Russia’s Economy and Oil: Time to Cross the Flagged Line
Vladimir Putin's interview to German Bild was published on Monday. When asked about Russia's mistakes of the past 25 years, the President said, "We haven't stated our national interests, something we should have done from the outset. Perhaps, the world would have been a more balanced place now." I beg to differ. It makes no sense to state your interests, if your counterparties don't share their interests with you, and aren't even concerned about taking account of yours.
$30 per barrel, or economic collusion
One year ago today, in an article "Do they really want to destroy us, or to think so is dangerous paranoia?" I hypothesized about oil prices dropping to $20-$40 dollars per barrel inside a year. My prediction was not based on economics. I came up with this scenario on the assumption that the global financial system needs a reboot, and the US currency must remain the world's only settlement currency. All other currencies should be subservient to it, and therefore be part of the same system. It's an absolute constant and an unconditional benchmark for our "partners".
Russia represents the most significant risk factor if such a plan is to be implemented. Lower oil prices are a tried and tested avenue. That's why the price was forced down. This is a purely political decision that has nothing to do with supply and demand, or market competition, or any other market factor for that matter. Economists corroborate this viewpoint by saying there were no fundamental changes in the balance of supply and demand. Even though it never stops to fluctuate, this balance has never been upset to the point where it could justify a three-fold drop in oil prices.
Some believe that low oil prices help to keep the lid on gold prices. Indeed, nothing, including gold, should jeopardize the status of the single settlement system. Arguably, cheap oil can be used to kill more than one bird with a stone. Anyway, this decision was made by a specific group of people who have enough levers of control to see it through. Accordingly, in order to be able to predict the value of a particular economic variable whichyou find important, the first thing you ought to do is try to understand the logic used by the modern superpower key figures rather than market players.
Based on this understanding, we can assume that oil prices will not rebound within the next month or two as some of us may hope. These power brokers will maintain their deadly grip even further. Profits or losses incurred by specific Western corporations, no matter how high and mighty they may be, don't matter in this particular case, because world domination is at stake.
If you dominate the world, everything else will follow (all the more so as all multinational corporations are run by the same group of people vested with superpower, so there's no conflict of interest here). If I were in charge of planning, I would operate on the premise that our ability to sell anything to the West for meaningful prices, including oil and gas, will be phased out in full.
The above statement can be rephrased in more general terms. The economy as it wasdescribed by Marx, and since then many times rewritten by other well-known economists, doesn't exist anymore. It may have well never existed.
It's an illusion to think that issues such as what and how much of a good you can manufacture, how much of what you produced can be sold and at what price, what is your profit and loss ratio, what are your chances of taking out a loan and growing your business, etc., are regulated by market laws and rules established by state regulators.
In reality, specific groups of people pursuing specific goals stand behind these laws and regulations. These groups, or clans, have taken shape over time. You can even go as far as saying that it's a certain breed of people that came through as a result of social selection. These people run things, not some impersonal laws of motion of capital.
Indeed, they operate based on long-standing guidelines, a particular set of motivations and world outlook andby utilizing proprietary mechanisms for handing all of the above from generation to generation. These people act in accordance with their place in society and the culture inherent in that place. Determining their ways and customs from the laws of how capital functions would be at the very least incorrect. It's not capital that determines the structure of social relations in which they enjoy a dominant position, it's the other way round. Their domination-subordination relations determine the flow, the direction and the amounts involved in the motion of capital.
It's not that our economy is backward. It's that it doesn't exist
Therefore, any amount of money that you may earn or lose will be determined by pre-set system-wide terms underlying your activities. So, if the "big boys" decide that you are not to be rich, then no matter what you do, such as pump oil, manufacture high-tech products, or even increase 1000-fold your labor productivity or develop a state-of-the-art infrastructure — nothing will help you.
Your business environment, such as prices for your products and services, loans, resources, the level of effective demand, and other important variables, will be such that you will makeexactly as much money as "they" think you deserve. If you're lucky and manage to set aside some of what you made, then again, you are not the one to decide on the future of your savings. Whatever it is that you may have saved, even gold.
If you are included in the global (aka the US) economy, you will be part of an operating system that is originally designed to be in control of whatever you may be doing. All of the modern global economy is a result ofcollusion by a small group of people. At any given time, its operators are in a position to tighten things up, supply some oxygen or cut it off altogether.
I wouldn't downplay the importance of Obama's words about Russia's economy being "in tatters." It is not a statement, but rather a goal to be reached provided all the effective resources are in place.
I believe that thinking that all our problems stem from corruption, inept authorities, reliance on oil and gas exports or lack of democracy and stuff are naive and illusory. Things are much worse. Our main problem is the complete lack of an economy of our own. That is the absence of our own operating shell, which should envelope our businesses and enable them to operate effectively, grow and produce surplus capital.
Blathering about innovation, investment, diversification and import substitution makes no sense until a sovereign economic system has been built. Alas, such a goal hasn't even been set.
Yesterday was too early
I think it hasn't been set for a reason. In 1991, we consciously gave up our sovereign forms of economic organization. One can argue about the effectiveness or ineffectiveness of a socialist economy. This is in fact a secondary issue. Most importantly, when we rejectedour "planned economy,"we rejected our own operating system (we started rejecting it when we began to sell oil for dollars).
In the 1990s, hundreds of American advisers barged in to Russia and provided us with the patterns, according to which we have been sewing our garment sever since. Yeltsin swapped international recognition of his authority for integration of the Soviet economy into the US economy andaccordingto the formula "our government — your economy."
The ruble has finally and completely become a derivative of the dollar. The Central Bank became a branch of the IMF and the World Bank. We were required to return a substantial portion of our export earnings to "the base" by buying US government bonds. Substantial amounts of moneywere transferred to offshore accounts. The task of forming motivations, beliefs and views was relegated to the West with its formats and content, more precisely to Western film companies, media and their minions in Russia. The national taxation and economic state regulatory system has become overly complex, overrun by red tape, etc.
Putin's team, which came to power in 2000, was confronted with a host of challenges. The economy was not their primary concern, forthey had to stop Russia's disintegration. They had to gain ground on regional barons, oligarchs and criminals and stabilize the situation. And this stabilization is what they have effectively managed to accomplish.
The fact that the task of designing our own economic system was not identified back then was due to a number of factors, including conceptual poverty (the philosophy of commerce had long since been killed in the Soviet Union), the illusion of a fair partnership with the West imposed on us, and the background of the people who came to power. The job of the Intelligence community is to protect the state, and not design a new one.
Tomorrow will be too late
I believe that we remain largely captive to those illusions. We continue to believe that we still have a chance to fit in their system and on decent terms. We entertain the hope that we've become smarter now.
Previously we thought that they would like us and send us a brotherly offer to join their civilized family. However, now we tend to think that everyone has his own interests, and upholding our own is what really matters.
As I see it, this is the primary reason for our presence in Syria. It's an operation to force our "partners" to communicate with us and account for our interests. It seems that we are not fully aware of the fact that we are dealing with a group of people who are seeking global domination. It's not that they are just focused on their needs or seek to dominate or boss everyone around. It's rather about dehumanizing most of humankind and owning people as farm animals.
We are looking to be their partners,while they want to make everyone their slaves. In fact, they have no interests, because the desire to own people cannot be referred to as an interest. Interests are something that exist between parties to an agreement that recognize each other as such.
Perhaps, Russia will be able to establish partnershipswith Germany, France and Italy. And China. Importantly, we should realize that at this point, without an economic system of our own, we cannot act astheir partners.
In fact, today is agood time to set for ourselves the goal of building an economy of our own. We have shown our determination in the Crimea and Donbass. In Syria, we have fought a demo war showing our ability to fight. Our "partners" are unlikely to establish direct contacts with us. We should be able to effectively cope with the "Islamic State"(which is outlawed in Russia) and other rabble without paying too much in blood or letting them come too close to our borders. It would be nice to make it clear to our "partners" that we are willing to deal not only with their tools like ISIS, but also with their masterminds.
We do have a chance to avoid a war on our territory. Moreover, some our "partners" aren't in top shape, either. They are now extremely vulnerable. Their trust in the powerful and evergreen dollar has greatly eroded. Sofar, there has been no alternative. So far.
The goal of building a sovereign economic system is quite attainable if you approach it as a goal. I believe the President should see it as his personal objective. He shouldn't delegate this job to anyone else, but instead sit down with a narrow-based project team to review the key and fundamental aspects of Russia's economic system. There's no need to enlist research institutions or invest years of work on it. Eight to 10 people who have been working on these issues over the past 10 to 15 years and a month of discussions on the subject will do the trick. There are such people in Russia. To implement an project of such urgency, we will need to start with 100 people in the central authorities (the presidential administration and the Government), and tentatively 900 people in the regions (300 bankers who will provide inexpensive loans to businesses, 300 infrastructure project top managers, and 300 special envoys working with the governors). I'm sure we can find 1,000 people in Russia to get this job done. Some of the current leaders may be tasked with this work as well. The problem is that no one has ever set meaningful goals for them before.
The availability of such a project and especially its actual implementation will make it possible to formulate a new social contract and stabilize the social situation. Today, the relationship between the people and the authoritiesis as follows:we (the people) put up with you and mind our own business, while you gradually improve our living standards. This formula stops working in a situation when theyare about to trim off some of our fat. Actually, this is their (superpower group) design.
An alternative formula could be as follows: "we are willing to put up with a temporary decline in our living standards in exchange for justice and development." Justice is important. Given the amount of filth and abomination in the Russian regions, we won't last long. Everyone must be confident that there's adoor which you can knock on and find the truth. As a matter of fact, judicial and law enforcement systems are also an integral part of an economic system.
Creating an economy of our own should not be delayed any longer. Or it may be too late.