Glazyev's set of countermeasures specifically targets the core strength of the US war machine, i.e. the Fed's printing press. Putin's advisor proposes the creation of a "broad anti-dollar alliance" of countries willing and able to drop the dollar from their international trade.
Glazyev does not know how finance works.
- The Fed (and other central banks) don't print money. (Zero Hedge does not know how finance works, either.) Dollar finance comes from Wall Street and the ten- or so large banks that do most of dollar lending. Central banks cannot make unsecured loans, if they do their entire financing regime collapses.
- If countries cannot issue their own credit in their own currency they must use some other country's currency or remain undeveloped. It is the provision of credit -- over time -- that determines if a country industrializes or not. Countries are forced to borrow overseas because they lack the infrastructure needed to create their own, organic credit.
- If borrowing countries do not use the dollar they must use some other credit issuer's currency such as pound-sterling, euro or yen. These are reserve currencies.
- International credit providers issue reserve currency: in the main, borrowers use some of the foreign currency for trade and hold the rest as 'reserves'; amounts in excess of that needed for day-to-day operations. Reserve currencies are issued by nations that run ongoing trade deficits ... which is how the currencies are distributed into circulation. The US not only is the world's greatest credit provider but up until recently the world's consumer of last resort.
- At the same time, dollar reserves are good for the dollar importers: funds gained by way of trade are used as collateral for the issuance of the country's own currency, doubling purchasing power in the process. Spurning dollars is self-defeating for Russia: fewer dollars means shrinking purchasing power in roubles => bankruptcy as roubles become too scarce- or worth too little to be used to service rouble-denominated debts.
- Well managed countries with necessary credit infrastructure are not reserve currency providers when they are too small: Switzerland, Singapore, Taiwan.
- Nations borrow foreign currency if they cannot provide credit in their own, or they rely on foreign currency to set the price of their own so as to maintain a mercantile trade advantage. Foreign currency is borrowed to manage currency costs associated with trade between countries with illiquid currencies, such as between Malaysia and india.
Because Russia is a petro-state it has no choice but to accept foreign currencies. These are shuffled to elites who remove them from Russia for their own use: mansions in London and New York, mega-yachts, artworks, etc. Losers are ordinary Russian citizens who have little access to foreign exchange but are stuck with increasing rouble debts on one hand, diminished ability to service and retire them on the other. Tycoons borrow which is how they become tycoons, they compel or trick others to repay. Whether the others struggle to do so is irrelevant to the tycoons.
The advantage of dollars is they are always available on the world's currency markets in any quantity, also there is a vast, liquid US bond market where dollars can be swapped for interest-bearing bonds on demand. Europe's bond market is wildly distorted due to absent risk premium; the yen bond market is broken; sterling market is too small relative to the size of Russian fuel trade ... that leaves the dollar as default. No dollar and Russia cannot sell its fuel without offering a big discount = bankruptcy for underwater Russian drillers.
BTW: neither Russia nor China are credit providers, they lack needed infrastructure components. On the plus side: they both have their own currencies, China has a strong banking system, Russia does not; both countries have central bank lenders of last resort, both have treasuries able to issue debt, that is, both countries' governments borrow. On the minus side: yuan does not trade freely on currency exchange markets, the rouble not at all; Russia has no bond market and China's is constricted; Russia recognizes private property, China to a modest extent; neither country is possessed of the rule of law; there are no enforceable contracts in either country. Loans in roubles and yuan tend to be predatory and one-sided with little-or-no recourse for borrowers, both governments are autocratic, jurisprudence is arbitrary and/or farcical, there are no useful courts or redress or means to settle disputes, both countries are absolutely and totally corrupt from top to bottom. China pegs its currency to the dollar and maintains the peg by purchasing US securities to secure the trade advantage. Both depend on dollar- and euro loans to keep their massive cost structures afloat.
Any sort of energy conservation policy in this country would crush both economies along with those of other autocrats in Saudia, Iran, across the Middle East and elsewhere. The autocrats blow up- grasp at straws because there is inadvertent conservation by other means.
Outside of oil and gas Russia has little to offer anyone, including its own citizens. Russia = empty, bored and dispirited country. Why the government chose to start an adventure in Ukraine is unknown but no smarter than the US govt adventure begun in the Middle East. Perhaps the Russians want to repeat American errors. After decades of Soviet failure and ennui Russians find themselves engulfed in post-Soviet Putinista version larded with the same hollow, nationalist rhetoric. The difference between Soviets and Putin is the latter has no ideals to promote, no chains of history to break, not even ideology. Instead, there is steady decay and fear of what comes next.
The 'super deal' between Russia and China will not bear fruit for another ten years. It is not likely there will be any gas to ship to China nor industries in China to use the gas in ten years.
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Topic: Putin Advisor Proposes "Anti-Dollar Alliance" To Halt US Aggression Abroad (Read 12375 times)
August 02, 2014, 05:03:15 PM