"Sergey Glazyev: ‘The road to financial multipolarity will be long and rocky’" by Pepe Escobar

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Source: The Cradle

Sergey Glazyev: ‘The road to financial multipolarity will be long and rocky’

In an exclusive interview with The Cradle, Russia's top macroeconomics strategist criticizes Moscow's slow pace of financial reform and warns there will be no new global currency without Beijing.

By Pepe Escobar   March 13, 2023

Photo Credit: The Cradle

The headquarters of the Eurasian Economic Commission (EEC) in Moscow, linked to the Eurasia Economic Union (EAEU) is arguably one of the most crucial nodes of the emerging multipolar world.

That’s where I was received by Minister of Integration and Macroeconomics Sergey Glazyev – who was previously interviewed in detail by The Cradle –  for an exclusive, expanded discussion on the geoeconomics of multipolarity.

Glazyev was joined by his top economic advisor Dmitry Mityaev, who is also the secretary of the Eurasian Economic Commission’s (EEC) science and technology council. The EAEU and EEC are formed by Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. The group is currently engaged in establishing a series of free trade agreements with nations from West Asia to Southeast Asia.

Our conversation was unscripted, free flowing and straight to the point. I had initially proposed some talking points revolving around discussions between the EAEU and China on designing a new gold/commodities-based currency bypassing the US dollar, and how it would be realistically possible to have the EAEU, the Shanghai Cooperation Organization (SCO), and BRICS+ to adopt the same currency design.

Glazyev and Mityaev were completely frank and also asked questions on the Global South. As much as extremely sensitive political issues should remain off the record, what they said about the road towards multipolarity was quite sobering – in fact realpolitik-based.

Glazyev stressed that the EEC cannot ask for member states to adopt specific economic policies. There are indeed serious proposals on the design of a new currency, but the ultimate decision rests on the leaders of the five permanent members. That implies political will – ultimately to be engineered by Russia, which is responsible for over 80 percent of EAEU trade.

It’s quite possible that a renewed impetus may come after the visit of Chinese President Xi Jinping to Moscow on March 21, where he will hold in-depth strategic talks with Russian President Vladimir Putin.

On the war in Ukraine, Glazyev stressed that as it stands, China is profiting handsomely, as its economy has not been sanctioned – at least not yet – by US/EU and Beijing is buying Russian oil and gas at heavily discounted prices. The funds Russians are losing in terms of selling energy to the EU will have to be compensated by the proposed Power of Siberia II pipeline that will run from Russia to China, via Mongolia – but that will take a few more years.

Glazyev sketched the possibility of a similar debate on a new currency taking place inside the Shanghai Cooperation Organization (SCO) – yet the obstacles could be even stronger. Once again, that will depend on political will, in this case by Russia-China: a joint decision by Xi and Putin, with crucial input by India – and as Iran becomes a full member, also energy-rich Tehran.

What is realistic so far is increasing bilateral trade in their own currencies, as in the Russia-China, Russia-India, Iran-India, Russia-Iran, and China-Iran cases.

Essentially, Glazyev does not see heavily sanctioned Russia taking a leadership role in setting up a new global financial system. That may fall to China’s Global Security Initiative. The division into two blocs seems inevitable: the dollarized zone – with its inbuilt eurozone – in contrast with the Global South majority with a new financial system and new trading currency for international trade. Domestically, individual nations will keep doing business in their own national currencies.

The road to ‘de-offshorization’

Glazyev has always been a fierce critic of the Russian Central Bank, and he did voice his misgivings – echoing his book The Last World War. He never ceases to stress that the American rationale is to damage the Russian economy on every front, while the motives of the Russian Central Bank usually raise “serious questions.”

He said that quite a few detailed proposals to reorient the Central Bank have been sent to Putin, but there has been no follow-up. He also evoked the extremely delicate theme of corruption involving key oligarchs who, for inscrutable reasons, have not been sidelined by the Kremlin.

Glazyev had warned for years that it was imperative for Moscow to sell out foreign exchange assets placed in the US, Britain, France, Germany, and others which later ended up unleashing sanctions against Russia.

These assets should have been replaced by investments in gold and other precious metals; stocks of highly liquid commodity values; in securities of the EAEU, SCO, and BRICS member states; and in the capital of international organizations with Russian participation, such as the Eurasian Development Bank, the CIS Interstate Bank, and the BRICS Development Bank.

It seems that the Kremlin at least is now fully aware of the importance of expanding infrastructure for supporting Russian exports. That includes creating international exchange trading marketplaces for trade in Russian primary goods within Russian jurisdiction, and in rubles; and creating international sales and service networks for Russian goods with high added value.

For Russia, says Glazyev, the key challenge ahead in monetary policy is to modernize credit. And to prevent negative impact by foreign financial sources, the key is domestic monetization –  “including expansion of long and medium-term refinancing of commercial banks against obligations of manufacturing enterprises and authorized government bodies. It is also advisable to consistently replace foreign borrowings of state- controlled banks and corporations with domestic sources of credit.”

So the imperative way to Russia, now in effect, is “de-offshorization.” Which essentially means getting rid of a “super-critical dependence of its reproduction contours on Anglo-Saxon legal and financial institutions,” something that entails “systematic losses of the Russian financial system merely on the difference in profitability between the borrowed and the placed capital.”

What Glazyev repeatedly emphasized is that as long as there’s no reform of the Russian Central Bank, any serious discussion about a new Global South-adopted currency faces insurmountable odds. The Chinese, heavily interlinked with the global financial system, may start having new ideas now that Xi Jinping, on the record, and unprecedentedly, has defined the US-provoked Hybrid War against China for what it is, and has named names: it’s an American operation.

What seems to be crystal clear is that the path toward a new financial system designed essentially by Russia-China, and adopted by vast swathes of the Global South, will remain long, rocky, and extremely challenging. The discussions inside the EAEU and with the Chinese may extrapolate to the SCO and even towards BRICS+. But all will depend on political will and political capital jointly deployed by the Russia-China strategic partnership.

That’s why Xi’s visit to Moscow next week is so crucial. The leadership of both Moscow and Beijing, in sync, now seems to be fully aware of the two-front Hybrid War deployed by Washington.

This means their peer competitor strategic partnership – the ultimate anathema for the US-led Empire – can only prosper if they jointly deploy a complete set of measures: from instances of soft power to deepening trade and commerce in their own currencies, a basket of currencies, and a new reserve currency that is not hostage to the Bretton Woods system legitimizing western finance capitalism.

"Money Troubles" by James Howard Kunstler

 

Money Troubles

“As for the evil: It lurks in the interstices of our bureaucratic institutions, which, as they have grown in size and complexity since the nineteenth century, behave in ways that are increasingly impossible to understand and contrary to human flourishing.” — Eugyppius on Substack

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       Money is all theoretical… until it’s not. Paper money is bad enough, as France learned under the tutelage of the rascal John Law in the early 1700s. The nation was broke, exhausted by foolish wars, and heaped under unbearable debt. Monsieur Law, a Scottish genius-wizard (the Jerry Lewis of political economy), landed in Paris, cast a spell on the regent Duc d’Orléans, set up a magic credit engine fueled by dreams of untold riches-to-come burgeoning out of the vast, new-found lands called Louisiana up the Mississippi River, and modern finance was born!

       The stock-and-money schemes known as the Mississippi Bubble soon ruined France and put finance in such a bad odor that the word “banque” could not be used in polite society there for a century to come. Monetary inflation became a thing for the first time since Roman days — a much easier trick with printed paper banknotes than with silver coins — but the effect was the same: the evaporation of “wealth” (which is what money supposedly represents). At the height of the crisis, trading in gold was criminalized, though that was so easily worked-around due to sheer custom and habit that the Crown had to re-legalized it. The frenzy from start to finish lasted only a few years, but the nation was set on the path that would eventually lead to revolution. Law ended his days dolefully running card games in Venice.

      Likewise, the creaking polity called the USA in our time, spawned many new incarnations of John Law as it transitioned from being “the arsenal of democracy” — you know, making real things — to a land of make-believe, where unicorns galloped over rainbows conjured by computer magic and utopian wishes of equity, diversity, and inclusion. The overhang of previously amassed wealth kept those dreams going long after we discontinued the rough and messy business of making stuff, and thereby generating real wealth. But now a klaxon blares, signaling the end of dream-time, and the nation wakes up in a ramshackle house with the floor giving way under the bed.

      The rot was plain to see in the banking architecture built on US treasury paper (bills, notes, bonds) as rising interest rates undercut the price of all the debt paper issued previously at lower rates. And this was the collateral that banks generally held the depositor’s money in. So, when it became necessary to declare a problem with the balance sheet, and cash had to be raised to cover it, the treasury paper could only be sold at a loss, liabilities exceeded assets, word got out, depositors rushed to secure the money in their accounts, and that was all she wrote for yon bank, in this case, Silicon Valley Bank, the first to crumble.

      Since banks today exist in a vast matrix of interconnected obligations — promises to pay this-and-that — fear grows that the rot from one bank, such as SVB, will infect many other banks that are no longer able to keep their promises about paying this-and-that, leading to a daisy-chain of things not getting paid. For an economy, that’s about the same as the blood ceasing to circulate in a body.

      The practice in situations such as this (say, as in 2008-09) is for the governing authorities — who supposedly rule over the banking world like gods — to rush to rescue these outfits with “liquidity,” money (or representations of it) as required to re-balance things, or, maybe provide the impression of re-balancing until something else can be figured out. The Jupiter and Minerva of American banking, Jay Powell and Janet Yellen, were faced with just that sort of call for divine intervention over the weekend as fear seeped into every nook and crevice of the money world that wealth was flaring away in the long-feared-of conflagration out of the dumpster banking had become.

      Sunday morning, Ms. Yellen told CBS News “bailouts, no way” but by the afternoon Mr. Powell cried “bailouts, way,” and they had to get their story straight. They offered up $25-billion to bail out depositors for a smoldering system that will arguably require a trillion dollars or more of liquidity to quench the spreading fires. One thing looks for sure: the interest rate hikes that Mr. Powell spoke of so confidently only days go just got stashed into his folder labeled “Fuggeddabowdit.” So, the campaign to control inflation must now yield to the urgent need to create a whole lot of money to spray over those fires.

      You may have noticed that the value of your money has been slip-sliding away the past year or so. Peanut butter at five bucks a jar, and all. The situation at hand kind of guarantees that we’ll be seeing a whole ole lot more of that. And then the gods of money will have lost control of the interest rate console altogether. No more tweaking the broken knobs. More inflation will prompt US treasury paper holders to dump what they can while there’s still some value to retrieve. But the US has to issue more debt for all the bail-outs and theoretical buyers of new debt will perforce bid up the rates to keep up with inflation… and yet the US can’t possibly bear the burden of paying higher interest on its debt. Looks like the business model for running the USA is breaking down before our eyes.

      Luckily, Cap’n “Joe Biden” is at the helm of this steaming garbage barge. His conference room full of geniuses is ready with the solution to our predicament: the long-mythologized Central Bank Digital Currency — a dream-come-true for would be tyrants… the Godzilla of unicorns whinnying atop the biggest rainbow of all: the promise of endless magic money for everybody, forever. All you have to do to get it is: surrender your decision-making power over your own life. The government will amalgamate your few remaining assets in a CBDC account, tell you exactly what to spend it on, and shut off your little card if you show any contrary impulses.

     Well, they can try it. I doubt it will work. Instead, the government will melt down in its own rancid puddle of insolvency, the meta-grift will grind to an end, and it will be everyone for his / her / they self in the broke-down Palace of Chaos for a while… until things emergently reconstruct. But I get a little ahead of myself. It’s not even ten o’clock on Monday morning.

     Oh, and then there’s Ukraine….

"Moveable Multipolarity in Moscow: Ridin’ the ‘Newcoin’ Train" by Pepe Escobar

 

Click here for Exit the Cuckoo's Nest's posting standards and aims.  Click here to sign the People's Proclamation and send it to everyone you know. Source: Strategic Culture Moveable Multipolarity in Moscow: Ridin' the 'Newcoin Train

Pepe Escobar

  March 10, 2023

The new currency should be able to become an “external money” storage of capital and reserves down the road, not just a settlement unit.

Ah, the joys of the Big Circle Line (BKL, in Cyrillic): circumnavigating the whole of Moscow for 71 km and 31 stations: from Tekstilshchiki – in the old textile quarter – to Sokolniki – a suprematist/constructivist gallery (Malevich lives!); from Rizhskaya – with its gorgeous steel arches – to Maryina Roscha – with its 130 meter-long escalator.

The BKL is like a living, breathin’, runnin’ metaphor of the capital of the multipolar world: a crash course in art, architecture, history, urban design, tech transportation, and of course “people to people’s exchanges”, to quote our Chinese New Silk Road friends.

President Xi Jinping, by the way, will be ridin’ the BKL with President Putin when he comes to Moscow on March 21.

So it’s no wonder that when a savvy investor at the top of global financial markets, with decades of experience, agreed to share some of his key insights on the global financial system, I proposed a ride on the BKL – and he immediately accepted it. Let’s call him Mr. S. Tzu. This is the minimally edited transcript of our moveable conversation.

Thank you for finding the time to meet – in such a gorgeous setting. With the current market volatility, it must be hard for you to step away from the screens.

S. Tzu: Yes, markets are currently very challenging. The last few months remind me of 2007-8, except instead of money-market funds and subprime mortgages, these days it is pipelines and government bond markets that blow up. We live in interesting times.

The reason I reached out to you is to hear your insights on the “Bretton Woods 3” concept introduced by Zoltan Poszar. You’re definitely on top of it.

S. Tzu: Thank you for getting straight to the point. There are very few opportunities to witness the emergence of a new global financial order, and we are living through one of those episodes. Since the 1970s, perhaps only the arrival of bitcoin just over fourteen years ago came close in terms of impact to what we are about to see in the next few years. And just as the timing of bitcoin was not a coincidence, the conditions for the current tectonic shifts in the world financial system have been brewing for decades. Zoltan’s insight that “after this war is over, ‘money’ will never be the same again…” was perfectly timed.

Understanding “external money”

You mentioned bitcoin. What was so revolutionary about it at the time?

S. Tzu: If we leave aside the crypto side of things, the promise and the reason for bitcoin’s initial success was that bitcoin was an attempt to create “external” money (using Mr. Zoltan’s excellent terminology) that was not a liability of a Central Bank. One of the key features of this new unit was the limit of 21 million coins that could be mined, which resonated well with those who could see the problems of the current system. It sounds trivial today, but the idea that a modern monetary unit can exist without backing of any centralized authority, effectively becoming “external” money in digital form, was revolutionary in 2008. Needless to say, Euro government bond crisis, quantitative easing, and the recent global inflationary spiral only amplified the dissonance that many felt for decades. The credibility of the current “internal money” system (again, using Mr. Poszar’s elegant terminology) has been destroyed long before we got to the Central Bank reserve freezes and disruptive economic sanctions that are playing out currently. Unfortunately, there is no better way to destroy credibility of the system based on trust than to freeze and confiscate foreign currency reserves held in Central Bank custody accounts. The cognitive dissonance behind the creation of bitcoin was validated — the “internal money” system was fully weaponized in 2022. The implications are profound.

Now we are getting to the nitty-gritty. As you know, Zoltan argues that a new “Bretton Woods 3” system will emerge at the next stage. What exactly does he mean by that?

S. Tzu: I am also not clear on whether Mr. Poszar refers to the transformation of the current Western “internal money” system into something else, or whether he hints at the emergence of the “Bretton Woods 3” as an alternative, outside of the current financial system. I am convinced that a new iteration of the “external money” is unlikely to be successful in the West at this stage, due to the lack of political will and to the excessive government debt that has been building up for some time and grew exponentially in recent years.

Before the current Western financial order can move to the next evolutionary stage, some of these outstanding liabilities need to be reduced in real terms. If history is any guide, it typically happens via default or inflation, or some combination of the two. What seems highly likely is that the Western governments will rely on financial repression in order to keep the boat afloat and to tackle the debt problem. I expect there will be many initiatives to increase control over the “internal money” system that will likely be increasingly unpopular. Introduction of CDBC’s, for example, could be one such initiative. There is no doubt in my mind that we are in for eventful times ahead in this respect. At the same time, it also seems inevitable at this stage that some sort of an alternative “external money” system will emerge that will compete with the current “internal money” global financial order.

And why is that?

S. Tzu: The global economy can no longer rely on the “internal money” system in its current weaponized state for all its trade, reserve, and investment needs. If sanctions and reserve freezes are the new instruments of regime change, every government out there must be thinking about alternatives to using someone else’s currency for trade and reserves. What is not obvious, however, is what the alternative to the current flawed global financial order should be. History does not have many examples of successful “external money” approaches that could not be reduced to some version of the gold standard. And there are many reasons why gold alone, or a currency fully convertible into gold, is too restrictive as a foundation of a modern monetary system.

At the same time, recent increases in trade in local currencies unfortunately have a limited potential as well, as local currencies are simply a different instance of “internal money.” There are obvious reasons why many countries would not want to accept other’s local currencies (or even their own, for that matter) in exchange for exports. On that I fully agree with Michael Hudson. Since “internal money” is a liability of a country’s Central Bank, the lower the credit standing of the country, the more it needs investable capital, and the less willing other parties become to hold its liabilities. That is one of the reasons why a typical set of “structural reforms” that IMF demands, for example, is aimed at improving credit quality of the borrower government. “External money” is badly needed precisely by the countries and the governments that feel they are hostages to the IMF and to the current “internal money” financial system.

Enter the “newcoin”

A lot of experts seem to be looking into it. Sergey Glazyev, for instance.

S. Tzu: Yes, there were some indications of that in recent publications. While I am not privy to these discussions, I certainly have been thinking how this alternative system could work as well. Mr. Pozsar’s concepts of “internal” and “external” money are a very important part of this discussion. However, the duality of these terms is misleading. Neither option is fully adequate for the problems that the new monetary unit – let’s call it “newcoin” for convenience – needs to solve.

Please allow me to explain. With the weaponization of the current US dollar “internal money” system and a simultaneous escalation of sanctions, the world has effectively split into the “Global South” and the “Global North,” slightly more precise terms than East and West. What is important here, and what Mr. Pozsar immediately noticed, is that the supply chains and commodities are also getting weaponized to some extent. Friend-shoring is here to stay. The implication is that the newcoin’s first priority would be facilitating intra-South trade, without relying on currencies of the Global North.

If this were the only objective, there would have been a choice of relatively simple solutions, ranging from using renminbi/yuan for trade, creating a new shared currency (fashioned after euro, ECU, or even Central African CFA franc), creating a new currency based on the basket of participating local currencies (similar to the SDR of IMF), potentially creating a new gold-pegged currency, or even pegging existing local currencies to gold. Unfortunately, history is full of examples of how each one of these approaches creates their own host of new problems.

Of course, there are other parallel objectives for the new currency unit that neither of these possibilities can fully address. For example, I expect that all participants would hope that the new currency strengthens their sovereignty, not dilutes it. Next, the challenges with the Euro and previously gold standard demonstrated the broader problem with “fixed” exchange rates, especially if the initial “fix” was not optimal for some members of the currency zone. The problems only accumulate over time, until the rate is “re-fixed,” often through a violent devaluation. There needs to remain flexibility in adjusting relative competitiveness inside the Global South over time for participants to remain sovereign in their monetary decisions. Another requirement would be that the new currency needs to be “stable,” if it were to become successful unit of pricing for volatile things like commodities.

Most importantly, the new currency should be able to become an “external money” storage of capital and reserves down the road, not just a settlement unit. In fact, my conviction that the new monetary unit will emerge comes primarily from the current lack of viable alternatives for reserves and investment outside of the compromised “internal money” financial system.

So considering all these problems, what do you propose as a solution?

S.  Tzu: First allow me to state the obvious: the technical solution to this problem is a lot easier to find than to arrive at the political consensus among the countries which might want to join the newcoin zone. However, the current need is so acute, in my opinion, that the required political compromises will be found in due course.

That said, please allow me to introduce one such technical blueprint for the newcoin. Let me start by saying that it should be partially (I suggest a share of at least 40% of value) backed by gold, for reasons that will soon become clear. The remaining 60% of the newcoin would be composed of the basket of currencies of the participating countries. Gold would provide the “external money” anchor to the structure and the basket of currencies element would allow the participants to retain their sovereignty and monetary flexibility. There would clearly be a need to create a Central Bank for the newcoin, which would emit new currency. This Central Bank could become a counterparty to cross-swaps, as well as provide clearing functions for the system and enforce the regulations. Any country would be free to join the newcoin on several conditions.

First, the candidate country needs to demonstrate that it has physical unencumbered gold in its domestic storage and pledge a certain amount in exchange for receiving corresponding amount of newcoin (using the 40% ratio mentioned above). Economic equivalent of this initial transaction would be a sale of the gold to the “gold pool” backing the newcoin in exchange for proportional amount of the newcoin backed by the pool. The actual legal form of this transaction is less important, as it is necessary simply to guarantee that the newcoin that is being emitted is always backed by at least 40% in gold. There is no need to even publicly disclose the gold reserves of each country, as long as all participants can be satisfied that sufficient reserves are always present. An annual joint audit and monitoring mechanism may be sufficient.

Second, a candidate country would need to establish a gold price discovery mechanism in its domestic currency. Most likely, one of the participating precious metals exchanges would start physical gold trading in each of the local currencies. This would establish a fair cross-rate for the local currencies using “external money” mechanism to set and adjust them over time. The gold price of the local currencies would drive their value in the basket for the newly-emitted newcoins. Each country would remain sovereign and be free to emit as much of local currency as they choose to, but this would eventually adjust the share of their currency in the newcoin’s value. At the same time, a country would only be able to obtain additional newcoin from the central bank in exchange for a pledge of additional gold. The net result is that the value of each component of newcoin in gold terms would be transparent and fair, which would translate into the transparency of newcoin’s value as well.

Finally, emissions or sales of newcoin by the central bank would be allowed only in exchange for gold for anyone outside the newcoin zone. In other words, the only two ways external parties can obtain large amounts of newcoin is either receiving it in exchange for physical gold or as a payment for goods and services provided. At the same time, the central bank would not be obliged to purchase newcoin in exchange for gold, removing the risk of the “run on the bank.”

Correct me if I’m wrong: this proposal seems to anchor all trade inside the newcoin zone and all external trade to gold. In this case, what about the stability of newcoin? After all, gold has been volatile in the past.

S. Tzu: I think what you are asking is what could be the impact if, for example, the dollar price of gold were to decline dramatically. In this case, as there would be no direct cross-rate between newcoin and the dollar, and as the central bank of the Global South would be only buying, not selling gold in exchange for newcoin, you can immediately see that arbitrage would be extremely difficult. As a result, the volatility of the currency basket expressed in newcoin (or gold) would be quite low. And this is exactly the intended positive impact of the “external money” anchoring of this new currency unit on trade and investment. Clearly, some key export commodities would be priced by the Global South in gold and newcoin only, making the “run on the bank” or speculative attacks on newcoin even less likely.

Over time, if gold is undervalued in the Global North, it would gradually, or perhaps rapidly, gravitate to the Global South in exchange for exports or newcoin, which would not be a bad outcome for the “external money” system and accelerate the broad acceptance of newcoin as reserve currency. Importantly, as physical gold reserves are finite outside of the newcoin zone, the imbalances would inevitably correct themselves, as the Global South will remain a net exporter of key commodities.

What you just said is packed with precious info. Perhaps we should revisit the whole thing in the near future and discuss the feedback to your ideas. Now we’ve arrived at Maryina Roscha, it’s time to get off!

S. Tzu: It would be my pleasure to continue our dialogue. Looking forward to another loop!

"The Most Egregious Mistake" by Alastair Crooke

  

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The Most Egregious Mistake

Alastair Crooke      January 23, 2003

The U.S. government is hostage to its financial hegemony in a way that is rarely fully understood.

It is the miscalculation of this era – one that may begin the collapse of dollar primacy, and therefore, global compliance with U.S. political demands, too. But its most grievous content is that it corners the U.S. into promoting dangerous Ukrainian escalation against Russia directly (i.e. Crimea).

Washington dares not – indeed cannot – yield on dollar primacy, the ultimate signifier for ‘American decline’. And so the U.S. government is hostage to its financial hegemony in a way that is rarely fully understood.

The Biden Team cannot withdraw its fantastical narrative of Russia’s imminent humiliation; they have bet the House on it. Yet it has become an existential issue for the U.S. precisely because of this egregious initial miscalculation that has been subsequently levered-up into a preposterous narrative of a floundering, at any moment ‘collapsing’ Russia.

What then is this ‘Great Surprise’ – the almost completely unforeseen event of recent geo-politics that has so shaken U.S. expectations, and which takes the world to the precipice?

It is, in a word, Resilience. The Resilience displayed by the Russian economy after the West had committed the entire weight of its financial resources to crushing Russia. The West bore down on Russia in every conceivable way – via financial, cultural and psychological war – and with real military war as the follow-through.

Yet, Russia has survived, and survived relatively handsomely. It is doing ‘okay’ – maybe better, even, than many Russia insiders were expecting. The ‘Anglo’ Intelligence services however, had assured EU leaders not to worry; it’s ‘slam dunk’; Putin cannot possibly survive. Rapid financial and political collapse, they promised, was certain under the tsunami of western sanctions.

Their analysis represents an Intelligence failure on a par with the non-existent Iraqi weapons of mass destruction. But instead of critical re-examination, as events failed to provide confirmation, they doubled down. But two such failures are just ‘too much’ to bear.

So why does this ‘failed expectation’ constitute such a world-shaking moment for our era? It is because the West fears that its miscalculation might well lead to the collapse of its dollar hegemony. But the fear extends well beyond that too – (bad as ‘that’ would be from the U.S. perspective).

Robert Kagan has outlined how external forward motion and the U.S.’ ‘global mission’ is the lifeblood of American internal polity – more than any equivocating nationalism, Professor Paul suggests. From the founding of the country, the U.S. has been an expansionary republican empire; without this forward motion, civic bonds of domestic unity come into question. If Americans are not united for expansionary republican greatness, by what purpose Professor Paul asks, are all these fissiparous races, creeds, and cultures in America, bound together? (Woke culture has proved no solution, being divisive rather than any pole around which unity can be built).

The point here is that Russian Resilience, at a single stroke, shattered the plate-glass floor to western convictions about its ability to ‘manage the world’. After the several western debacles centred on regime-change by military shock-and-awe, even hardened neo-cons – by 2006 – had conceded that a weaponised financial system was the only means to ‘secure the Empire’.

But this conviction has now been upended – and states around the world have taken notice.

This shock of miscalculation is all the greater because the West disdainfully had taken Russia to be a backward economy, with a GDP on a par to that of Spain. In an interview with Le Figaro last week, Professor Emmanuel Todd noted that Russia and Belarus, taken together, constitute only 3.3% of global GDP. The French historian questioned therefore, ‘how then is it possible that these states could have shown such resilience – in the face of the full force of the financial onslaught’?

Well, firstly, as Professor Todd underlined, ‘GDP’ as a measure of economic resilience is wholly “fictional”. Contrary to its name, GDP measures only aggregate expenditures. And that much of what is recorded as ‘production’, such the over-inflated billing for medical treatment in the U.S.’ and (said, tongue in cheek) services such as the hundreds of economists’ and bank analysts’ highly-paid analysis, are not production, per se, but “water vapour”.

Russia’s resilience, Todd attests, is due to the fact that it has a real economy of production. “War is the ultimate test of a political economy”, he notes. “It is the Great Revealer”.

And what is it that has been revealed? It has revealed another quite unexpected and shocking outcome – one that sends western commentators reeling – that Russia has not run out of missiles. ‘An economy the size of Spain, the western media ask, how can such a tiny economy sustain a prolonged war of attrition by NATO without running out of munitions?’.

But, as Todd outlines, Russia has been able to sustain its weapons-supply because it has a real economy of production that has the capacity to maintain a war – and the West no longer does. The West fixated on its misleading metric of GDP – and with its normalcy bias – is shocked that Russia has the capacity to outpace NATO’s arms inventories. Russia was billed by western analysts as a ‘paper tiger’ – a label that now seems more likely to apply to NATO.

The import of the ‘Great Surprise’ – of Russian Resilience – resulting from its real economy of production vis á vis the evident weakness of the hyper-financialised western model scrabbling for sources of munitions has not been lost on the rest of the world.

There is old history here. In the lead-up to WW1, the British Establishment was concerned that they might lose the coming war with Germany: British banks tended to lend short-term, in a ‘pump and dump’ approach, whereas German banks invested directly in long-term real-economy industrial projects – and therefore were thought to be able to better sustain war materiel supply.

Even then, the Anglo élite had a quiet appreciation of the inherent frailty to a heavily financialised system for which they compensated by simply expropriating the resources of a huge Empire to finance preparation for the coming Great War.

The backdrop then, is that the U.S. inherited the Anglo financialising approach which it subsequently turbo-charged when the U.S. was forced off the gold standard by ballooning budget deficits. The U.S. needed to attract the world’s ‘savings’ into the U.S., by which to finance its Vietnam war deficits.

The rest of Europe from the 19th century outset had been wary of Adam Smith’s ‘Anglo-model’. Friedreich List complained that the Anglos assumed that the ultimate measure of a society is always its level of consumption (expenditure – and hence the GDP metric). In the long run, List argued, a society’s well-being and its overall wealth were determined not by what the society can buy, but by what it can make (i.e. value coming from the real, self-sufficient economy).

The German school argued that emphasizing consumption would eventually be self-defeating. It would bias the system away from wealth creation, and ultimately make it impossible to consume as much, or to employ so many. Hindsight suggests List was correct in his analysis.

‘War – is the ultimate test – and Great Revealer’ (per Todd). The roots to an alternative economic view had lingered on in both Germany and Russia (with Sergei Witte), despite the recent preponderance of the hyper-financialised Anglo-model.

And now with the ‘Great Reveal’, the focus on the real economy is seen as a key insight underpinning the New Global Order, differentiating it sharply in terms both of economic systems and philosophy from the western sphere.

The new order is separating from the old, not just in terms of economic system and philosophy, but through a reconfiguring of the neurons through which trade and culture travels. Old trade routes are being bypassed and left to wither – to be replaced by waterways, pipelines and corridors that avoid all the choke points by which the West can physically control commerce.

The north-east Arctic passage, for example, has opened an inter-Asian trade. The untapped oil and gas fields of the Arctic eventually will fill the gaps in supplies resulting from an ideology that seeks to end investment by western oil and gas majors in fossil fuels. The North-South corridor (now open) links St Petersburg to Bombay. Another component links waterways from northern Russia to the Black Sea, the Caspian and from thence to the south. Yet another component is expected to pipe Caspian gas from the Caspian pipeline network south to a Persian Gulf gas ‘hub’.

Look at it in this way, it is as if the neural connectors in the real economic matrix are, as it were, being lifted up from the west, and are being set down in a new location to the East. If Suez was the waterway of the European era, and the Panama Canal represented that of the American Century, then the north-east Arctic waterway, the North-South corridors and the African railway nexus will be that of the Eurasian era.

In essence, the New Order is preparing to sustain a long economic conflict with the West.

Here, we return to the ‘Egregious Miscalculation’. This evolving New Order existentially threatens dollar hegemony – the U.S. created its hegemony through demanding that oil (and other commodities) be priced in dollars, and by facilitating a frenetic financialisation of asset markets in the U.S. It is this demand for dollars which alone has allowed the U.S. to fund its government deficit (and its defence budget) for nothing.

In this respect, this highly financialised dollar paradigm possesses qualities reminiscent of a sophisticated Ponzi scheme: It pulls in ‘new investors’, attracted by zero-cost credit leverage and the promise of ‘assured’ returns (assets pumped ever upwards by Fed liquidity). But the lure of ‘assured returns’ is tacitly underwritten by the inflation of one asset ‘bubble’ after another, in a regular sequence of bubbles – inflated at zero cost – before being finally ‘dumped’. The process then, is ‘rinsed and repeated’ ad seriatim.

Here is the point: Like a true Ponzi, this system relies on constant, and ever more, ‘new’ money coming into the scheme, to offset ‘payments out’ (financing U.S. government expenditure). Which is to say, U.S. hegemony now depends on constant overseas dollar expansion.

And, as with any pure Ponzi, once ‘money in’ falters, or redemptions spike, the scheme collapses.

It was to prevent the world quitting the dollar scheme for a new global trading order that the signal was ordered to be promulgated, via the onslaught on Russia, to warn that to quit the scheme would bring U.S. Treasury sanctions upon you, and to crash you.

But then came TWO game-changing shocks, in close succession: Inflation and interest rates spiralled, devaluing the value of fiat currencies such as the dollar and undermining the promise of ‘assured returns’; and secondly, Russia DID NOT COLLAPSE under financial Armageddon.

The ‘dollar Ponzi’ falls; U.S. markets fall; the dollar falls in value (vis á vis commodities).

This scheme might be felled by Russian Resilience – and by much of the planet peeling away into a separate economic model, no longer dependent on the dollar for its trading needs. (i.e., new ‘money in’ to the dollar ‘Ponzi’ turns negative, just as ‘money out’ explodes, with the U.S. having to finance ever bigger deficits (now domestically)).

Washington clearly made a stratospherically bad error in thinking that sanctions – and the assumed collapse of Russia – would be a ‘slam dunk’ outcome; one so self-evident that it required no rigorous ‘thinking through’.

Team Biden thus has painted the U.S. into a tight Ukraine ‘corner’. But at this stage – realistically – what can the White House do? It cannot withdraw the narrative of Russia’s ‘coming humiliation’ and defeat. They cannot let the narrative go because it has become an existential component to save what it can of the ‘Ponzi’. To admit that Russia ‘has won’ would be akin to saying that the ‘Ponzi’ will have to ‘close the fund’ to further withdrawals (just as Nixon did in 1971, when he shut withdrawals from the Gold window).

Commentator Yves Smith has provocatively argued, ‘What if Russia decisively wins – yet the western press is directed to not notice?’ Presumably, in such a situation, the economic confrontation between the West and New Global Order states must escalate into a wider, longer war.

Source: Strategic Culture Foundation