EDITORIAL: The Russian Pressure Cooker

EDITORIAL

The Russian Pressure Cooker

Streetwise Professor notes that because of a new policy being implemented by the Russian Central Bank, the ruble has stopped plummeting in value and even clawed back a few cents from the U.S. dollar.  Since the policy doesn’t involve spending massive amounts of foreign currency reserves to buy rubles and artificially inflate their value (“only” $3 billion was spent last week doing so, SP says), one might well ask:  Why didn’t the Kremlin do this earlier?

The reason is quite simple, really. Because it’s suicidal, and the only reason the Kremlin is doing it is because it simply doesn’t have any other choice.  It has already spent half its total foreign currency reserves, and it has to make the rest last longer.

So here’s what it’s doing.

It’s simply strong-arming Russia’s banks, threatening them that if they dare to sell any rubles there will be hell to pay.  As SWP says, it’s the “Chekist solution.” At the same time, the Kremlin is starving the banks for rubles from Kremlin coffers, making sure they don’t have any extra to put into currency transactions in the hope of quick profits as the ruble descends.  It does this by, as SWP puts it, “jacking up interest rates” to stratospheric levels.

Now even a first-year student of economics may well say: What?!?! Are they totally freakin’ insane? Don’t they realize that the main basis of the world economic crisis, which has impacted Russia far more than most countries, is the absence of liquidity in banks, and the absence of lending, and the ripple effects on economic growth?

Welcome to Russia,where the basic laws of economics have been ignored for centuries, which explains in no small part why first Tsarist Russia and then Communist Russia and now, quite possibly, KGB Russia have all found themselves spiraling into the ashcan of history.

And there’s more.  According to SWP, it wasn’t only that the Kremlin inflated the ruble but also that Europe was undercutting the euro currency.  Worries were spreading that too many euros had been plonked down on . . . wait for it . . . yes, you guessed it . . . Russian debt, which now looked shaky and might face refinancing or default.  So Russia’s own incomptence, temporarily, was working in its favor!

What is happening now in Russia is that the Coke bottle of its economy is being furiously shaken by the Kremlin.  It’s moving so fast that its hard to see the cracks and fissures that are developing in the bottle, but one day soon the inevitable will happen, just as it has happened so many times in the past in Russia when the basic laws of economics have been ignored.

That bottle will explode, and Russia will be covered in sticky goo.

15 responses to “EDITORIAL: The Russian Pressure Cooker

  1. Let’s see, if you stop lending money, companies will lay people off and/or not hire. Companies will lower or stop production of goods. Companies will not be able to buy stuff from foreign markets either because they have no access to foreign currency. As a result,
    goods on the shelves will disappear. Massive shortages will result. People, who are now unemployed, will stand in line in vain for the last can of pickled herring. Great. The people will be told it is America and capitalism’s fault. Putin will enact more draconian measure to consolidate power. As I said all along, never put a KGB agent in power. (Don’t put a community organizer in power either for that matter.)

  2. I was asking myself the same thing…Raising interest rate + starving the banks of cash because they fear of speculation attacks with the money.

    So , when will the Kremlin pay a price for thius??….What will most likely happen if they keep this new tactic going?

  3. The Kremlin has enough money to pay off Kyrgyzstan, $2 Billion dollars, to kick the Americans out. The loss of the airbase will hurt American operations against the Taliban in Afghanistan.

    Thank you, Putin. A loyal partner in our war on terror.

  4. The Russian economy has suffered a bigger contraction than in 1998

    http://news.bbc.co.uk/2/hi/business/7892528.stm

  5. Kolchak

    Now USA did not our partner in our war against terror. USA tried to support terrorists in Chechnya and supported our enemy in Ukraina (Yuschenko) and Georgia (Saakashvilly). In Afganistan and Kosovo USA create drug-country. Production of drug in Afganistan have increased during period of USA occupation more than twentyfold! A big parts of Afganistan`s drug intend to Russia. Are you suprised that we do not help to USA!

  6. I am russian,
    i would ask why you have enemies in a little tiny nothing of a country like georgia?

    maybe its because russia ships arms through those countries and critically needs a land route to hide the quantity, the source, and to avoid things like Faina, or like the chinese ship not being unloaded.

    in other words, the best way to ship the crap that makes oil cost more is thorugh georgia and others in that area…

    without the need for a chain of friendlies to move weapons and explosives through, they have a problem.

    soooooo…. they are your enemies because they dont want to be puppets… they dont want to let shipments through their state. (note that the two places grabbed and not given back give russia a way to inject their own traffic into normal traffic, and have the option of over land or to the friendly port avoiding large oceans).

    and as far as the ukraina, who tried to poison the leader as a means to an end? the man looks like crap now…

    and the US spends more on stopping drugs world wide than any other country. drug production has happened in those countries for literally centuries… way before there was ever a united states or a russia.

    the problem is that you dont understand that the US does not OCCUPY, as your language states. capitalists do not have to own something to have its benifits, another thing socialists dont get. so we dont have to keep a country to take spoils from it. we do A LOT BETTER letting it to its own, letting it produce and make neat products we can then purchase from them, and sell to them.

    technically russia is having a drug problem the same reason everyone else is. russian people want to use heroin. and they want to do so in numbers that vastly outnumber the west. which is another quality of life reason.

    if you helped the US instead of fouled it, there would be an independent afghanistan government that you could deal with to stop the growth of such products the same as they are stopped in other states.

    the problem is that these crops fund the insurgencies that get weapons from russia. they are using what weapons? c4 or semtec? ak47 or m16? rpg? dragunov sniper rifles, remingtons or barrets?

    and what government is trading with them and letting them get the money from their own people to pay for it?

    in south america putins freind chavez helps fund FARC who also sells cocaine for weapons too. what weapons do they use? ELN?

    how about africa? they grow there too. what weapons do they all use? how about laos, cambodia, vietnam, all heroin producing countries…. what weapons do these people use?

    while some of the south american organizations have some western weapons, by far, all over the world, drug dealers and producers, as well as other illegal and terrorist groups mostly use russian originating technology and or supplies.

    if you have cocaine in russia and other countries, then you are also funding these people as well!!!

  7. Art

    “the problem is that you dont understand that the US does not OCCUPY, as your language states. capitalists do not have to own something to have its benifits, another thing socialists dont get. so we dont have to keep a country to take spoils from it. we do A LOT BETTER letting it to its own, letting it produce and make neat products we can then purchase from them, and sell to them”.

    YES OF COURSE YOU GIVE THEM FREEDOM ESPECIALLY IN TOUCH OF DRAG! SORRY WE DO NOT NEED IN SUCH THING!

  8. “I am Russian” Please try and stop being such an idiot.

    Your country, and particularly your security forces are monstrously corrupt.
    They facilitate the epidemic of drugs flooding Russia, as does the Russian mafia, which has close links to the FSB.

    I do not recall Russia doing anything to stop the drug industry in Afghanistan when they were running the place 1979-1989. In fact under the Russians drug production expanded exponentially, just as now.

    Your country has a drug problem because young Russians want to use them. There is no other reason.

    Do not try and blame other countries for your own drug problems.

    If people in Russia & Europe & the USA were not buying these drugs, then there would be no incentive for them to be grown or trafficked.

  9. Andrew

    The most of Russian youth are well education and purposeful girls and guys. They never used any drags. Russian drug problem is anormous exaggerated in this blog. But we do not want to have close to Russia a country which produced the most drug in the world.
    You say that USSR did not make anything to prevent drug producers. Well I suggest you to compare national drug produce of Afganistan in Soviet (or even in Taliban) periods and period of USA occupation. I know that you a bigot, but if you have only 1% intellect and sense in yours brains than you will understand that USA is empire of evil unlike Russia which is just victim!

  10. Putain is not “inflating” the ruble, that’s not the appropriate phrase since that implies “printing” more, which would lower its value; he is “artificially propping it up”.

  11. Russia is an empire of evil. The USA did not kill 61,911,000 civillians between 1917 & 1991, Russia did. And Russia keeps on killing in Chechnya, Ingushetia, Daghestan, Georgia.

    And don’t say it was the USSR or Communists not Russia. That won’t wash.

    The USSR was run by Russia and for Russia. The Russina communist party dominated the Soviet union, and all decisions were made in Moscow. Why do you think the other republics demanded independance at the 1st opportunity?

    As for “The most of Russian youth are well education and purposeful girls and guys. They never used any drags”.
    HAHAHAHAHA. Obviously YOU are the one with a 1% intellect.

    http://news.bbc.co.uk/2/hi/europe/2176504.stm

    ” Faced with a “steady increase” in injection drug use that is cited as the leading cause of the spread of HIV/AIDS in Russia, a meeting of physicians and specialists was held in the country in February to discuss the use of methadone in treating injection drug users, which number between three million and six million in Russia, the New York Times reports.”

    http://www.kaisernetwork.org/daily_reports/rep_index.cfm?DR_ID=53416

    http://www.nytimes.com/2008/07/22/health/22meth.html?pagewanted=1&_r=1&ref=world

    “Russia has the fastest growing HIV epidemic in Europe, with an estimated 940,000 infected since the mid 1990s.17 HIV transmission was initially predominantly through injection drug use18 but is spreading to the general population via sexual transmission.17,19 Given the importance of the HIV epidemic in Russia, further research about disease transmission in this country will require understanding the advantages and disadvantages of research methodologies assessing risky behaviors.”

    http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=2588424

    http://www.thegully.com/essays/russia/031215_russia_HIV_AIDS_1.html

  12. But wait, theres more!!!

    http://www.nytimes.com/2008/07/22/health/22meth.html?pagewanted=print

    “Russia has one of the fastest-growing AIDS epidemic in the world. One reason for this development is unsafe sex of addicts. Therefore sexual behaviour should be considered as an important component in the treatment of drug-dependent people to stop HIV-transmission.

    There is nearly no other country in the world where HIV spreads out as rapidly as in Russia. In the heart of Russia’s epidemic are extraordinarily large numbers of young people who inject drugs. According to the World Health Organisation (WHO), there were more than 340,000 registered injecting drug users in the Russian Federation at the end of 2004, although the actual number of injectors could be four to ten times as high.”

    http://www.european-hospital.com/topics/article/3960.html

    http://www.hrw.org/en/news/2004/04/26/russia-harsh-drug-policies-fuel-aids-epidemic

    http://www.hrw.org/en/reports/2004/04/27/lessons-not-learned

  13. Andrew

    Now Russia “kill 61,911,000 civillians “- in the recent time your number was 60000000! Are your brains-palsy progress?

  14. I am Russian,

    The democide in Russia can never be accurately measured. Even his high number has three zeroes on the end of it, if you didn’t notice. What is the likelihood of that.

    If he said 60,000,000, he was giving you the benefit of the doubt. Rounding down gives him more credibility.

  15. it will just get worse with inflation.
    presto pressure cooker

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