Stan Goff
June 12, 2006
Some days you eat the bear, and some days the bear eats you.
-Anonymous
MOSCOW, May 10 (RIA Novosti) - Russian President Vladimir Putin called Wednesday for work on making the national currency convertible to be completed, oil and gas to be traded in rubles on a domestic exchange, and an innovation-based economy.
In his annual state of the nation address before both houses of parliament, ministers and reporters, the president also said human rights and freedoms had to be upheld to ensure economic growth and corruption had to be eradicated for the good of the nation.
Putin said work on making the national currency fully convertible should be completed by July 1, almost six months ahead of the original January 1, 2007 deadline.
“In my address of 2003, I set the goal of making the ruble convertible,” Putin said. “I must say the [outlined] plans are being implemented.”
In an effort to promote the national currency, the president called for the establishment of a ruble-denominated oil and natural gas stock exchange in Russia.
“The ruble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles,” he said.
“Our goods are traded on global markets. Why are not they traded in Russia?” Putin said.
It’s June 2006, and we are watching the Zarqawi-is-dead Triumphal Follies, another iteration of the monotonous we-have-turned-the-corner-in-Iraq script. It is so shopworn at this point that not even the Bush administration seems to be able to deliver its lines with the perfidious zest of yesteryear. The World Cup is beating Zarqawi on the blogs hands down, and the latest Ann Coulter outrage is already in the passing lane. Brad and Angelina’s baby is right on Coulter’s bumper. There’s no reason, really, that anyone would pay much attention to the dour ex-apparatchik Vladimir Putin.
What bleeds, leads, as they say in entertainment journalism.
Convertible currencies? Is that a new kind of car?
In October 2003, Henry C. K. Liu of Liu Investments wrote:
When the US Treasury sells treasuries, it drains money from the money supply, unless the government immediate spends the proceeds, in which case it is a wash. When private holders of treasuries, the sellers take someone’s dollars and put it back mostly from whence the dollars came, i.e. the banks. The net result is the dollar account of the buyers is debited while the seller account is credited. The amount of dollars remain the same, unless the seller is the US Treasury.
When someone sells oil for Russian rubles instead of dollars, and that someone can spend the rubles without first changing them into dollars, i.e., all who live inside rubles zones, then it is a drain in the dollar monetization of oil. That shrinkage shrinks the dollar economy. This works only for large economies, like Russia, which exports oil and needs not import many other commodities. This does not work for the euro zone because the euro zone imports too much oil. When oil is denominated in euros, most of the holders of petroeuros will be outside of the euro zone and would have to convert their euros to dollars to get maximum flexibility. Russians holding euros gain no advantage over holding dollars, outside of short-term speculative plays. Russia’s holding more rubles from the sale of oil instead of dollars will strengthen the Russian (ruble) economy in a structural way, even if Russian has to sell rubles for dollars from time to time. The currency market is merely a mechanical venue that reflects these fundamentals.
In December 2002, I wrote:
Perhaps even more canny than the Chinese (who behind all their subtlety still harbor a naive and unquestioning faith in the chimera of “development”) are the Russians, smiling smiling smiling… over their bitter, wounded nationalism, their vengeful revulsion at American culture, with the seeds of humiliation growing malignantly in their political soil.
I have this on pretty good authority from a man who communicates quite regularly with top bureaucrats in Russia. The Russians want nothing less than the end of US imperialism.
And like one of the hostages in the room with the drowsy captor, they proclaim dedication to Christendom, even as they ever so cautiously subvert Bush diplomatically and politically.
Ever so often Bush shakes himself awake, and the hostage steps back, coos and makes comforting noises, but stays watchful… very watchful.
Russia is not alone in being a country that owns US debt, and in owning that debt has become its captive. But Russia is the only one of the countries in that position that still has thousands of intercontinental ballistic missiles tipped with nuclear warheads. In a global system where the single dominant country’s power can be characterized as military-monetary, it makes a difference.
The Chicken Littles have been in a panic about the US attacking Iran. I have consistently said is nonsense. One of the reasons offered as a motive for taking an action that would result in the summary defeat of US forces in Iraq was the Iranian oil bourse. There is a notion that Iranians denominating their oil market in Euros will somehow undermine the dollar as global base currency. This might be the case if Euroland had enough oil and priced oil in Euros itself, but Euroland has hardly any… oil. Iranians pricing oil in Euros still will not enable Euroland to run printing presses like the US does, which pays for its drunkenly lavish military adventures by loaning money to other countries that it has not the least intention of every paying back.
But Russia has oil… quite a lot of it actually, making it the second biggest exporter on the planet right now. Russia pricing oil in Euros is not scary to Wall Street or Washington. Russia pricing oil in rubles is putting folks there in a warlike state of mind, however. Russia is also the world’s biggest exporter of natural gas.
The bear is a bear.
Secretary of State Condoleeza Rice was hired, prior to 9-11, for her credentials as a Russia expert. The US wanted to finish Russia off after a decade of one of the deadliest thefts in living memory - the systematic looting of 70 years worth of progress that was paid for with grief and blood, not the least of which was the loss of 25 million souls in World War II in the main effort leading to the defeat of Hitler fascism.
Now Condi is globetrotting to put out the US-manufactured Iranian fire, while Dick Cheney vents his spleen on the Russians. That’s what bullies do when they have lost their edge and they are confronted. They vent. The administration has been venting, not surprisingly, about “democracy.”
Harvard economist, Kenneth Rogoff, writing for The Daily Times of Pakistan, notes, “Putin could start by pointing out to his smugly democratic counterparts that he is probably more popular in Russia today than any of them are in their own countries. He might actually win a fair election tomorrow (not that he would ever risk finding out). Few of the others could make the same claim with a straight face.”
What pissed Cheney off was Putin’s insistence that BP conduct its Russian natural gas investment activities through Gazprom, the state-owned natural gas company (since Putin wrested it out of the hands of US-sponsored “democracy-kleptocrats”). Putin realizes that he doesn’t need to deny foreign investors access to h is energy market; sovereign Russia has the right to charge rents for its natural resources. This doesn’t conform to the laws of larceny between the lines of neo-liberalism, but it is perfectly legal. If we did the same thing in the US - tax the use of natural resources at their real value - we wouldn’t need income taxes.
Of course, Cheney’s recent characterization of Russian sovereignty as “blackmail” is nothing more or less than a reaction to the news last month that within one to two years, Russia would make the ruble convertible as an international currency and price its energy exports in it. Now it appears the change my come in July. A ruble-denominated Russian oil bourse.
Denominating oil in rubles, when there is lots of oil in ruble-land, is a tectonic shift in the strategic disposition of the Energy War that went hot March 20, 2003. The demand for rubles will become very strong throughout the world, and in this case, the dollar will be challenged. Putin has very skillfully maneuvered Russia to regain its international status, this time as a financial player that can challenge the US.
The petro-Euro was a chimera. The petro-ruble may well not be.
As F. William Engdahl explained recently in an article for The Centre for Research on Globalisation (”No, the Iran Oil Bourse is not a casus belli…”)
In order for the Euro to begin to challenge the reserve role of the US dollar a virtual revolution in policy would have to take place in Euroland. First the European Central Bank, the institutionalized, undemocratic institution created by the Maastricht Treaty in order to maintain the power of creditor banks in collecting their debts, would have to surrender power to elected legislators. It would then have to turn on the Euro printing presses and print Euros like there was no tomorrow. That is because the current size of the publicly-traded Euroland government bond market is still tiny in comparison with the huge US Treasury market.
Russian oil, priced in rubles, will create a plenty big demand for rubles… and the Russian bond market is not being constrained by Maastricht. Russia has also announced that it is about to use $40 billion US to purchase the ultimate specie - gold. Something is afoot.
Ever since the US quit backing its currency with gold in the early 70s, it has backed the dollar with naval battle groups, fighter-bombers, a million soldiers, and nuclear weapons. Ever since September 11, 2001, we have known that this “specie” can be bypassed by wit and will. A lot of fictions were lost in the rubble of the World Trade Center.
Russia’s post-Soviet military budget is still recovering from the near-fatal cannibalism of theft under Yeltsin and his American supporters, and 2006 spending will be around $20 billion, a mere fraction of pre-1989 levels, and tiny fraction of the hundreds of billions spent by the US. But while Russia buys gold, which will give it the capacity to defend the ruble without a stack of US Treasury bills in the vaults of its central bank, Russia still has a nuclear umbrella. Russia is not maintaining a global military presence on 800+ military installations around the world.
Being in check this way enrages the Bush entourage. They are sloppy geopoliticians, who play the game with a gun on the table. So staggering is their hypocrisy that they express their rage in the language of “human rights.”
When Putin moved against the chief Yelstinite kleptocrats in 2003, most dramatically by arresting Mikhail Khodorkovsky, the richest man in Russia, head of Menatep Bank - that was facilitating fraud and capital flight to the tune of billions each year - and Yukos Oil, the press portrayed this as some kind of tsarist power play. It was, however, above all, about reconstituting the basis for Russian autarky.
In 2000, Bernard Black , Reinier Kraakman , and Anna Tarassova, writing for the Stanford Law Review, (”Russian privatization and corporate governance: what went wrong?”) described Khodorkovsky capitalism:
Bank Menatep (controlled by kleptocrat Mikhail Khodorkovski) acquired Yukos, a major Russian oil holding company, in 1995. For 1996, Yukos’ financial statements show revenue of $8.60 per barrel of oil–about $4 per barrel less than it should have been.(5) Khodorkovski skimmed over 30 cents per dollar of revenue while stiffing his workers on wages, defaulting on tax payments, destroying the value of minority shares in Yukos and its production subsidiaries, and not reinvesting in Yukos’ oil fields.
It’s doubtful that running Yukos honestly could have earned Khodorkovski a fraction of what he earned by skimming revenue, let alone offshore and tax-free. He made a rational, privately value-maximizing choice. Even if running Yukos honestly was the best long-run strategy, Khodorkovski might have preferred present profit over future uncertainty. Besides, skimming was a business that he knew, while oil production was a tough business that he might fail in.
Vice President Dick Cheney recently went off his meds long enough to yet again make a total ass of himself with the claim that Russia had “restricted the rights of her people” (like Khodorkovsky, e.g.), then followed his exclamation with an accusation of “energy blackmail.” Ah, truth ventilated with anger! The Russians are treating Russian oil as if it were their own. The chutzpah!
In December 2004, Yukos main production unit, Yuganskneftegaz, was auctioned for $28 billion in back taxes, and summarily bought up by Rosneft, the Russian state oil company. Putin, ever the canny KGB operative, had outmaneuvered Yeltsin’s kleptocrats and their US sponsors in a most decisive way.
When Putin attended St. Petersburg Mining Institute, his dissertation was entitled: “Toward a Russian Transnational Energy Company.” In this dissertation, Putin outlined how Russia might integrate geopolitics with energy. When George W. Bush first gazed into Putin’s eyes and saw his brother, it’s a good bet he didn’t see this. Bush refuses to even read his cabinet’s memos.
In November 2000, Richard Haas, a national security analyst who would later be promptly hired by the incoming Bush administration, noted that the US - in the wake of the collapse of the Warsaw Pact - had a “surplus of power” - an interesting phrase on its own account - and that the US should use that surplus (reflecting the investment capital metaphor) to secure American geo-strategic power for the next historical period… “the New American Century,” to coin a phrase.
The post-Cold War strategy to go on the global offensive was characterized by Republicans and Democrats alike as “going from containment to enlargement.” There are multiple ironies here not to be missed. The centrality of Russia to Cold War containment policy was to become the marginalization of Russia - and its pillage - in the Cold War’s aftermath. And the “surplus of power” (meaning military power) has now proven a deficit, tactically as the US is tied down in Iraq, and literally in the massive foreign debt (owned mostly by Japan and China) required to merely survive while remaining in the Persian Gulf quagmire.
With the military pole of American power stalemated in Iraq - and Afghanistan now experiencing a significant Taliban military resurgence - the convertible ruble will place the monetary pole of that power - dollar hegemony - in dire jeopardy. Two countries that are intensely hungry for fresh energy inputs, and therefore likely to be attracted by the magnetic field of a petro-ruble, are Japan and China. Collectively, these two nations now own nearly a trillion dollars of US debt, stored primarily as Treasury Bills held in central banks. Both are also aware that the US has neither the ability nor the intention of paying these debts.
The essential principle is if you owe the bank a thousand dollars, you have a problem. If you owe the bank a million dollars, the bank has a problem.
This pretending by China and the rest that the dollar-emperor is fully clothed is a fiction to protect the value in central bank reserves; and it allows the US to finance its wars by running a printing press. (This is something the US left largely fails to grasp - at its own peril - when it fetishizes currency with the purely polemical claim that money spent on the war is being diverted from social services. This is blatantly not the case, and when the proverbial chickens come home to roost, the left that employed this convenient fallacy will be as hard put to explain itself as the right… with more disastrous consequences, because the left will be most needed at exactly the time its own earlier opportunism on this matter undermines its credibility.)
At the beginning of Fiscal Year 2006 (October 2005) the US Federal Reserve, in response to eroding confidence in the dollar, quietly suspended publication of the M3 - an account of currency supplies. In the preceding quarter, US growth was approximately one percent. Yet the US printed $320 billion in new currency. The suspension of M3 publication is part of a strategy of “dilution” with what is called by some, “monkey currency,” currency un-backed by actual production.
This is a desperately defensive maneuver by the Bush administration designed to “dilute” US debt - in terms of its actual purchasing power - in advance of a generalized stampede away from it. Strategic devaluation of the dollar can wipe out the purchasing power of the US dollars owed to foreign creditors. But it is a race to the bottom, with each participant in the race seeking to limit the damage as opposed to win a prize.
LEAP/E2020, a pan-European think tank, recently called this “a monetary creation of unequalled proportion, leading to a dilution of the American debt in an ocean of Dollars.”
On the part of US debt owners, there has been a diversification into Euros as a counter-defensive measure, but the opening of a ruble-denominated oil bourse in Russia constitutes a shift in quality, not merely quantity, with regard to the capacity of these counter-defenses. Europeans own a substantial amount of US debt, too, and they buy massive quantities of Russian oil and gas. That’s what convertible means - rubles can be bought in exchange for dollars… quickly and eassily.
This defensive liquidity by the Bush administration is further required, as elections approach, to push back the wolves of the housing bubble that are closing in around the campfire. The basis of the so-called recovery in the US is almost entirely financed by fictional value embodied in real estate inflation, and the mindlessly gluttonous epidemic of equity loans passed along to the indebted US “middle” class when the Fed dropped interest rates to near zero in order to allow US banks to pass along their considerable debts and crappy investment costs to customers.
None of this can be very reassuring to anyone in the US who understands that the campaign to bankrupt out of private pensions, and privatize public ones, including Social Security, is a mechanism for big capital to dump bad debt onto the heads of the general population. The motivation for transferring Social Security, for example, into private accounts is to let the value of private investments fall to deflate value-bubbles while allowing the government to evade responsibility. This, when the national debt is now the equivalent of $28,000 for every man, woman, and child in the Untied States, and we have the lowest private saving rates since the Great Depression.
Unfortunately, few Americans understand anything at all about any of this, which is why these arcane machinations can go on in an election year without a ripple of concern, while we skip, as aimless as we are carefree, into the treacherous peat bog of ours and our children’s future.
As shown in the Iraq crisis, but also in numerous scientific cases such as global climate warming, the Bush administration has a rather complex relationship to the truth, and many analysts now wonder about the reliability of US economic and financial statistics.
-LEAP/EU2020
Yes, of course. But lying is not a solitary activity. Someone has to be lied to. That would be what politicians like to call, amorphously, “the American people.”
They haven’t a clue that the ruble-denominated oil bourse is the latest campaign in the Energy War. They have American Idol.
As in many of our wars, while the American public remains largely ignorant of the character of the war, those outside the US are deeply engaged.
The US media doesn’t report on oil bourses to the general public, and if one asked a stranger in the street what the Shanghai Cooperation Organization (SCO) is, they would give you the same stare you might get from a swine staring at a wristwatch.
For anyone who thinks history began afresh with the September 11 attacks, the SCO was founded June 15, 2001. The Energy War was in motion well before the attacks, but the inauguration of George W. Bush, with his energy Iago, Cheney, was a profound escalation. The National Energy Policy Development Group (NEPDG) with Dick Cheney as its chairman became more popularly known as the Cheney Energy Task Force. It was founded almost as the Bush administration took office. When Congress asked to review who was on the Task Force, as well as with whom the Task Force was talking, Cheney invoked Executive Privilege, launching a power struggle between the Executive and Legislative Branches.
The dispute over release of the information is ongoing, but we do now know that the Task Force met with and received detailed policy proposals submitted by Bechtel, Chevron, American Coal Company, Small Refiners Association, the Coal Council, CSX, Kerr-McGee, Nuclear Energy Institute, the National Mining Association, General Motors, the National Petroleum Council, Barbour, Griffith & Rogers (an energy lobby firm), and… Enron Corporation. It is quite probable that Halliburton participated as well. The Task Force certainly included representation from the Secretary of Defense. The Department of Commerce managed to free some of the Task Force documents into the public, and prominent among them were maps of Iraq and an apparent preoccupation with “foreign suitors for Iraqi oil-field contracts.”
The Russians and the Chinese don’t find American energy policy nearly as boring as the American public, and both had noted - with consternation - that the North Atlantic Treaty Organization (NATO), a military alliance originally conceived of as a means to confront the Warsaw Pact has failed to “wither away” when the Warsaw Pact abruptly discorporated in 1990. That’s why, within 18 months after the Bush inauguration, the SCO was born. The Bush administration put an end to the historic rivalry between Russia and China, and it won the Iran-Iraq War… for Iran.
On June 12, 2006, Radio Free Europe, a fully owned subsidiary of the US State Department ran a headline that asked, ominously, “Does the road to Shanghai run through Tehran?”
The SCO will soon celebrate its fifth anniversary with a summit of member states’ leaders in Shanghai on June 15. Last year’s summit, in Kazakhstan, was notable for a declaration asking members of the “antiterrorist coalition” to provide a time frame for the withdrawal of military forces from SCO territory. It was a pointed reference to U.S. military bases in Uzbekistan and Kyrgyzstan. Only two weeks later, Uzbekistan evicted the United States from its Karshi-Khanabad air base.
This year, the summit will open against a backdrop of reports that Iran, which currently holds observer status in the SCO (along with India, Mongolia, and Pakistan), is looking to become a full-fledged member.
US Secretary of War Donald Rumsfeld, exercising the blurt-propensity of this administration, noted that it is “passing strange that one would want to bring into an organization that says it is against terrorism one of the leading terrorist nations in the world.” They hate being outmaneuvered, even though they have proven very good at it, and they are becoming masters of the “liar’s tell.”
The SCO is led by China and Russia, who are both deepening their relations with each other and with Iran, the latter of which has emerged as a pivotal power in Southwest Asia as a direct result of US blunders in Iraq.
What’s interesting about the SCO is how often it has felt obliged to deny that it is a new counterweight to NATO (which is now running the war in Afghanistan, in Russia and China’s back yards). Officials from the SCO had to say explicitly that they were not “a NATO clone.” Moreover, their economic and security cooperation was not expansionary. Ha! Until April 2006, when members Russia, China, Kazakhstan, Kyrgystan, Tajikistan and Uzbekistan announced they would be joined soon by Mongolia, Iran, Pakistan, and… India.
I have long said that military success is not measured at the end of the road by tactical, but by political, outcomes.
“What do you mean by that?” I am asked. Now I will answer.
NATO Is big; but with the membership of India and the rest, the SCO will represent nearly 2.8 billion people. The militarized and unilateral foreign policy of the Bush administration has paved the way for the rise of an SCO that includes Iran - a power now because of the Bush war in Iraq, and owner of massive oil reserves that lack the refining capacity with which Russia and China can assist, China - that has systematically hollowed out US manufacturing capacity, and Russia - positioned now to use its new oil bourse to challenge dollar hegemony and rebuild its armed forces on the doorstep of an entrapped US military presence on the strategic spur of Eurasia.
Bush played checkers. Putin played chess.
Some days you eat the bear. Some days the bear eats you.