Putin Must Move Against the Central Bank

Urgently needs to de-couple Russian economy from Western economic orthodoxies

Wed, Dec 10, 2014
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With central bank governess

Putin's recent speech to the Federal Assembly contained two parts: a foreign policy part which was nothing short of historical, and an internal economics part which was very disappointing to say the least.

In fact, I would say that it was outright frightening

I won't post the full text here, but you can consult if for yourself by clicking here. But here is my summary of Putin's message:

We will make every effort to aid the Russian business community, we will also make every effort to return much of the Russian money hidden abroad in offshore accounts, and we will create stability and predictability.

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All this is fine and dandy, except for what was not said.

  • Putin did not denounce the work of the Russian Central Bank or its Chairwoman.
  • Putin did not promise to sell US bonds and bring Russian money back home.
  • Putin did not sack a single Russian official for incompetence or, even less so, sabotage 
  • Putin did not announce a major change in the status of the Ruble, no "golden Ruble" for example.
  • Putin did not reject the western economic model.
  • Putin announce no reform or taking over by the state of the Russian Central Bank.
  • Most importantly, Putin did not announce any major change in economic policy

I have no way of knowing whether Putin sincerely believe in the western economic dogmas, of whether he has no other option than to pretend that he does, but the outcome is the same: Putin rejects the western political model while apparently still fully endorsing its economic model.

I have just listening to an interview of Mikhail Khazin and Evegnii Feodorov on the Russian New Service Radio and both of them are now openly sounding the alarm. Khazin is demanding that the Director of the Russian Central Bank be fired and arrested, while Feodorov wants the Central Bank to be completely shut down. I agree with both.

The Russian economy in general and the Ruble especially are both under direct attack, not only by official sanctions, but also by speculative operations.

The price of oil is collapsing probably under a combination of objective reasons (the world recession) and deliberate US operations, yet Putin is not changing economic course in a fundamental way and he is even complimenting the Central Bank for its activities. Does that not remind you of something?

Personally, this reminds me of what happened during the last months of Anatolii Serdiukov when the Russian military was hit by one scandal after another, yet Putin continued to praise Serduikov and his work.

Eventually, of course, Serdiukov was sacked and replaced by the truly outstanding Shoigu, but it took a lot of time and efforts to finally get him sacked (and even today Serdiukov has still not been sentenced by any court for his numerous criminal activities).

Does that mean that Putin is hesitant, weak or confused?

I don't think so. I think that this shows that one of the most difficult and dangerous tasks for Putin is to get rid of the saboteurs in the top echelons of power. The same Mikhail Khazin has recently declared that only now did the "Eurasian Sovereignist" group's power roughly match the one of the pro-US "Atlantic Integrationists" (though he did not quite use these expressions which are mine).

Hopefully Putin is setting up a Serdiukov-like sacking of Nabiulina, but this is not sure at all. The pressure is mounting for him to take dramatic action and to finally begin to de-couple the Russian economy from the western economic orthodoxy known as the Washington Concensus, but there is also a lot of resistance.

This is right now by far the biggest threat to Russia and Putin: the 5th column of saboteurs in the top echelons of power, especially the government. As long as these people will remain in power Russia will continue to remain weak and fragile and very susceptible to western economic warfare.

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