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Can Russia Learn from Brazil’s Fate?
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William Engdahl recently explained how Washington used the corrupt Brazilian elite, which answers to Washington, to remove the duly elected President of Brazil, Dilma Rousseff, for representing the Brazilian people rather than the interests of Washington. Unable to see through the propaganda of unproven charges, Brazilians acquiesced in the removal of their protector, thereby providing the world another example of the impotence of democracy.http://www.informationclearinghouse.info/article45561.htm

Everyone should read Engdahl’s article. He reports that part of the attack on Rousseff stemmed from Brazil’s economic problems deliberately created by US credit rating agencies as part of Washington’s attack to down grade Brazilian debt, which set off an attack on the Brazilian currency, the cruziero.

Brazil’s financial openness made Brazil an easy target to attack. One might hope that Vladimir Putin would take note of the cost of “economic openness.” Putin is a careful and thoughtful leader of Russia, but he is not an economist. He has confidence in neoliberal Elvira Nabiulina, Washington’s choice to head the Russian central bank. Nabiulina is unfamiliar with Modern Monetary Theory, and her commitment to “economic openness” leaves the Russian economy as exposed as Brazil’s to Washington destabilization. Nabiuina believes that the assault on the ruble is due to impersonal “global market forces,” not to Washington’s financial clout.

Nabiulina, an indoctrinated and propagandized neoliberal, is essentially a servant of Washington, not that she is aware of her role as “useful idiot.” She delights in the applause she receives from the Washington Consensus for leaving the Russian economy open to Washington’s manipulation. Being a neoliberal, she does not understand that Russia’s central bank can create at zero cost the money with which to finance productive projects in Russia. Instead, she thinks that the money entering the economy from the central bank is inflationary, but the money entering the economy from foreign sources is not.

Money is money regardless of whether it is made available by the central bank or by foreign creditors. As long as the money, whatever its source, is used productively, the money is not inflationary.

There is a huge difference between the money created by the central bank and the money created by foreign creditors. Money lent by foreign banks in the form or US dollars or euros must be repaid with interest in the foreign exchange in which the money was lent. Money created by the central bank to finance public infrastructure projects does not have to be repaid at all, much less with interest and in foreign exchange earned by exports.

ORDER IT NOW

Funds acquired from borrowing abroad bring many risks. The money can be pulled out, collapsing a freely traded ruble. The interest that must be paid is a drain on Russia’s foreign currency reserves. Foreign borrowing also brings a foreign exchange risk, which rises with economic sanctions. If the ruble drops in value or is driven down with an orchestrated attack, the ruble cost of the foreign loan can rise dramatically.

None of these risks and costs are present when the central bank is the source of money. The appropriate use of the Russian central bank is to create the money with which to finance public projects and to serve as lender of last resort to private Russian companies unable to obtain funding from Russian banks. This use of the central bank insulates the Russian economy from orchestrated destabilization.

It is unfortunate for Russia that Nabiulina and prime minister Dmitry Medvedev believe that Russian debt financed by hostile foreigners is preferable to money created by Russia’s own central bank. Glazyev, alone among Putin’s advisers, understands this. We suspect that the Atlanticist Integrationists have a target on Glazyev’s back as they hope to integrate Russia with the West regardless of the costs to Russia. These Russian “America Worshipers” are Russia’s greatest problem.

For Washington, neoliberal austerity is for “export only” to countries that Washington intends to turn into dependent financial colonies. By accommodating Washington’s goal, Nabiulina is engaging in a charade. The dollars and euros borrowed from abroad are not the money that goes to the Russian borrowers. The borrowed foreign exchange is held by the central bank. Nabiulina then creates the rubles that finance the projects. There is no point whatsoever to borrowing foreign currencies as backing for domestically created rubles. Regardless of whether Russia borrows abroad, the central bank must create rubles with which to finance the projects. So there is no point to the foreign borrowing.

A Russian government that cannot understand this is in deep trouble.

(Republished from PaulCraigRoberts.org by permission of author or representative)
 
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  1. A great column. I hope it gets widely circulated especially in Russia.

    PCR and Michael Hudson are really hitting their stride here.

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  2. which set off an attack on the Brazilian currency, the cruziero

    Sorry, any article that states that the currency of Brazil is the cruzeiro lacks credibility. The Real was introduced in 1994.

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  3. @Alemaobaiano

    which set off an attack on the Brazilian currency, the cruziero
     
    Sorry, any article that states that the currency of Brazil is the cruzeiro lacks credibility. The Real was introduced in 1994.

    Good catch.

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  4. That IS a surprising mistake. But an older person who was accustomed to the currency being the cruzeiro might slip and refer to that former currency even though they know on reflection that the Brazilian currency is now the real.

    PCR is too collectivist for me, but I enjoy his writing and appreciate his critique of the corruption, hypocrisy, and brutality of the us and other “civilized” governments.

    As for printing money out of thin air that is not backed by tangible goods deemed valuable (such as gold or silver) and is not backed by an increase in production of goods and services, it’s hard to see how that doesn’t cause price inflation. Essentially, the Russian people will pay for the supposedly free money by paying higher prices in daily life, eroding the purchasing power of their wages / salaries.

    Of course this has happened on an ongoing basis in the USA and all the other allegedly “free” and “free market” places, too, and we western consumers have paid the price through erosion of the purchasing power of our salaries too.

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    • Replies: @Orville H. Larson
    "PCR is too collectivist for me, but I enjoy his writing and appreciate his critique of the corruption, hypocrisy, and brutality of the us and other 'civilized' governments."

    You're right.
  5. Boris N says:

    Putin is a careful and thoughtful leader of Russia, but he is not an economist. He has confidence in neoliberal Elvira Nabiulina, Washington’s choice to head the Russian central bank.

    Nabiulina, an indoctrinated and propagandized neoliberal, is essentially a servant of Washington

    I always wonder how people can say such contradictory statements and still not to understand what they’re saying. How can they praise and admire Putin and at the same time loathe his minions? If the Russian government is infiltrated by neo-liberal “servants of Washington”, then the problem is not them, the problem is Putin. Why is it so difficult for people to make just one step and to reach this obvious and simple deduction? How can they be so blinded by Putin?

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    • Replies: @Andrei Martyanov

    How can they be so blinded by Putin?
     
    By far not all are blinded. One of the main (well documented) motives in my blog is that I don't like Putin. I do admit his successes and I did forgive him for some things after Crimea, but Putin is a liberal. It was his appointee--a moron and a thief--Anatoly Serdyukov who almost destroyed Russia's military-a process, thankfully, reversed after Shoigu's arrival. What people fail to recognize is that Putin, or Medvedev, or Kudrin are all humanities-"educated" people who have been barely subjected to the intricacies of national might as related to the real economy which in one phrase can be defined as a machine building complex. Only recently did Putin begin to grasp that, namely after 08-08-08.
    , @KA
    Don't have to travel too far . You will find your answer here in Obama administration . Some would say same regarding Bush it's 1st administration. Both were hijacked . Obama's is still.
  6. crobert says:

    There is no currency mentioned on PCR’s site. Just “Brazilian currency.”

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  7. Andrei Martyanov [AKA "SmoothieX12"] says: • Website
    @Boris N

    Putin is a careful and thoughtful leader of Russia, but he is not an economist. He has confidence in neoliberal Elvira Nabiulina, Washington’s choice to head the Russian central bank.
     

    Nabiulina, an indoctrinated and propagandized neoliberal, is essentially a servant of Washington
     
    I always wonder how people can say such contradictory statements and still not to understand what they're saying. How can they praise and admire Putin and at the same time loathe his minions? If the Russian government is infiltrated by neo-liberal "servants of Washington", then the problem is not them, the problem is Putin. Why is it so difficult for people to make just one step and to reach this obvious and simple deduction? How can they be so blinded by Putin?

    How can they be so blinded by Putin?

    By far not all are blinded. One of the main (well documented) motives in my blog is that I don’t like Putin. I do admit his successes and I did forgive him for some things after Crimea, but Putin is a liberal. It was his appointee–a moron and a thief–Anatoly Serdyukov who almost destroyed Russia’s military-a process, thankfully, reversed after Shoigu’s arrival. What people fail to recognize is that Putin, or Medvedev, or Kudrin are all humanities-”educated” people who have been barely subjected to the intricacies of national might as related to the real economy which in one phrase can be defined as a machine building complex. Only recently did Putin begin to grasp that, namely after 08-08-08.

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  8. Andrei Martyanov [AKA "SmoothieX12"] says: • Website

    A Russian government that cannot understand this is in deep trouble.

    There is a popular theory (not without merit, I have to say) that currently Medvedev’s government must be viewed as merely a technical one, a government of bookkeepers and paper pushers. This theory becomes plausible when one considers that Putin ordered Stolypin’s Club to develop the program of economic development and it does differ from Kudrin’s “approach”. Who knows, we’ll see it, hopefully, in early 2017 when Putin will make a choice between the two and the choice he must make. For now, Russia’s current government is, indeed, a good facade for the consumption of Western “elites” who, as of lately, are not burdened with intellect. Geopolitical reality, however, may have its own say in all this and Putin is known to be able to make an unexpected moves–this can not be denied.

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  9. KA says:
    @Boris N

    Putin is a careful and thoughtful leader of Russia, but he is not an economist. He has confidence in neoliberal Elvira Nabiulina, Washington’s choice to head the Russian central bank.
     

    Nabiulina, an indoctrinated and propagandized neoliberal, is essentially a servant of Washington
     
    I always wonder how people can say such contradictory statements and still not to understand what they're saying. How can they praise and admire Putin and at the same time loathe his minions? If the Russian government is infiltrated by neo-liberal "servants of Washington", then the problem is not them, the problem is Putin. Why is it so difficult for people to make just one step and to reach this obvious and simple deduction? How can they be so blinded by Putin?

    Don’t have to travel too far . You will find your answer here in Obama administration . Some would say same regarding Bush it’s 1st administration. Both were hijacked . Obama’s is still.

    Read More
  10. anon says: • Disclaimer

    Roussef and his party did not represent the Brazilian people, but only a corrupt political clique. Buy an oil refinery in Pasadena the price is overrated act in the Brazilian people interest? Or act against American interests?

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  11. @RadicalCenter
    That IS a surprising mistake. But an older person who was accustomed to the currency being the cruzeiro might slip and refer to that former currency even though they know on reflection that the Brazilian currency is now the real.

    PCR is too collectivist for me, but I enjoy his writing and appreciate his critique of the corruption, hypocrisy, and brutality of the us and other "civilized" governments.

    As for printing money out of thin air that is not backed by tangible goods deemed valuable (such as gold or silver) and is not backed by an increase in production of goods and services, it's hard to see how that doesn't cause price inflation. Essentially, the Russian people will pay for the supposedly free money by paying higher prices in daily life, eroding the purchasing power of their wages / salaries.

    Of course this has happened on an ongoing basis in the USA and all the other allegedly "free" and "free market" places, too, and we western consumers have paid the price through erosion of the purchasing power of our salaries too.

    “PCR is too collectivist for me, but I enjoy his writing and appreciate his critique of the corruption, hypocrisy, and brutality of the us and other ‘civilized’ governments.”

    You’re right.

    Read More
  12. “As long as the money, whatever its source, is used productively, the money is not inflationary.”

    This statement is utter bunk without careful qualification. Any increase in the money supply will result in inflation unless the amount of goods increases at the same rate. Roberts is nothing if not sloppy.

    Putin is learning nothing, alas. There is really little for him to learn from Brazil as he has no need to fear he will be brought to book for his corruption, of which there is plenty. The Russian regime is a little more than a mafia state, and Putin, after the recent victory in rigged elections, is now working to establish a regime that will be entirely under his control.

    Rousseff was righteously convicted for her corruption, and removed from office. The system function exactly as it was designed to function.

    Roberts, it’s time to back off a bit. There are people that need the aluminum foil you’re sucking up.

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  13. putin should learn from china, especially on economy. russia should have a much, much easier time too since it is super rich in natural resources.

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  14. Sam J. says:

    The present system of creating currency is unstable. All currency is created by debt. So to pay off the debt you have to…create more debt. Obviously the system is unsustainable. If all the debt was paid off we would have NO money as all money is debt created. It’s stupid. It was designed this way so the people creating the money would eventually own everything. If they create the money and everyone else goes in debt to get it then they are the ones that own everything. Get it?

    I know you’re thinking I’m an idiot to say what I said above. It can’t possibly be this way but it is. It’s a total rip off and ignorant to create money this way.

    There’s nothing wrong with creating money from thin air with no debt if you don’t over do it. It’s actually more stable. Why? Money created with debt as said before can NEVER be paid off. Never. Money from thin air is exactly how we create money now except we pay bankers to create it and go into debt to them.

    The idea that it’s more inflationary than the current system is incorrect. Debt based money is MORE inflationary. Why? All bonds can be used to create more money using the bonds as collateral. Therefore all debt can be monetized immediately into more money. It’s already currency even though it’s debt. If you just issue currency then it can not be monetized further as it’s already monetized and there’s no debt to pay. Also if you are not using debt based money if there is inflation it turns up rapidly. It has a shorter feedback loop. Debt based systems have a huge lag that is hard to compensate for.

    The present system is about to end. They are going to do the exact same debt trick but this time they’re going to go global and call it the Special Drawing Rights(SDR). A big mistake for us to get into this. Just more banker manipulation with less local control of the currency. Greece world wide.

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