970s (funnily enough fiscal contraction has repeatedly been followed by a pick-up in economic growth, now there’s a thing!)
I’m going to admit ignorance – what’s EZ?
The disconnect between your story about nominal and real is a big part of the problem.
I read the article by Michael Hudson and didn’t understand it, bits seemed so odd – I read the comments – the to and fro and noticed that one seemed to add up and the other again and again sidestepped – I re-read both as closely as I could and the links – and talked to people. And yes I got indignant (how sad is that) at John G’s persistent refusal to answer other than nitpick and accuse people of lying. So I took up all the points again and put them to him again to see if it was just a passing mood that made John G so supercilious with Ewan that he refused to engage – and got precisely the same response – which I suppose tells you all you need to know about John G sitting in the real economy for decades waiting for someone to buy his snake oil. I suppose the repeated catastrophes of neoliberalism unfortunately might give him an opportunity to sell some – which is one reason why I took over the task of questioning him – this is too important to be left to MMT fantasists who will destroy any chance of jobs and prosperity as surely as the neoliberals have..
That particular argument was whether growth could be slower with public spending rather than private sector.
Absurd.
And apparently Congdon has forecast accurately every cycle in Britain since Labour in the 1970s (funnily enough fiscal contraction has repeatedly been followed by a pick-up in economic growth, now there’s a thing!)
What claptrap. Fiscal contractions in nation with a consistent CAD (like the UK) will cause recessions. Whatever short term uptick in growth may occur will/must be on the back of private debt expansion. Which is unsustainable.
Remember 2008?
Your man there believes that the Fed is privately owned and that the BofE should be too.
And what were all these friends and referees doing between 2001 and 2008 I wonder?
Have they put their hands up and said “we were wrong” and changed their models and their thinking?
Of course not. They blame the government and they blame the unions for not conforming to their models.
The disconnect between your story about nominal and real is a big part of the problem.
It is you promoting a fantasy view of the real economy. It is you promoting the views and the people who just keep getting it wrong and won’t take responsibility.
It is you promoting the snake oil of mainstream economics.
Accounting identities don’t give you the underlying causal mechanisms – or can be consistent with more than one possible mechanism – so more work is needed to determine which it is.
I haven’t said that they do. But when I talk to someone who puts both the government and the non-government on both sides of the balance sheet concurrently, I know I’m talking to someone who either doesn’t know what they’re talking about or they are being disingenuous.
Abba Lerner and functional finance.
https://en.wikipedia.org/wiki/Functional_finance
Functional finance is an economic theory proposed by Abba P. Lerner, based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.[citation needed]
Principles[edit]
The principal ideas behind functional finance can be summarized as:[1]
Governments have to intervene in the national and global economy; they are not self-regulating.
The principal economic objective of the state should be to ensure a prosperous economy.
Money is a creature of the state; it has to be managed.
Fiscal policy should be directed in light of its impact on the economy, and the budget should be managed accordingly, that is, ‘balancing revenue and spending’ is not important; prosperity is important.
The amount and pace of government spending should be set in light of the desired level of activity, and taxes should be levied for their economic impact, rather than to raise revenue.
Principles of ‘sound finance’ apply to individuals. They make sense for individuals, households, businesses, and non-sovereign governments (such as cities and individual US states) but do not apply to the governments of sovereign states, capable of issuing money.
Rules for fiscal policy[edit]
Lerner postulated that government’s fiscal policy should be governed by three rules:[1]
The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.
By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.
If either of the first two rules conflicts with principles of ‘sound finance’ or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2.
History of use[edit]
Lerner’s ideas were most heavily in use during the Post-World War II economic expansion, when they became basis for most textbook presentations of Keynesian economics and the basis for policy. Thus when Keynesian policy become under fire in the late 60’s and early 70’s it was Lerner’s idea of functional finance most people were attacking. During the post-war period, U.S. unemployment reached a low of 2.9% in 1953[2] when the inflation rate averaged at 1.1%.[3]
Money is not creation of the State. People have had money long before they had State. It is true that the State will use coercion to impose monopoly of it’s own money against competing money, but this is very different from claiming that money is creation of the State. In the US colonies there were many different moneys in circulation, that were competing. There were British coins, Spanish, Chinese , and even Russian. They all have free market exchange rates. After the revolution the new State imposed monopoly, started printing ‘certificates’ of gold and demanded it be used as the real thing, and kept printing more and more of those.
But not always the State has coercion powerful enough to maintain the monopoly. When the public loses confidence completely, the free market WILL subsitute the state issued money. In Zimbabwe the US dollar is the only money with which you can buy anything, despite the fact that Mugabe issues his own dollars. Bulgaria was turned into a Zimbabwe by the communists and the US dollar too, for a while, was the only way to purchase gasoline or other goods that were in shortage. Even today, in Russia the US dollar is just as popular as the State currency.
The other principles are equally absurd but I am tired of typing, and this one was the easiest to demonstrate the absurdity of.
“As an online economic discussion grows longer, the probability of a comparison involving Zimbabwe or the Weimar Republic approaches one.”
You just lost the debate.
http://www.3spoken.co.uk/2010/09/godwins-law-economic-collary.html
And, yes, just to confirm the bleedin’ obvious so no-one can think its a good debating point – I’m simply repeating (verbatim sometimes) what’s already been said by Ewan – just on the off-chance there’ll be a sincere attempt to get involved in a proper debate. I think I know better now – the evidence is against it – and I went a-surfing and found actual economists who tried to debate with MMTers and ran up against the same thing – MMTer says X, economist shows X false, MMTer says economist dishonest – what said was Y, economist shows Y false, MMTer says how dare this neoliberal accuse me of saying Y I said Z etc. etc. and so on and so forth
Just to be clear – any economics in what I’ve said comes from Ewan and my banker friend. The exasperation at John G’s way of exploiting his right to remain silent is all mine.
BTW you’ve safely evaded the challenge to your cherished prejudices – my banker friend’s 80 hour week stops him helping any more – they work hard for their bonus these capitalist running dogs and banksters, not that approve, as I’ve told him, of what those investment banks get up to
What was your ‘banker friend’ doing between 2001 and 2008?
Did he warn you that they were building the mother of all bubbles?
Ever seen the movie ‘Inside Job’.
Credibility zero.
MMTer says X, economist shows X false,
Examples?
ducking and weaving and misdirection and scatter gun accusations – so much effort put into indignantly avoiding answering anything – you don’t embarrass easily, do you, John?
Still curious about EZ.
Sorry, John G. – still scratching my head – was your considered rebuttal of all the points put to you simply that anyone who works for a bank is responsible for the Great Recession so anything they say is to be dismissed out of hand? …like when my friend said in 2007 that the authorities (this is in Britain) were going to have to find some way to cool the economy down before something hit the fan (I’d been asking about buying property!) – dismissed out of hand – he’s a banker! … or as he’s said time and again for – oh, the last fifteen years at least – that the inverted pyramid of derivatives in the shadow banking sector (whatever that is) and off-balance-sheet is truly scary – dismissed out of hand – he’s a banker so he can’t know what he’s talking about – anything to justify avoiding answering the question, eh, John? Sigh.
I’ve answered all the direct questions asked of me. Which you have clearly not, Mr Ali (spelled E-W-A-N.)
Just repeating neoclassical ‘rules’ as if they are truths isn’t good enough.
You started with a bunch of strawman constructions against the articles authors and MMT in general. Which is where I came into the argument.
All you’re doing now is tone trolling.
Sorry, John G. – still scratching my head – was your considered rebuttal of all the points put to you simply that anyone who works for a bank is responsible for the Great Recession so anything they say is to be dismissed out of hand?
You’re (only) attacking my credibility with an appeal to authority. So I’m pointing out that your ‘authority’ (this mysterious friend in the banking industry) has little worthy of the label.
I’d happily have let it go when I established that neither your friend or his wife were macroeconomists. Because we are discussing macroeconomics.
The neoclassical viewpoints that you are asserting as truths, which are rife in the banking groupthink world are not grounded in evidence or reality.
Given that this blog is about Russia, a country still digging itself out of neoliberal ‘shock therapy’ of the 1990s, the irony is rich indeed.
A quick question about methodology – is it a good idea to swear blind something in the real world can’t have happened, contrary to the evidence, because your theory says it’s impossible?
That’s exactly what neoclassical economics fraternity does. Their maths is rubbish and they stay away from balance sheet accounting because it will show up their nonsense as nonsense.
I keep promising to give the moderators a break. I keep going back on my word. I’ve been away a couple of days. I couldn’t curb my curiosity (a bit like our cat) and had to see if things had progressed any.
(I had a couple of days hill-walking in Cumbria. I stood atop Harrison Stickle like good ol’ stout Cortez upon a peak in Darien. Or, for those of a literary bent, visited Grasmere and the Wordsworth museum. *Bliss it was…” and all that. I strongly recommend it to recharge the batteries. Even in the snow.)
It can be helpful to look back over an exchange from the very beginning. This applies to every topic John G. and I touched on. But here is one example:
Ewan: …there is evidence higher government spending is associated with lower (economic) growth.
John: There is no evidence of this. It is a mathematical impossibility.
Ewan: How do you think growth comes about? Neither government spending nor private is wholly on current consumption. All that is required for my (debatable) assertion to be true is that the government is less efficient in its investments than the private sector.
John: “How do you think growth comes about?” Spending. Spending = income.
Ewan: Our toy economy has two economic agents, A and B. 20 units of spending power is shared equally between them. A spends 10 units. This becomes B’s income. B spends 10 units. This becomes A’s income. Total income at the start, 20 units; at the end, 20 units. Growth? Zero.
John: Spending/income is a flow. A spends $10 with B, who spends $10 with C. Spending = $20.
Ewan: You haven’t explained how you get growth from income = spending.
There follows a lull filled on this topic. The lull is filled with a similar performance on other topics (money supply, the natural rate of interest and so on). Then a white knight or knightess rides to my rescue.
Al: How does growth come about? “Spending” and “Spending = income” – ! (I think the ! is for rhetorical effect, indicating surprise or scepticism.)
John: This tactic of flooding the screen with red herrings and demanding that I give detailed responses is hardly honest debate. (I like the image of red herrings swimming across the screen with slightly puzzled looks on their otherwise blank faces.) … I’m not interested in reading any more monetarists…the mathematics and accounting are clear… (Sorry, I’m editing here.)
Al: The “red herrings” are quotes from your own comments…mathematics will not tell you whether government investment spending is more or less efficient than private sector investment spending and therefore whether government spending is associated with lower economic growth.
John: Moving the goalposts. “Relative efficiency” in investment spending was not the question at issue.
Al: That particular argument was whether growth could be slower with public spending than private sector – so it was precisely the issue.
John: Absurd.
This exchange in toto pretty well speaks for itself. As I say, the exchanges on every other topic were similar.
I’m off to read Home at Grasmere.
Ewan: You haven’t explained how you get growth from income = spending.
Do you really need it spelled out that increased spending is growth? Really?
And here you are giving advice to Ph.Ds in economics?
Ewan: How do you think growth comes about? Neither government spending nor private is wholly on current consumption. All that is required for my (debatable) assertion to be true is that the government is less efficient in its investments than the private sector.
(I – S) + (G – T) + (X – M) = 0
Al: The “red herrings” are quotes from your own comments…mathematics will not tell you whether government investment spending is more or less efficient than private sector investment spending and therefore whether government spending is associated with lower economic growth.
John: Moving the goalposts. “Relative efficiency” in investment spending was not the question at issue.
Al: That particular argument was whether growth could be slower with public spending than private sector – so it was precisely the issue.
Your original statement:
If it raises taxes to repay, the private sector will have less to save from (and there is evidence that higher government spending is associated with lower growth, although I suspect you’ll dispute this).
This sort of deception (not to mention the bizarre fallacy of composition it contains) is littered through your posts, in both names.
Completely agree with the article. I look towards Russia to lead the world. To do so, it must rid itself of the Rothschild Khazarian Mafia. And the world must rid itself of those same critters…and their central banking tyranny/criminality if it is to survive.