Yves here. While I have every reason to assume the Russians mean to act on the currency front, on the surface, the remarks Wolf discusses in his post appear to be based on a misapprehension. First, Russia does not have the ability to tank the dollar, and a modest depreciation would be a plus for the US export sector. Second, the US is not dependent on foreigners to fund its fiscal deficits (we will not take the space to explain here, but we’ve gone over this terrain extensively in other posts).
However, there is a third possibility: that Moscow knows the economic reality full well, and is using aggressive “target the dollar” talk to shore up the ruble, which has fallen sharply and is far more exposed to speculative attacks than the world’s reserve currency. Russia’s best economic defense is not in the currency markets, but its ability to withhold oil and gas from Europe, which already has a flagging economy and is not well positioned to take a shock in terms of much higher energy prices.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Testosterone Pit.
Another warning shot was fired before an all-out assault on the dollar system begins. This time, an official shot: Alexey Ulyukaev, Russia’s Minister of Economic Development and former Deputy Chairman of the Central Bank, fired it. It was a major escalation, Valentin Mândrăşescu, editor of The Voice of Russia’s Reality Check, told me from Moscow.
Last time, it was Sergei Glazyev, an advisor to Vladimir Putin who’d fired the shot. But he wasn’t a government official. “Anonymous sources” at the Kremlin claimed he wasn’t speaking for the government. As Mândrăşescu reported in his excellent article, From Now On, No Compromises Are Possible For Russia:
From the economic point of view, everyone should get ready for tough actions from Moscow. Sergei Glazyev, the most hardline of Putin’s advisors, sketched the retaliation strategy: Drop the dollar, sell US Treasuries, encourage Russian companies to default on their dollar-denominated debts, and create an alternative currency system (reference currency) with the BRICS and hydrocarbon producers like Venezuela and Iran.
Unlike radical-sounding Glazyev, Ulyukaev is part of Dmitry Medvedev’s Cabinet. And as former Deputy Chairman of the Bank of Russia, he doesn’t take currencies lightly. He told Rossia-24 news channel about possible retaliatory measures if Washington adds economic sanctions to the political sanctions. Moscow wouldn’t worry too much about political sanctions, he said, but if Washington tries to hurt Russia’s economy, Moscow would retaliate by targeting the US dollar.
Some of it is already happening
Washington’s decision to release a minuscule 5 million barrels of oil from the Strategic Petroleum Reserve caused the price of oil to tank – a direct attack on the main revenue source of the Russian government, and a sign that Washington is willing to hit where it hurts the most [read a trader’s lament…. Commodity Markets Will Be Used As A Weapon Against The Putin Regime, Starting Now].
Russia instantly retaliated, it seems. Suddenly, there was a mysterious mega-plunge of $104.5 billion in US Treasuries held in custody by the Federal Reserve during the reporting week ended March 12. It brought the balance down to $2.86 trillion. These securities are owned by foreign countries. As of the US Treasury’s December statement, the most recent available, the Fed held $138.6 billion in Treasuries that belonged to Russia – down by $22.9 billion from a year earlier. The mega-plunge of $104.5 billion? No data is available yet to confirm these securities belonged to Russia. And if they did, it’s unlikely that Russia dumped them on the market, but it could have transferred them to another banking center, such as Luxemburg, to get them out of reach of the US government, and be able to dump them at an opportune moment.
Getting out from under the dollar
Russia has been palavering with other countries about initiating alternatives to the dollar. Formal plans emerged from the Kremlin last May on how Russia wanted the BRICS to dismantle the dollar system. So now it was Ulyukaev, an official heavy-weight, who said that Russia would work on increasing the volume of international trade denominated in national currencies, thus bypassing the dollar (translation by Mândrăşescu):
“Why should we have dollar contracts with China, India, Turkey?” he said. “Why do we need this? We must have contracts in national currencies. And this applies to energy and other spheres.” The focus would be on Russian oil and gas companies. “They must be braver in signing contracts in rubles and the currencies of partner-countries,” he said. “I think now there is an additional impetus to finally finish this job.”
And the “currency reserve policy” would need some adjustment with maximum focus on “local currencies”; it was the normal way, he said. In Mândrăşescu’s analysis, Ulyukaev was outlining an attack on the petrodollar system and the enormous advantages it confers on the US, with the goal of creating parallel petro-currencies.
Media blackout in the US
The warning, issued officially and publicly by a Cabinet member, to target the dollar, has been vigorously ignored by the mainstream media in the US. It’s a touchy subject here. The dollar reigns supreme. Its status as the sole world reserve currency, which has provided the US with enormous economic advantages, remains unquestionable forevermore. Or so wishes the Fed, which has done such a wonderful job of managing the dollar for the last 100 years that it has lost most of its value, though it’s still a heck of a lot better than the ruble.
“I have a suspicion the Western media don’t want to report on this,” Mândrăşescu said. “It could be a bit unpleasant for the S&P 500 and the nanobots trading the US stock market.” Better keep them in the dark.
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Russia may indeed start trading in local currencies. Already we see China and India protesting any sanctions against Russia by the EU or the US. There are also Venezuela, Argentina, South Africa and Brazil currencies that have been targeted by the US. That’s a large trading block right there.
Dear God, please bring it on. When I moved here from India in 1990, one US $ was worth 16 rupees. Consider that for a moment. This was the pre-Robert Rubin era. My friend and I who traveled to the same University here had taken a big study loan from India. Funny thing was, there was no ‘IMF structural reform’ in India at that time. I was very diligent and paid off my loan within a year of coming here whereas my friend dithered due to financial difficulties. In the early 1990s the Indian Government undertook a lot of ‘liberalization’ and ‘structural reforms’ allowing the Wall Street parasite money in and the rupee took an immediate dive in a few years. So my friend who dithered to pay his loan when he did finally pay it, the dollar was worth Rs.30. So he paid a lot less dollars than I did. Funny how that works, doesn’t it? You open the economy to the looter class and immediately your currency takes a nosedive. In 2004 after a steady diet of ‘American Political/Economic Education’ via Krugman, Kevin Phillips and others I decided that the dollar was due for a crash soon and moved all my money to India. It was too premature. So, please bring it on and lets kick the Robert Rubins of the world where it hurts.
I’m hoping that “global warfare” will be financial and cyber warfare, which will be more than bad, but better than nukes. After all, the financial doom is in the script already. Russia, China, et al., will be just giving it a kick-start.
Dear Mr. Putin,
Did you know that your name transliterated into French is one of Canada’s national foods? Millions of Canadians eat you every day and you are on the menu of every fast food joint from Halifax to BC!
Anyways… the fun of language aside. We’ve heard you want to “target” the dollar. Please, please, do target the dollar! Sink it as a world currency! The sooner the better!
No one outside of East Asia seems to have picked up on the fact that you want to have an *undervalued* currency if you want to have a flourishing economy. The world’s most overvalued currencies are found, you guessed it, in Sub-Saharan Africa….
Russia: please do target the dollar. It’s been way overvalued since 1997 and the results have been a total disaster for the US economy.
A weaker currency would be a boost for *every* tradable good industry in the US from agriculture to steel to toys to tourism, and would boost US exports in *every* market in the entire world. The fastest ticket to a flourishing full employment economy is a weak dollar.
So please, Putin, demonstrate that you understand currencies as well as Charles de Gaulle in the early 1960’s or Barry Eichengreen today. American workers and businesses will be laughing all the way to the bank if you do!
Love,
American Canadian
the last thing new yawk needs is throngs of Europeanish tourists with their leather sandals and short pants and beards and puzzled brows pouring over subway maps on the train.
they stop you on the street — if they single you out as a respectable man with a clean cut look and honest face like me, they always single me out of 100 people in a throng — and they ask “Ummmm. How . . .do . . . You . . go . . to . . . ammm , , , the Met? ehh?”
The easiest way to answer is to point. “Three blocks then turn right. Go 4 blocks and you’ll see it.” They give you a confused look and then look back at their map. Then the wife says something to the husband in a foreign language that sounds like gurgling mouthwash and they both nod, like they’ve added 45 and 87 in their heads and gotten the same answer. Then they smile and bounce their heads nodding at you.
I
Sometimes I’ve seen whole groups on the train. Taking up half the subway car.
There’s no room for the homeboys with their underwear showing above their pants worn around their thighs stylin. Oddly, the homeies aren’t as angry as they used to be, they used to lay across the subway bench like a lawn chair, asleep and if you touched their shoulder they’d probably kill you dead. so you just stood and looked at the floor. It’s a little weird but maybe I just don’t see it anymore. now they sit up straigt
Why would anybody want to visit new yark? I don’t understand that anymore. It’s just a field of glass boxes rising like the shimmering shells of insects in a sun and filled with nothing but manipulation and the mediocrity of power. A power over nothing at all except the ability to put a boot on a human neck and press with the weight of money. That’s a lot of power but it’s the power of death and not the power of life.
So much for new yorke. It used to be a city of dreams and buildings made of stones and a city of people and a city of life. Now what is there for tourists here to see but fossils of something. I don’t know. Maybe it’s only sleeping and maybe a lower doller would be a form of RAID. You can’t do anything worthwile in a glass box. You can only sit there and move shit around.
if somehow the doller collapses it won’t be something the Russians did. It’ll be the insects in the glass boxes and their pressing feet of death. that’s what will kill it. And it will die even if there was no Russia at all. Then what would tourists come to see? There would be nothing left here but the aftermath of a wanton and mindless destruction. You can see that anywhere. why go across an ocean.
Craazygood! The best “karma is a b!tch” comment ever.
On the other hand, where else can you get a shrimp roti (Trinidad), a spicy meat salad (Uigyur) and a bacalao a gomes da ca (portugal) all wtihin walking distance from each other. (queens). Midtown isn’t all NY.
if any of the three were good, arent the other two redundant on you walk?..
just sayin… hope you have a better reason
no he’s right. that’s actually a pretty good reason. I’m getting to love Queens, rambling down Greenpoint Avenue with the winter wind in your face, looking for colors in the sun, greens, reds, yellows. blues oranges lit up bright and wild. you can see the empire state blding hulking up brown yellow over the scattered asphalt roofs with antennas and streets sprawling onto the river, and all the stuff you left behind. Casino implosion is right, there’s Colombian bakeries, paraguyan diners, strange places to duck in and get warm, bright smiles of happy people, some not so happy like the Romanian bakery where I got a coffee and some cold spinach something or other from a woman who didn’t care and a man who looked like he could kill a child with his stern homicidal face. sometimes you get that, but it’s all chance. It really is cool. Long Island City is cool too, but less so now with all the development. that’s where I first saw the insect skins iridescent in the sun, all the glass building rising there. It’s kind of ruining the place, frankly, but it’s still cool. manhattan is no longer cool in any way. but queens is cool. I love to wander around with a camera looking for colors and light. It’s my hobby.
I’m coming to New Yawk in two and a half weeks, but only ’cause I got work to do there (strange world we live in…). Rubber-necking the East Coast dystopia you all inhabit (and hopefully getting in some face-time with a few of you wackos) is just a side benefit.
I used to dream about going to the Big Apple as a tourist, but then they cleaned up Times Square and I just didn’t see the point anymore.
Why, one could always take a pilgrimage to Zuccoti Park, dear Craazyman, and see how much hospitality is left for a lazy lunch with a nice European back-pack!
You could even organize ‘participant-observer’ tours and sell the tix yourself on e-bay, and kill two (or more) birds with one stone, since P. Omidyar must still hold a few stock options that could use a blip north!
The problem is that US is above its ears in debt and red ink… USD position is the only thing that holds US from going bankrupt and down the drain.
Saudi Arabia is also talking up using the petrodollar to affect US policy (http://voiceofrussia.com/2013_10_27/The-beginning-of-the-end-for-the-petrodollar-2572/). But it’s not that easy, =since all those petrodollars support their local currency, and presumably this is just as true of the ruble. Still, this idea has been tossed around quite a lot in recent years and if enough oil producing countries resent US intervention (Venezuela, too, of course) then they could renegotiate their contracts with huge buyers like China and India.
I don’t think the US should take for granted being the world’s reserve currency. It’s probably useful for a reserve currency to have some military backing but it also requires good faith and a sound background economy.
Randy Wray has mentioned that in these uncertain speculative times he feels safe having his personal investments in US Treasuries but even he doesn’t see this as lasting forever. I think the US needs to recognize and respect the needs of other countries as well as foster the needs of its own citizens especially dealing with income inequality and unemployment. It doesn’t seem to be doing too well in any of these areas.
http://neweconomicperspectives.org/2014/02/mmt-external-constraints.html
MMT AND EXTERNAL CONSTRAINTS
February 24, 2014
By L. Randall Wray
“I have no doubt that China would eventually be in a position where floating (her currency) would not only be desired, but it would be necessary.China will probably float long before it reaches such a position. China will become too wealthy, too developed, to avoid floating. She will stop net accumulating foreign currency reserves, and will probably begin to run current account deficits. She will gradually relax capital controls. She might never go full-bore Western-style “free market” but she will find it to her advantage to float in order to preserve domestic policy space.
If she did not, she could look forward to a quasi-colonial status, subordinate to the reserve currency issuer. China will not do that.”
The pentagon war game scenario in which James Rickards participated and wrote about in his book “Currency Wars” may be playing out. Might Russia & China be moving to make their currencies as good as gold ?
The situation is way complicated and fundamentally unpredictable. Much depends on how the Europeans react to this new cold war–their governments are, clearly, all in on Washington’s policies and seem to be, at the moment, puppets. And, at the same time, much depends on what China chooses to do–are they going to risk killing the goose that lays the golden egg for them every day? Or are they going to see themselves as playing balance of power politics since they are, ultimately, a target of Washington’s neoconservatives and can’t afford to have the kind of tactics being used at Russia’s borders to prevail.
Will be interesting to watch.
The US is on the other side of the world from Ukraine. Yet, the US spent billions of dollars influencing Ukrainian politics and its economic decisions. It foisted candidates for the Ukrainian people to vote for, as if it owned Ukraine. If Washington would stop meddling in other nation’s politics (see Mexico as an example) for the benefit of transnational corporations, then the extent of destabilization we’re seeing in Ukraine would, very well, not be taking place. Any American who heard the arrogant and vile statements by Victoria Nuland must feel ashamed and frightened. Our State Department and this boot licking, neo-liberal President are way, way out-of-line. This is, already, backfiring on the US as Europe is sick and tired of the intrusion of huge amounts of cash, bribery and non-governmental organizations (NGO’s) into the politics of other nations by the US in Eastern Europe. Putin is no one’s pal, but he sees the constant economic and political (aggression) by the US among nations on Russia’s borders. How do you think the US would react? Oh, and in case someone forgot, we just promulgated an illegal aggressive war in which millions were killed and maimed, further and greatly destabilizing the entire Middle East and destroying the national security of the United States.
Well, all that is true enough, Cynthia, but the fact is that meddling in other countries is the golden road to power in Washington or has been in the past. More conflicts, more tensions and the more powerful the national security state is and more powerful are those who are part of the wave of war. In addition, that is the ideology of the neocons i.e., their rasion d’etre is continual war and U.S. hegemony around the world. They really believe that the USG is destined to rule the world.
Cynthia:
Banger:
See Iron Law of Institutions
Explains so much. Thanks, Lambert, for pointing this out the other day.
Let’s see: a majority of Ukrainians, for understandable nationalist, economic, and yes, democratic reasons that were not invented by the US, demonstrated against the policies of their President (something we would applaud here) and that leader ultimately responded with snipers (something we would not generally explain away), thus causing his own downfall. Then Russia, a nation run by a literally murderous ex-KGB thug (he has had various domestic critics assassinated, something neither Bush or Obama has managed) violates international law and not only occupies a part of Ukraine that is only marginally majority Russian, but is now threatening the eastern Ukraine which is not majority Russian at all. And (some) of the Left, respond by blaming the US, or explaining that because the US violated international law in Iraq, two wrongs now make a right.
Sorry, all the problems in the world aren’t caused by Washington (or the West) , there are other bad actors on the world stage, and sometimes the US is actually on the side of right. I know such complexity interferes with those who insist on viewing the world through a narrow ideological lens, but it is the nature of reality to be complex, which is why no ideological perspective ultimately works 100% of the time.
Keep trying….
I’ll take that as invitation to add that one can argue there is nothing we can do about Putin’s actions, or nothing we can do worth the cost, or even that there is nothing we should do because Ukraine is a far away country of which we know nothing. The one thing one cannot credibly argue is that Putin is a poor innocent forced into invading a neighbor country by the US.
The definitions of “good” and “international law” aren’t “whatever bothers Washington,” and Putin, again, is a thug. And if you don’t believe that, ask Pussy Riot.
Not majority. Tiny minority. All from the Ukraine western part.
“First, Russia does not have the ability to tank the dollar, and a modest depreciation would be a plus for the US export sector. Second, the US is not dependent on foreigners to fund its fiscal deficits..”
I believe that this is an unexamined assumption that may not be examined for the simple fact that this is a required premise of a particular monetary ideology that many adhere to. While in the short run the above statement is certainly correct–the Fed would buy up all the Treasuries Russia decides to dump within the span of a month or two, long term empires rise and fall as inevitably as the tide, and the fundamental assumption of MMT, that the US empire will maintain its dominance indefinitely, and that the USD will never lose its reserve currency status, will become false with the passage of time. That could be tomorrow or twenty years from now, depending on which unpredictable events occur.
Who knows, for whatever reason this Crimea (pronounced “Crim” as a Ukrainian/Russian friend informed me last night–he laughed at me when I said Crim-E-a) thing could precipitate a USD currency crisis right now, what with China and India explicitly backing Russia against Washington and its Neo-Nazi puppets. The important point is this: no one knows what will happen in the future with any degree of certainty, and the world’s financial system is so complex and unstable that those who presume to make prognostications about its future are not speaking from authority, but faith. Of course this includes me; I have exactly as much knowledge of what the future will bring as you all do. Which is to say, none.
Incidentally I listened to an incredible podcast last night which summed up everything I’ve been thinking about money and finance for the past couple of years in one easy go. Although that’s probably because my sources of financial information are related to each other in some way or another…
http://www.extraenvironmentalist.com/2014/03/10/episode-75-positive-money/
Some points made in it which I thought were particularly insightful:
1) Finance is very easy to understand, though there are plenty interested in making it seem complicated and obtuse.
2) Banks create “money” and not “credit” because governments back up bank-created credit with an explicit guarantee of taxpayer funds. And as there is little to no (immediate) risk for the users of bank credit, it is for all intents and purposes money, to correct a pervasive misconception in the economics community (though admittedly economists labor under a great many misconceptions, the most important probably being that they aren’t practitioners of a fallacious pseudoscience).
3) Our current monetary system is pretty damned stupid and should be replaced with something else as quickly as possible. Money creation must absolutely be taken away from the hands of private entities and brought into the public sphere, where the quantity of money and for what purpose it can be created can be handled in a transparent and democratic manner.
I was hoping you all would listen to it and let me know where you think it’s off base or on target. I am currently writing a couple of research papers for bank credit so I have not had as much time to spend on NC as I would have liked to lately. I will try to contribute more to this worthy site in the future though.
No doubt that the US dollar’s world hegemony makes so much of this interference possible. With the power to print fiat currency ad infinitum, the neocons have a literally endless supply of money to shovel to thuggish malcontents who will do their bidding anywhere for the dubious prospect of being part of the “American dream.” Not to mention to fuel the massive military octopus straddling the globe.
It may be that the only way to stop this bid for “full spectrum dominance” of the globe will be for a substantial bloc of large powers (BRICS, etc.) to bite the bullet and bring down the dollar through concerted sell-offs and boycotts. We as Americans and/or Westerners would suffer from such a move in the short run, but the world would benefit, and so would we in the long term.
” the neocons have a literally endless supply of money to shovel to thuggish malcontents who will do their bidding anywhere for the dubious prospect of being part of the “American dream.”
Except those malcontents, i.e., the 36 million living below the poverty level within the continental USA, of course!
This is fundamentally wrong. MMT makes no such assumptions.
The US government doesn’t. This is completely false. the US government is not revenue-constrained and doesn’t use the taxes for anything. When people pay their taxes, that money is eliminated from the system.
MRW: the US government is not revenue-constrained and doesn’t use the taxes for anything. When people pay their taxes, that money is eliminated from the system.
Anyone who believes this need only take a look at Volume II of the Treasury Financial Manual, which concerns itself with transactions between the US Treasury and the Federal Reserve Banks. Tax receipts and other revenues are deposited into Treasury’s account at the Federal Reserve Bank of NY, and are augmented as needed with funds from TT&L accounts, which are Treasury’s accounts at commercial banks.
Some excerpts, with my emphases and additional paragraph breaks for clarity.
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Nor are public debt redemptions conjured up in the book entries of the Reserve Banks; they are, of course, charged to the TGA.
—
I’ll spare MMTers the snark this time, let the evidence speak, and invite others to present their best.
Banks create ‘credit money’, subject to interest and collateral and a repayment schedule. They do not create high-powered money (HPM), the money of the state. They are not allowed to. Every asset that banks create is offset by someone else’s liability.
the fundamental assumption of MMT, that the US empire will maintain its dominance indefinitely, and that the USD will never lose its reserve currency status, will become false with the passage of time.
MMT doesn’t assume anything even remotely like this.
I think Wolf Richter believes in the gold fairy. This Ukraine confrontation has all the earmarks of a pre-planned event. Even tho’ it looks like we are drawing a line in the sand, the line most likely represents an agreement to divide up the world of oil. Maybe two (colluding) petro-currency blocks. So the talk about an “assault on the dollar” by Russia sounds like more pre-emptive propaganda to hide the fact that we are colluding to keep the price of gas and oil high. After all, Russia prolly can’t put its LNG and oil in tankers and park them in the Black Sea until prices and demand come back, that is, if they ever do come back. So as some have said, the “bailout” money to Ukraine from the US and the IMF will go to Russia. Much like the bailouts to Greece go straight to Deutschebank. To pay the gas bills.
GasProm is a focus of attention. Interesting that a big Oligarch just sold all his GasProm shares. What does he know?
Everything being connected, everything is at stake. Especially the economies of Germany and France. The world-wide depression has been kept under wraps; the old economy is gone but must be made to appear to still be there, somewhere. So riddle me why China’s exports just committed suicide, plummeted, ostensibly because of polluting factories getting shut down. If Russia’s energy exports are likewise plummeting, and the Ruble is too, then that’s gonna be bad. I think all this posturing is propaganda. Even John McCain is following a script.
Remember when Putin was wined and dined at the White House by Little George? He (Putin) gave a cryptic speech that made Bush laugh uncomfortably – it was about Russia’s famous white nights – a reference to Siberian auroras – but the real message to insiders was about “White Knights” an oil exploration company – a western consortium in a friendly partnership with Russia. And it was almost impossible to get any info on this enterprise. I rest assured there will be no mushroom clouds. And we will save Russia. But I’m old and nutty.
Just to be clear, you are saying that Russia and the West are playing at Kabuki theatre? This is a stage-managed narrative, to corral the globe into 2 opposing, equally bad affiliations? Well, I could see something like that being true…
I’m no expert on the real history of WWII, but I have read that banking and finance went on at high levels between the two sides, that is, that high level bankers continued dealing with both sides, throughout the war; which suggests that really, there was no “real” war being fought at the highest levels, because the same individuals would come out on top (broadly, loosely speaking, maybe not precisely) regardless of the outcome. That is, the highest level financiers would still be pulling the strings.
Yes, I think this gets more into the 1% vs 99% type of thinking (rather than country vs country) which groups Western kleptocrats with Russian oligarchs and Chinese princelings ( ‘In China roughly twenty-nine hundred of these party scions -known as the “princelings” – control $260 billion. ‘ — Shock Doctrine).
This I think helps define the real battle. Even the IMF is being nudged/forced to stick its toe into these waters..
http://www.ipsnews.net/2014/03/imf-urges-redistribution-tackle-growing-inequality/
““The IMF’s evidence is clear: The solutions to fighting inequality are investing in health care and education, and progressive taxation. Austerity policies do the opposite, they worsen inequality … We hope this signals a long-term change in IMF policy advice to countries – to invest in health and education and more progressive fiscal policies.”
For the past half-century, the Washington-based IMF has operated as the world’s “lender of last resort” for failing economies. In return for offering short-term loans to governments in economic crisis, the fund typically demands the imposition of a range of often stringent austerity measures aimed at solidifying the country’s finances.
After years of frustration over these conditions by anti-poverty campaigners, the IMF has recently engaged in a broad reappraisal of this approach. In November, the fund proposed an overhaul of its debt-restructuring guidance,
Agreed . It looks more like political kabuki theatre or the choreographed world wrestling matches . Blood is drawn and people get killed but the show must go on . Obama and Putin both have solid communist bakgrounds as does China and India . We know from histories that conspiracies are abundant in politics . Which conspiracies are real and true and which ones are not is a separate issue .
Communism? The merger of business and state is the exact opposite of communism, you nutter.
White Nights also refers to the evenings around the summer solstice, when the sun never sets….
Tank the dollar? Ha! They’d be doing us a favor. The middle class would thank you, Mr. Putin.
Russia isn’t going to tank the dollar. That’s the Fed’s job.
How about Russia, through proxies, going long 5000 lots of Commex gold in the Spot month, then tendering for delivery? Just a thought… be interesting to see the default happen finally.
(disclosure : I am long physical gold)
What does gold have to do with the US dollar?
A lot actually, and this article is not just about the dollar but about possible retaliatory financial actions. In 1971 the USD was taken off the gold standard and the exponential arc of monetary and debt expansion began with the incipient petrodollar recycling system. Russia and China are both large net importers of gold, and around the fringes it has been posited that the Chinese may be in a position to fully internationalize a gold backed yuan. This would also feed into the prospects of a BRICS currency block employing more non-UST assets. Torpedoing the Commex and or the LME would be a nice place to start the destabilization as well. Most importantly, it would help my position – duh.
there is not enough gold around to back anyone’s currency these days, with the possible exception of Moldova…Russia, China and their pals have been kicking this idea of finding a dollar substitute around for several years, to no avail whatsoever…if they are dumping Treasuries, it’s because they need the cash, pronto…Putin might be a clever chess-player, but in this game of thrones, he may find himself, rather than the $ or Croatia, the sacrificial pawn…
Impossible. US dollars cannot and do not leave the US banking system. Physical cash notes can and do, with the supposed $10Gs/person limit (physical cash is only 11-12% of all US currency) but not treasury securities. Not possible. It’s against the law.* All Luxembourg US dollar-denominated accounts are at the NY Fed.
Only thing the Russians can do with cashed-in treasury securities is buy rubles or euro or yuan on the open market just like you or I or China can.
———————————
* Read Frank Newman’s Freedom from National Debt, 2013. He explains it. Newman was Deputy Sec of US Treasury.
“It’s against the law.”
Nice punchline. Where’s the joke?
Putin can nationalize the American companies operating in Russia.
Nationalizing US assets is an interesting thought and would be damaging… but considering your reply to my earlier post, what does nationalizing US assets in Russia have to do with the US dollar?
This piece and many of the 18 comments so far highlight our growing anti-dollar sentiment; even the concept of the world’s need for a reserve currency is in question. But a neutral commodity like gold is not practical for world-wide trade in a crisis situation–it is too slow if it needs to move and it requires too much trust if it doesn’t move.
Imagine if we could create a trustless an infallible system for storing and near-instantly exchanging value across the world, without the assistance of a third party or the permission of an authority. Like gold but with a built-in teleporter.
I think something like that would really catch on.
Ha! I get it!
As postings like this evidence there is a visible path away from the US dollar as the reserve currency and it is no longer if but when that change will occur. I have stated in comments on NC before that it would happen in X number of years and still believe it will happen sooner rather than later….less than 5-10 years is my guess. When it happens the shift will be abrupt because it is all about FAITH. When that faith is lost the floodgates will open and America will become the banana republic it looks like from afar. The US has no moral high ground from which to operate and only has the largest military to force compliance with its financial boot on the necks of the rest of the world’s countries. To say that countries are tiring of this arrangement is an understatement.
Will Ukraine be the tipping point in the current FAITH of US Financial supremacy? Given the visible rot in our Empire it would not surprise me. We are way past due for global backlash for our imperialistic ways. One only hopes that military brinkmanship on our part does not fail over into nuclear winter for our world.
More and more this is sounding like a plot from Jack Ryan : Shadow Recruit.
love that kgb math…ayn rand must have written a special book for them when she attended Petrograd State University…probably called it “reality shrugged”
lets see mr RAZ putin, you have about 450 billion in “dollar” and gold reserves…sounds impressive to the little people…
and the daily volume of currency trading globally is about 4 trillion dollars…only about 9 times your entire arsenal…
hmmm…well, if you just rolled it all on double zero at the roulette table of life, you might find yourself with a chance to walk away with 17 trillion dollars…not that any casino could pay or would even let you walk out without being accidented…
but realistically you will end up destroying the rubble and your chances of being remembered as the OTHER putin (not RAZ) and statutes and all that moscva nonsense…
or you can try to fight off the fed and the treasury…hmmm
those 450 billion would be about two hours worth of currency trading…yup…there are no computer algorithms that will turn the market back around by lunch time…none at all…
thats probably not gonna cut it…but you can try…but luckily for you the ukrainians have no military…so go ahead and try to take the crimea and ukraine too…you military did such a fine job in afghanistan and chechnya…I’m sure the Ukrainians will just sit there and smile…or they could be like the grandmas in Crete who knifed Nazi paratroopers in the back of the neck on a regular basis as they walked by humbly… Russian mothers will thank you for sending their sons to be killed for your ego…
certainly you might be able to count on the french, british and israel to come to russias aide by invading egypt again…but that’s doubtful, it aint 1956.
Has anyone asked people in the former Warsaw Pact and USSR if things feel so much better since the arrival of democracy? Things have got worse for most of us in the West. Tiny numbers have made fabulous wealth, which they spend on such trivia as sports clubs. I don’t believe a word I hear on currency wars. This is all about piracy, protection rackets and slavery in a libidinal economy. I don’t think we understand the libidinal well and how nasty it is behind closed doors. The gangsters merely cut up the territory.
The USD could be brought down by concerted efforts, though not by the Russians. We don’t talk much on the good and evil of the USD and whether we could build a better world without it. I’m beginning to think that on this and such as Ukraine we should be exploring the silence.
1. At the very least, the clever explanations in history have:
a/ kept the majority of people down-trodden
b/ led to war
c/ turn out mostly not to be true
d/ required extensive propaganda machinery
and similar.
It would be nice to have future memories such as the winner of tomorrow’s 3.30 pm at Haydock. This might seem just what you want to amass a personal fortune, but I’l like to see it as a way to bring gambling to an end. We don’t glimpse the future like this. Great empires crash, so we can think now of life free of the USD and the American military umbrella. Obvious as this all is, we have no talk of a world free of a dominating currency or massive military superiority and how to get there. Instead we get experts arguing for their niche bag of 30 pieces of silver across a propaganda system that ensures we ordinary Bryanks never speak to ordinary Germans, Ukrainians, Russians, Iraqis …
The dominant future memory concerns the sky falling if we do anything towards radical change. This in turn forces us into apparently complex financial arguments that prevent radical change. Our heads get full of stuff that has nothing to do with the arguments we really need to explore. Meanwhile, Ukrainians get to meet Bryank representatives who don’t represent us and steal from them even at such crudely culpable levels of trafficking in women and children. We aren’t talking with any Ukrainians directly for that matter – strange given the “free Internet”. Maybe the future memory we should be developing should concern why we are so stupid to leave anything in the hands of representatives, economic pundits and cub reporters in the age of direct data? The future will know what the thieving, murdering, slaving creeps were doing and why we just stood by. We should at least be trying to guess why now. Given we know economics has the predictive power of a gant peering into a crystal ball we should be talking something else.
An inane post. The US could fairly easily freeze Russia out of the international financial system and this would tank the ruble and the Russian economy. Russia has nothing comparable on the financial front. It is a commodities producer. We need to understand what that means. Most commodity producers need to be producing at or near capacity because their whole economy becomes tuned to and dependent on certain levels of cash flows from their commodity sales. Those sales stop, and the economy burns through any reserves quickly, and the economy goes into depression. Commodity sales are critical to the Russian economy. Commodity buys from Russia from the EU are important but not critical. If Russia played the gas card, it could do so only once with limited effect. It would cause discomfort in the EU, but it would do immeasurable harm to the Russian economy. Additionally, the EU could and would find ways to hedge against an unreliable supplier.
I think these threats are a mistake and a sign of Russian weakness and uncertainty. Up until now, Putin has let his actions speak for him while the West temporized with talk. Now the Russians are resorting to bluster indicating concerns over the long term costs of their Ukrainian adventure.
“. . . the EU could and would find ways to hedge against an unreliable supplier. “
Isn’t this what Syria was all about? Creating an alternative natural gas supplier for Europe? If there were easy, not-very-expensive alternatives then Syria probably wouldn’t have been necessary.
And the need to propose that the US would export LNG to Europe is another example to the problem of the EU’s dependence on Russian gas.
Also, Russia doesn’t have shut off the gas to win. They could simply raise prices by 25-50%. Ouch.
Russia has a sovereign currency. It can still pay its own workers. The issue is what currency does Russia want in payment for its oil and gas? US$ or Euro? (I don’t know the answer; I’m assuming US$?) Will US sanctions screw its EU allies, by preventing them from buying Russian gas, and if so, who will make up their shortfall? Russia supplies 33% of Germany’s needs. Jack Lew doesn’t even understand how our federal accounting works; what makes you think he can tell the President what he should do?
Look, I agree the Russian position is silly. But Wolf is basically reporting on silly posturing. It’s more salacious to treat it as serious than examine it critically.
The US dollar will continue to be the world reserve currency for at least two more decades. There’s no other currency so readily available, backed by the full faith and credit of 320 million First World citizens. The euro could potentially become a challenger decades in the future, but the EU’s insane euroliberal ideology (everyone in the eurozone is supposed to become a German-style exporter… who can possibly buy all those goods?) mean the whole thing could implode. Even if they follow Varoufakis’ advice and get their fiscal act together, it would take fifteen years to displace the dollar. Pack up those dire fantasies of collapse, it’s just not going to happen any time soon.
In re Ukraine: Russian neo-nationalism has gone absolutely and totally nuts. There was NO neo-fascist takeover in Ukraine, NO ethnic hatred, NO witch-hunting of ethnic Russians, just an Occupy-style mass protest which deposed Yanukovych, a horribly corrupt and mass murdering scoundrel. Russia does have a legitimate grievance over the Crimea ending up as part of the Ukraine (this was Khruschev’s doing in 1954), but this needs to be solved through negotiation, compromise, and free and fair elections by the people of Crimea, not outrageously lying war hysteria, 30,000 troops violating another country’s sovereignty, and a referendum held at gunpoint.
For all its bluster, Russia is actually deeply vulnerable. I’ve been watching the Russian developmental state for a long time, and they have two huge problems Putin has not solved. (1) The extraction cost of their Siberian oil is going way up, and they need lots of imported technology. (2) Putinism, the class compromise between thuggish siloviki and raw material billionaires, means that Russia’s energy-rents cannot be effectively invested in the real economy. The money drains away on consumer imports (this helps China and the EU, but not Russia’s own industrial base), on internal corruption (some benefits, but huge wastage), and on capital flight ($70 billion per year into Swiss bank accounts and London real estate).
The danger is that Putin actually believes his own lying press releases that fascists are rampaging in the Ukraine, and gives the order to open fire on the 9,000 Ukrainian troops stationed in Crimea. If blood is spilled, you can remove the R from the BRICs. Russia will be finished as a world economic power for decades. Done. Over. Putin will have his brief moment of glory, and get the highest poll ratings in Russia’s post-Soviet history — Crimea will be swamped with Russian flags. Then the EU sanctions will hit, and Russia’s commodities-based economy will implode. (No, China cannot bail them out. Not enough pipelines.)
I pray it doesn’t come to this. There’s still time to avoid catastrophe.
Here’s another analysis:
Propaganda, lies and the New York Times: Everything you really need to know about Ukraine — The media keeps buying the American spin on what’s happening in Ukraine. Let’s cut through the fog by PATRICK L. SMITH
So the Russians are just bad actors that are making sh!t up to cause trouble which is bound to backfire?
Your comment not only lacks context but is myopic. Russia DOES have a complaint because whether they are neo-nazis or not, the ‘revolutionaries’ were backed by US neocons that, by Nuland’s own admission, received $5 billion of support to topple a democratically elected President. Other countries WILL be sensitive to that kind of meddling. And the case is strengthened by other such occurrences in history like Iraq.
My assumption so far has been that this is all about Sevastopol, which has long been an absolutely vital military asset for Russia, and that Putin has been trying to improve his bargaining hand so that he can ultimately make a deal with the new Ukrainian government to secure Russia’s permanent position there.
MRW and Jackrabbit. Probably no way to shake your root idea about the whole nation of Ukrainian being fascist. Nevertheless, here is an article that may crack open your eyes to the reality of Russian propaganda.
http://www.washingtonpost.com/opinions/putin-wins-in-russia-only-by-escalating-his-war-rhetoric/2014/03/14/65db1c80-ab91-11e3-98f6-8e3c562f9996_story.html
Otherwise I’m in agreement with Dan Kervick and Dennis Redmond.
“Probably no way to shake your root idea about the whole nation of Ukrainian being fascist.”
The hyperbole in this statement says more about you than me or MRW. Niether of us have asserted, or even implied, that “the whole nation” of Ukraine is fascist. MRB pointed to an article (which doesn’t mean that he agrees with everything in it) and I made a few very specific points – which you do even attempt to refute.
The fact is – and I have previously said this on NC – that BOTH sides have put out propaganda. They have also threatened each other with economic sanctions (The US was the first to do so with the veiled threat that “there will be costs”).
Putin is a dictator and a thug. I think that is widely recognized. But this is not a Russian activist blog (most readers are not Russian). NC readers have complained about the US/West political and economic system. US imperialism is a natural outgrowth of this system and Syria/Ukraine are just examples of where this leads. Should we now abandon these complaints to join the “USA! USA! USA!” chorus?
I love my country as much as anyone but the neocons use America for their own ideological purposes (and personal advancement). They con-ed us into Iraq – which costs an estimated $1 trillion, and tens of thousands killed and seriously injured – on the basis of trumped up evidence. Much of the world turned from pro-America to anti-America as a result. Now they are at it again.
Ask yourself the following questions:
1) Why has rapprochement with Russia gone off the rails so quickly and so completely?
2) how would you feel, and how would Americans respond, if the Russians had fomented a pro-Russian socialist revolution on America’s doorstep (e.g. Mexico, Quebec)?
As far as the Washington Post article goes, that is just more demonizing of Putin (as expected). Putin is widely seen as leading a group of oligarchs. In the US, our politicians respond to contributors of elections. Obama or Putin may have higher or lower ratings, but they each still govern according to the wishes of their oligarchs/power base. Putin arrested some people, Obama droned weddings.
Its best to stop drinking the cool-aid and support real change. And, while real politick has its place but it should not trump a moral and principled approach to people and nations.
Geez, Jackrabbit you got me good. I tracked your comments back for a month, and could not find a single comment from you about fascism in Ukraine. Not only did I misjudge you, but I actually agree [choke] with the content in most of your posts. Basically you just killed a portion of my inner troll. Thank you. One scruple worth mentioning is that the Washington Post article I linked to is not mere anti-Putin propaganda. There has been a huge crackdown on the media in Russia, just as the article says. That includes replacement of editors who don’t tow Putin’s line, shutting down independent television, arresting opposition leaders, and blocking opposition web sites. The author did not even mention the closure of the Novosti press agency, which had been one of the largest press institutions of Russia. There’s not much doubt that Putin has a stranglehold over Russian media. Putin hammers out a relentless message of a fascist coup in Ukraine. He tells Russians and Jews that they are under threat from Nazi thugs in Ukraine. It’s this willingness to engage in defamation which I find so extraordinarily offensive. And it’s not like I’m anti-Russian or that I’ve taken the Ukrainian side of this dispute. I think Russia is fully entitled to continue naval operations out of Crimea. Quick answers to your questions. 1) Nato, 2) I’d feel great! Because any such attempt would meet certain failure. I do not object to discussion of economics defined in terms of nation-states, neocons, neoliberalism, oligarchs, and kleptocratic principles. What I haven’t figured out yet how is to change anything in the Western financial system. Does the system have to collapse again, before a social movement like in the 30s brings about real reform?
I’m glad to hear that you have an open mind and are willing to think things thru.
Its true that Putin has cracked down on media and NGOs. That is related to my first question (failure of rapprochement). Going though that could be a long discussion that will have to wait for another time. I sure you could find material online that discuss what led to that crackdown. FWIW: attempting to corner a rat is very tricky business.
” First, Russia does not have the ability to tank the dollar, and a modest depreciation would be a plus for the US export sector.”
Doesn’t this miss the point? As an oil state with Europe in its thrall, Russia could wage a very effective attack on the dollar’s reserve status, just by refusing to take payment in dollars. It would be even more effective combined with, say, Iran.
Granted, this would be doing us a favor, but only in the long run. And the banksters would take a much-needed bath.
Russia’s trade surplus is US$18 billion. So they get that instead in Euro. Big whoop. That’s not going to attack the US dollar reserve status.
The ultimate, non-stupid ideas are such as stopping the burning of the very fossil fuels we often seem encouraged to think our masters are sparking over. The United States has long been extracting rent for the USD. Never felt much urge to do anything about this on the grounds of sitting under the US military umbrella myself.
Imagine I nip over to the north-eastern USA with a few thousand mates from our armed forces. We all speak English and I say I’ve come to save you from Spanish-speaking threats to your personal security. We’ll have a ballot on rejoining the UK next week. I hope everyone gets the direct idea here. WTF is Putaine (he looks sad and sorry as chips, cheese and gravy) thinking when he claims to be protecting Russian speakers abroad? My daughter is fluent, but we haven’t asked for a couple of tanks on the front lawn. Times change, but what I found all over the former USSR 15 years ago, was a profound hatred of Russians transplanted abroad even where the East-Slav ethnic origin was shared. Many denizens had fled the incoming Russians and most still expressed opinion current populations were criminal.
Anything we say on such as this, the USD or even such as MMT is constrained by the future as it is with us now. Look at ‘us’ rowing over “Ukraine” or what’s left of it after looting. Instead of discussion about Ukraine’s role in a peaceful, stable and sustainable world with people given decent lives in which backs and spirits are not broken, the squabble is about resources we should be leaving in the ground and old hatreds,
We could be talking about how to stop the grandstanding and those dreadful journalists who ride around in flak-jackets. It’s only because they can rely on Putaine to strut out a few tanks that keeps the distraction business alive. This is all distraction from a democratic and modern world without rich people.
I think that’s “poutine” you’re thinking of.
I’ve rarely seen comments so divided and divisive. Facts, factoids, and speculation are flying about like shards from a bomb. Serious arguments by people I’ve come to respect insist that the dollar must, can, can’t, and/or won’t cease being the world reserve currency today, tomorrow, or for the half-life of the proton in string theory (10 to the 34th years, and rising as experiments refuse to verify mathematical constructs).
So is the dollar shaky or bulletproof? And what do all those dollars being traded every day mean? What the f#&k is 9 trillion dollars traded ever day mean when the sum total value of all the goods and services traded in this country in a year is less than twice that much? Are they real? Our government finds it impossible to close a spending gap of less than a trillion dollars a year, yet a subset of people have enough dough to circle-jerk 9 trillion a day? It all seems fact to me, a dream, a fraud, an illusion without substance. If all these trillions and trillions are real, how is it that so many dangerous, pressing problems aren’t solved and are considered unsolvable? At times, it just all seems unreal to me.
Russia can close the supply lines through Russia to our forces in Afghanistan, which would be a major issue, in that our supply lines through Pakistan are unstable. Russia could start making large scale shipments of their most modern weapons systems to Iran, or, for that matter, announce they are breaking our trade embargo against Iran and a list of other places. If they get *really* annoyed, they could emulate our actions in Afghanistan and start supplying our opponents, the ‘warlords’ and the ‘Taliban’ with limited numbers of modern antiaircraft handheld rockets. The same could be done in other places. “Radio Free Saudi Arabia” in two channels, one broadcasting liberal democracy and the other accusing the Saudi Monarchy of apostasy in painful detail, also comes also to mind.
How does a threat to sell Treasuries hurt the dollar? Say they sell $200B, thereby replacing their interest-bearing asset with $200B in a non-interest bearing asset (money). The Fed can easily buy them up without breaking a sweat. So Russia is left holding $200B in cash. If they try to convert that into other currencies, how appreciative would those other countries be to find their own currencies suddenly appreciating? Seems to me they would take measures to counteract that move, thus negating Russia’s action. Meanwhile the markets in the US and Europe, to say nothing of the Fed and ECB, have the absolute ability to completely trash the ruble and with it the Russian stock market.
Agreed, this noise is posturing. How much is simply for domestic consumption and how much they think international investors will buy is unclear.
I am sure that it wouldn’t be too difficult to find somewhere to put $200b in non dollar denominations. The (opportunity) cost of doing so would likely be close to zero (e.g. the they are currently losing principle through inflation) .
@Yves,
To answer your questions about whether this is posturing; I would ask to what degree the U.S. is posturing with their threat of sanctions?
Clearly, in its’ self, selling $200b in UST is more of a political statement than anything else. However, if the U.S is willing to follow through on what may or may not be posturing, it doesn’t seem unlikely that Russia could easily follow through, having their state owned companies default of $700b in debt.
Regarding the BRIC currency arrangement, this is not such a simple matter but is clearly part of a long term trend where by the dollar, being part of an international rules based system, simply costs too much to use, relative to its’ benefits. (i.e the inherent contradictions of having both an international of domestic currency are rearing its’ ugly head like there’s no tomorrow—but alas there is a tomorrow…it will just look much different than today )
noone needs to protect the US dollar just ask any the George Bush
Some times the feeling that the bad blood over the eastern royals getting whacked and the rest fleeing for their lives [only to sell their jewelry to relatives at steep discount] is still playing out.
Err, can I point an obvious flaw? If US freezes Russian assets, by definition it freezes any of its USD/UST ones (directly held by Russia, or known indirect holdings). Hence Russia will not be able to sell those dollars or treasuries.