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The great debate on Russia’s economic policy

Comments by Central Bank Chair Elvira Nabiullina confirm Russia will maintain tight monetary policy as it seeks to rein in inflation and to move from an economic model based on consumption towards one focused on investment, manufacturing and export.

Alexander Mercouris

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With annualised inflation in Russia falling to 6.9% at the end of August, and with Russia reporting zero inflation in the first weeks of September, the strong indications are that the Russian Central Bank is preparing to cut interest rates by 0.5% to 10% at its next meeting on Friday 16th September 2016.

The Central Bank has indicated that it intends for the time being to keep its key rate 3% above the annualised rate of inflation.  Since the annualised rate of inflation is now roughly 7%, following the logic of the Central Bank’s own policy that should mean a cut in interest rates on Friday to 10%

Central Bank Chair Nabiullina calls interest rates of 10% against an annualised inflation rate of inflation of 6.9% and an underlying rate of inflation which may be as low as 5.5% a “moderately tight monetary policy”. 

In reality this “moderately tight monetary policy” is leaving Russia with by far the highest real interest rates of any major economy in the world.  To be clear, such a “moderately tight monetary policy” were it attempted in any Western economy or in China, would cause an extremely severe recession, one far more severe than the one Russia has just been through.  

The reason Russia has managed to avoid such a severe recession is not because the high real interest rates are not for real.  It is because its debt levels are so much lower than in the West and in China that it can live with interest rates they would find unendurable.  As it is these very high real interest rates are depressing economic growth, which is why the Central Bank, in the absence of any softening of policy, forecasts that growth in the medium term will remain low.

Nabiullina on Friday at an economic conference in Sochi provided an explanation for her policy. She made it clear that she has no intention of softening her policy. Rather she intends to keep interest rates 3% above inflation for the indefinite future in order to purge the Russian economy of its long running inflation problem, one which extends back to the 1960s (though it was masked during the Soviet period by the Soviet practice of fixing prices), and which caused Russia to experience double-digit inflation continuously throughout the 1990s and 2000s, with a sustained fall in inflation to single figures only taking place since roughly 2010.

Nabiullina has made it clear that this is all part of a long term policy of moving the Russian economy away from a model based on consumption towards one centred on investment and manufacturing.   The Central Bank explained its thinking back in November 2015 in the Guidelines it published to explain its monetary policy

“Interest rates on long-term contracts always imply inflation expectations. The Bank of Russia proceeds from the fact that as the inflation and inflation expectations decline, long term rates on loans will go down boosting the economic growth. Amid low inflation expectations long-term rates will persistently develop at the low level. It is an important advantage of the inflation targeting, under which the Bank of Russia implements the monetary policy.”

In the same Guidelines the Central Bank also made clear that it sees low inflation as the means of achieving long-term stability for the rouble

“……ensuring the stability of the national currency does not mean fixing its exchange rate against other currencies at a specific level, but rather achieving stability by maintaining the purchasing power of the ruble, i.e. by ensuring price stability.”

This is a policy framework which would be immediately familiar to the Bundesbank, from whom it appears to have been copied.  The idea is that the combination of low inflation, low long term rates of interest, and positive real interest rates, will encourage long term saving and investment, increasing over time productivity and growth. 

Until that comes the Central Bank is prepared to accept a trade-off of lower growth because of the tight monetary policy to reduce inflation in the short term.  This is the policy framework that I heard Kudrin and Nabiullina discuss at SPIEF. 

A further aspect of the policy is that in order to increase competitiveness and hold down imports the current policy also seeks to bear down on consumption by keeping the budget out of deficit.  Russia in fact already runs a very tight budget, with the country’s federal budget deficit as it exits recession no more than 2.9% of GDP in the first 8 months of the year – a fact which points to a budget surplus once the economy achieves sustained growth.

Somewhat to my surprise Kudrin justified the policy of keeping the budget out of deficit by conjuring up the so-called “crowding out” hypothesis whereby the need to fund the budget deficit supposedly “crowds out” funding for private investment.  

 It would be more true to say that keeping the budget balanced or in surplus tends to limit consumption and that this can result over time in trade and balance of payments’ surpluses.  Again that is the policy followed in Germany and is the reason for the very large  trade and balance of payments surpluses there.  Once again it seems that Kudrin and Nabiullina want to copy it.  

In other words, by raising investment and limiting consumption they want to make Russia an exporter of finished goods rather than, or as well as, an exporter of commodities.

That incidentally point to an important fact about the current fall in real incomes in Russia which has happened since the start of the recession, and which is still underway, and which critics of the government speak so often about.  

As Kudrin and Nabiullina both know it is the product of super-tight monetary and fiscal policies they are both insisting on, and is moreover an intended consequence of those policies.  In other words it is being deliberately engineered as part of a programme of moving the Russian economy away from an economic model based on consumption towards one based on investment, manufacturing and export.

 Again the parallels with Germany, which also squeezes real incomes in order to limit consumption and gain competitiveness, are very striking.  Given the implications this has for most Russians, it is no wonder that Kudrin and Nabiullina are unpopular.

All of this of course was accompanied both at SPIEF and in Nabiullina’s latest comments at Sochi by much talk of various incremental reforms to improve the business climate, which took up most of the time during the presentation at SPIEF which I attended.  

As Kudrin and Nabiullina of course both know, these reforms have actually been underway in Russia for some time, and have resulted in a sharp improvement in Russia’s World Bank Ease of Doing Business rankings

From time to time the reality of this improvement is questioned.  However there is no reason to think it is not taking place.  Anecdotal evidence on the contrary suggests it is. German Gref, a supporter of Kudrin and Nabiullina who is Sberbank’s CEO, recently told Putin that it actually is taking place, and as the CEO of Russia’s biggest bank he is arguably in the best position to know. In a meeting on 4th August 2016 to discuss the support Sberbank is providing to small businesses, he said the following

“As far as small businesses go, there are two aspects here. First, they need rapid and high quality lending. Second, there is everything related to assisting small businesses to resolve all the remaining problems such as convenient practice for keeping accounts, banking accounting and so on.

We have made great progress in this area and, starting in September this year, a new law will come into effect making it possible to open accounts, make transfers, register changes to company charters and so on online.

Essentially, small businesses will not have to visit state agencies in person anymore. This programme, which we are implementing together with the tax service, is a big step forward in general.

I think that the environment that we will have in place by the end of 2016, when all of the legal amendments take effect, will mean that Russia will be offering one of the most interesting and technologically convenient environments for small businesses.”

(bold italics added)

To those who assume that Kudrin and Nabiullina are free market fundamentalists, I would say that the word “market” was barely mentioned during their entire SPIEF presentation, just as it barely appears in the Central Bank’s Guidelines document. 

On the contrary – and as I have heard Kudrin say before – Kudrin seems to favour elements of industrial planning, as well as state involvement in developing infrastructure, even as he criticises excessive government interference in private business activity.  I doubt there is any Russian official who believes – as do some people in the US and in Britain – that the market is infallible and can be left alone to take care of itself.

Like it or not this is Russia’s economic policy.  I know that some people don’t like it.  I also know that there is an alternative plan being proposed by the Stolypin Group which takes an altogether more Keynesian approach by seeking to expand the economy through higher deficit spending. Whilst this alternative plan seems to have some supporters in the Economics Ministry, and though Putin has agreed to look at it, it was absolutely clear to me at SPIEF that it is the current policy that Putin favours and which has his backing, and which has the overall support of the government.

I don’t expect it to change and Nabiullina’s comments on Friday all but confirm as much.

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US continues to try to corner Russia with silence on Nukes

Moscow continues to be patient in what appears to be an ever more lopsided, intentional stonewalling situation provoked by the Americans.

Seraphim Hanisch

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TASS reported on March 17th that despite Russian readiness to discuss the present problem of strategic weapons deployments and disarmament with its counterparts in the United States, the Americans have not offered Russia any proposals to conduct such talks.

The Kremlin has not yet received any particular proposals on the talks over issues of strategic stability and disarmament from Washington, Russian Presidential Spokesman Dmitry Peskov told TASS on Sunday when commenting on the statement made by US National Security Adviser John Bolton who did not rule out that such talks could be held with Russia and China.

“No intelligible proposals has been received [from the US] so far,” Peskov said.

Earlier Bolton said in an interview with radio host John Catsimatidis aired on Sunday that he considers it reasonable to include China in the negotiation on those issues with Russia as well.

“China is building up its nuclear capacity now. It’s one of the reasons why we’re looking at strengthening our national missile defense system here in the United States. And it’s one reason why, if we’re going to have another arms control negotiation, for example, with the Russians, it may make sense to include China in that discussion as well,” he said.

Mr. Bolton’s sense about this particular aspect of any arms discussions is correct, as China was not formerly a player in geopolitical affairs the way it is now. The now all-but-scrapped Intermediate Range Nuclear Forces Treaty, or INF, was a treaty concluded by the US and the USSR leaders Ronald Reagan and Mikhail Gorbachev, back in 1987. However, for in succeeding decades, most notably since the fall of the Soviet Union, the US has been gradually building up weaponry in what appears to be an attempt to create a ring around the Russian Federation, a situation which is understandably increasingly untenable to the Russian government.

Both sides have accused one another of violating this treaty, and the mutual violations and recriminations on top of a host of other (largely fabricated) allegations against the Russian government’s activities led US President Donald Trump to announce his nation’s withdrawal from the treaty, formally suspending it on 1 February. Russian President Vladimir Putin followed suit by suspending it the very next day.

The INF eliminated all of both nations’ land based ballistic and cruise missiles that had a range between 500 and 1000 kilometers (310-620 miles) and also those that had ranges between 1000 and 5500 km (620-3420 miles) and their launchers.

This meant that basically all the missiles on both sides were withdrawn from Europe’s eastern regions – in fact, much, if not most, of Europe was missile-free as the result of this treaty. That is no longer the case today, and both nations’ accusations have provoked re-development of much more advanced systems than ever before, especially true considering the Russian progress into hypersonic and nuclear powered weapons that offer unlimited range.

This situation generates great concern in Europe, such that the UN Secretary General Antonio Guterres called on both Moscow and Washington to salvage the INF and extend the Treaty on Measures for the Further Reduction and Limitation of Strategic Offensive Arms, or the New START as it is known.

“I call on the parties to the INF Treaty to use the time remaining to engage in sincere dialogue on the various issues that have been raised. It is very important that this treaty is preserved,” Guterres said at a session of the Conference on Disarmament in Geneva on Monday.

He stressed that the demise of that accord would make the world more insecure and unstable, which “will be keenly felt in Europe.” “We simply cannot afford to return to the unrestrained nuclear competition of the darkest days of the Cold War,” he said.

Guterres also urged the US and Russia to extend the START Treaty, which expires in 2021, and explore the possibility of further reducing their nuclear arsenals. “I also call on the United States and the Russian Federation to extend the so-called New START Treaty before it expires in 2021,” he said.

The UN chief recalled that the treaty “is the only international legal instrument limiting the size of the world’s two largest nuclear arsenals” and that its inspection provisions “represent important confidence-building measures that benefit the entire world.”

Guterres recalled that the bilateral arms control process between Russia and the US “has been one of the hallmarks of international security for fifty years.”

“Thanks to their efforts, global stockpiles of nuclear weapons are now less than one-sixth of what they were in 1985,” the UN secretary-general pointed out.

The Treaty between the United States of America and the Russian Federation on Measures for the Further Reduction and Limitation of Strategic Offensive Arms (the New START Treaty) entered into force on February 5, 2011. The document stipulates that seven years after its entry into effect each party should have no more than a total of 700 deployed intercontinental ballistic missiles (ICBM), submarine-launched ballistic missiles (SLBM) and strategic bombers, as well as no more than 1,550 warheads on deployed ICBMs, deployed SLBMs and strategic bombers, and a total of 800 deployed and non-deployed ICBM launchers, SLBM launchers and strategic bombers. The new START Treaty obliges the parties to exchange information on the number of warheads and carriers twice a year.

The new START Treaty will remain in force during 10 years until 2021, unless superseded by a subsequent agreement. It may be extended for a period of no more than five years (that is, until 2026) upon the parties’ mutual consent. Moscow has repeatedly called on Washington not to delay the issue of extending the Treaty.

 

 

 

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Trump witch hunt dots connected: CNN to Steele to John McCain (Video)

The Duran Quick Take: Episode 110.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss documents released which show that Christopher Steele admitted to using posts by ‘random individuals’ on the CNN community website ‘iReport’ in order to back up his fabricated Trump dossier.

President Trump took note of Steele’s use of CNN citizen journalist posts, in a twitter tirade that blasted the British ex-spy for running with unverified community generated content from a now now-defunct ‘iReports’ website as part of his research.

Trump the proceeded to rip into late neocon Arizona Senator John McCain, tweeting that it was “just proven in court papers” that “last in his class” McCain sent the Steele’s dossier to media outlets in the hopes that they would print it prior to the 2016 US election.

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Via The Daily Caller

A federal court unsealed 43 pages Thursday of a deposition that former British spy Christopher Steele gave as part of a lawsuit over his infamous anti-Trump dossier.

To the disappointment of many observers, the full deposition was not unsealed in Thursday’s motion. Instead, portions of Steele’s interview, which he gave in London on July 13, 2018, were unsealed in separate court filings submitted in the lawsuit.

Steele’s full deposition totaled 145 pages. The portions published Thursday focus mainly on questions about the dossier’s claims about Aleksej Gubarev, a tech executive who Steele alleges took part in the hacking of Democrats’ computer systems.

Gubarev has vehemently denied the claim and sued Steele and BuzzFeed News, which published the dossier on Jan. 10, 2017.

U.S. District Court Judge Ursula Ungaro, who handled the lawsuit, ordered a slew of previously sealed documents to be made public Thursday. Ungaro dismissed the lawsuit on Dec. 19 but did not weigh in on whether the dossier’s claims about Gubarev were accurate.

It is unclear whether Steele’s entire deposition will be released. A source familiar with Steele’s interview tempered expectations of any bombshells in the document, saying that Steele avoided going into detail about his efforts to create the dossier and his sources.

A deposition given by former State Department official David Kramer was perhaps the most enlightening document contained in the dump.

Kramer, a longtime associate of late Arizona Sen. John McCain, was BuzzFeed’s source for the dossier. Kramer shared the dossier with at least 11 other reporters, including CNN’s Carl Bernstein. (RELATED: John McCain Associate Gave Dossier To A Dozen Reporters)

Kramer obtained the dossier in late November 2016 after visiting Steele in London. Steele acknowledged that Kramer and McCain were picked as conduits to pass the dossier to then-FBI Director James Comey. McCain met with Comey on Dec. 9, 2016 and provided all of the dossier’s memos that had been written up to that point.

“I think they felt a senior Republican was better to be the recipient of this rather than a Democrat because if it were a Democrat, I think that the view was that it would have been dismissed as a political attack,” Kramer said in the deposition when asked why Steele and his business partners at Fusion GPS wanted McCain to meet with Comey.

Via Washington Examiner

Former British spy Christopher Steele admitted that he relied on an unverified report on a CNN website for part of the “Trump dossier,” which was used as a basis for the FBI’s investigation into Trump.

According to deposition transcripts released this week, Steele said last year he used a 2009 report he found on CNN’s iReport website and said he wasn’t aware that submissions to that site are posted by members of the public and are not checked for accuracy.

web archive from July 29, 2009 shows that CNN described the site in this manner: “iReport.com is a user-generated site. That means the stories submitted by users are not edited, fact-checked, or screened before they post.”

In the dossier, Steele, a Cambridge-educated former MI6 officer, wrote about extensive allegations against Donald Trump, associates of his campaign, various Russians and other foreign nationals, and a variety of companies — including one called Webzilla. Those allegations would become part of an FBI investigation and would be used to apply for warrants under the Foreign Intelligence Surveillance Act.

During his deposition, Steele was pressed on the methods he used to verify allegations made about Webzilla, which was thought to be used by Russia to hack into Democratic emails.

When asked if he discovered “anything of relevance concerning Webzilla” during the verification process, Steele replied: “We did. It was an article I have got here which was posted on July 28, 2009, on something called CNN iReport.”

“I do not have any particular knowledge of that,” Steele said when asked what was his understanding of how the iReport website worked.

When asked if he understood that content on the site was not generated by CNN reporters, he said, “I do not.” He was then asked: “Do you understand that they have no connection to any CNN reporters?” Steele replied, “I do not.”

He was pressed on this further: “Do you understand that CNN iReports are or were nothing more than any random individuals’ assertions on the Internet?” Steele replied: “No, I obviously presume that if it is on a CNN site that it may has some kind of CNN status. Albeit that it may be an independent person posting on the site.”

When asked about his methodology for searching for this information, Steele described it as “what we could call an open source search,” which he defined as “where you go into the Internet and you access material that is available on the Internet that is of relevance or reference to the issue at hand or the person under consideration.”

Steele said his dossier contained “raw intelligence” that he admitted could contain untrue or even “deliberately false information.”

Steele was hired by the opposition research firm Fusion GPS to investigate then-candidate Donald Trump in 2016. Fusion GPS was receiving funding at the time from the Clinton campaign and the DNC through the Perkins Coie law firm.

The series of memos that Steele would eventually compile became known as the “Trump Dossier.” The dossier was used in FISA applications to surveil Trump campaign associate Carter Page.

When asked whether he warned Fusion GPS that the information in the dossier might be “Russian disinformation,” Steele admitted that “a general understanding existed between us and Fusion … that all material contained this risk.”

Steele also described his interactions with Sen. John McCain’s aide, David Kramer, whose own deposition showed that he provided BuzzFeed with a copy of the dossier and had spoken with more than a dozen journalists about it.

“I provided copies of the December memo to Fusion GPS for onward passage to David Kramer at the request of Sen. John McCain,” Steele said. “Sen. McCain nominated him as the intermediary. I did not choose him as the intermediary.”

When asked if he told Kramer that he couldn’t “vouch for everything that was produced in the memos,” Steele replied, “Yes, with an emphasis on ‘everything.'”

When asked why he believed it was so important to provide the dossier to Sen. McCain, Steele said: “Because I judged it had national security implications for the United States and the West as a whole.”

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Trudeau’s Top Bureaucrat Unexpectedly Quits Amid Growing Corruption Scandal

In a scathing letter to Trudeau, Wernick said that “recent events” led him to conclude he couldn’t hold his post during the election campaign this fall.

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Via Zerohedge


Since it was exposed by a report in Canada’s Globe and Mail newspaper earlier this month, the scandal that’s become known as the SNC-Lavalin affair has already led to the firing of several of Trudeau’s close advisors and raised serious questions about whether the prime minister was complicit in pressuring the attorney general to offer a deferred prosecution agreement with a large, Quebec-based engineering firm.

And according to the first round of polls released since the affair exploded into public view…

…it could cost Trudeau his position as prime minister and return control to the conservatives, according to the CBC.

Campaign Research showed the Conservatives ahead with 37% to 32% for the Liberals, while both Ipsos and Léger put the margin at 36% to 34% in the Conservatives’ favour.Since December, when both polling firms were last in the field, the Liberals have lost one point in Campaign Research’s polling and four percentage points in the Ipsos poll, while the party is down five points since November in the Léger poll.

Meanwhile, as the noose tightens around Trudeau, on Monday another of the key Canadian government officials at the center of the SNC-Lavalin scandal has quit his post.

Michael Wernick, clerk of the privy council, the highest-ranking position in Canada’s civil service and a key aide to Justin Trudeau, announced his retirement Monday. Trudeau named Ian Shugart, currently deputy minister of foreign affairs, to replace him.

In a scathing letter to Trudeau, Wernick said that “recent events” led him to conclude he couldn’t hold his post during the election campaign this fall.

“It is now apparent that there is no path for me to have a relationship of mutual trust and respect with the leaders of the opposition parties,” he said, citing the need for impartiality on the issue of potential foreign interference. According to Bloomberg, the exact date of his departure is unclear.

As we reported in February, Canada’s former justice minister and attorney general, Jody Wilson-Raybould, quit following allegations that several key Trudeau government figures pressured her to intervene to end a criminal prosecution against Montreal-based construction giant SNC. Wernick was among those she named in saying the prime minister’s office wanted her to pursue a negotiated settlement.

Wernick has since twice spoken to a committee of lawmakers investigating the case, and during that testimony both defended his actions on the SNC file and warned about the risk of foreign election interference, as “blame Putin” has become traditional Plan B plan for most politicians seeing their careers go up in flames.

“I’m deeply concerned about my country right now, its politics and where it’s headed. I worry about foreign interference in the upcoming election,” he said in his first appearance before the House of Commons justice committee, before repeating the warning a second time this month. “If that was seen as alarmist, so be it. I was pulling the alarm. We need a public debate about foreign interference.”

Because somehow foreign interference has something to do with Wenick’s alleged corruption.

Incidentally, as we wonder what the real reason is behind Wernick’s swift departure, we are confident we will know soon enough.

Anyway, back to the now former clerk, who is meant to be non-partisan in service of the government of the day, also criticized comments by a Conservative senator and praised one of Trudeau’s cabinet ministers.

Wernick’s testimony was criticized as overly cozy with the ruling Liberals. Murray Rankin, a New Democratic Party lawmaker, asked the clerk how lawmakers could “do anything but conclude that you have in fact crossed the line into partisan activity?” Green Party Leader Elizabeth May said he seemed “willing to interfere in partisan fashion for whoever is in power.”

Whatever Wernick’s true motives, he is the latest but not last in what will be a long line of cabinet departures as the SNC scandal exposes even more corruption in Trudeau’s cabinet (some have ironically pointed out that Canada’s “beloved” prime minister could be gone for actual corruption long before Trump). Trudeau had already lost a top political aide, Gerald Butts, to the scandal. A second minister, Jane Philpott, followed Wilson-Raybould in quitting cabinet.

Separately, on Monday, Trudeau appointed a former deputy prime minister in a Liberal government, Anne McLellan, as a special adviser to investigate some of the legal questions raised by the controversy. They include how governments should interact with the attorney general and whether that role should continue to be held by the justice minister.

As Bloomberg notes, the increasingly shaky Liberal government hasn’t ruled out helping SNC by ordering a deferred prosecution agreement in the corruption and bribery case, which centers around the company’s work in Moammar Qaddafi’s Libya. Doing so would allow the company to pay a fine and avoid any ban on receiving government contracts. That decision is up to the current attorney general, David Lametti; of course, such an action would only raise tensions amid speculation that the government is pushing for a specific political, and favorable for Trudeau, outcome.

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