Free Markets, Free People

Russia


Russia’s New Found “Comrade”

A couple of paragraphs from a story about Obama and Russia’s Medvedev which seem pretty telling to me:

Russia’s Dmitry Medvedev hailed Barack Obama as “my new comrade” Thursday after their first face-to-face talks, saying the US president “can listen” — even if little progress was made on substance.

The Russian president contrasted Obama as “totally different” to his predecessor George W. Bush, whom he blamed for the “mistake” of US missile shield plans fiercely opposed by Moscow.

Of course many on the right are making a big, if sarcastic, deal about Medvedev calling Obama “comrade”. To many that seems more than appropriate. However, there’s a lot of diplospeak in this which seems key.

First, although not much of substance was accomplished, note the Medvedev says that unlike Bush, Obama “can listen”. In diplospeak, that means he thinks he can roll Obama, while Bush, not so much.

Note too that it appears that Obama has caved on the missile defense. In his desire to reduce nuclear stockpiles, he’s given up something which our allies such as Poland and the Czech Republic were keen for in order to see warheads dropped from 2,200 to 1,500. That’s a laughably cheap price for Russia to pay to kill the missile defense they opposed so adamantly.

Yup, after a capitulation like that, I’d be clapping Obama on the back and hailing him as my comrade too, if I were Medvedev.

Nothing, apparently was mentioned about Russia’s plan to rearm its military, its pending sale of the S-300 air defense missile system to Iran or it’s bluntly worded warning about Georgia:

Russia sent a strong warning to the United States Thursday about supporting Georgia in the U.S. ally’s efforts to rebuild its military following last year’s war.

The Foreign Ministry said helping arm Georgia would be “extremely dangerous” and would amount to “nothing but the encouragement of the aggressor.” 

Nope, apparently Obama just listened. That’s a comrade any Russian could love.

~McQ


Crisis For The Dollar? Is This The Calm Before The Storm?

A week or so ago, I mentioned the fact that Russia was lobbying for a new international currency to replace the dollar and opined that it most likely wouldn’t have any legs.  By itself, Russia just didn’t have enough clout to bring about such a change.   But apparently Russia was only the beginning.  Later that same week, the UN came out in favor of a new currency option:

A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

“It is a good moment to move to a shared reserve currency,” he said.

But does the UN have enough leverage to push something like this through? Probably not without some fairly powerful backers of the idea.  And speaking strictly of the UN, any such proposal would have to pass through the Security Council, and it’s unlikely the US would sanction such a change.

Today, though, China came out in favor of doing exactly what Russia and the UN recommend:

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

As was noted last week, China has some concerns about the US economy:

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

And that’s a valid concern. With the Fed pumping out trillions of freshly printed dollars, inflation is almost assured.

In case you haven’t noticed, Russia and China are two of the four countries known as BRIC (Brazil, Russia, India, China). These emerging economies feel they deserve more clout than they now enjoy. And they’re meeting in advance of the upcoming G20 meeting in April of this year:

Finance ministers and central bankers from Brazil, Russia, India and China will convene ahead of the Group of 20 finance chiefs’ meeting in London on Friday, a Russian delegation source told Reuters on Thursday.

The source said the four will discuss the reform of international financial organizations such as the International Monetary Fund and the Financial Stability Forum, anti-crisis policies and preparations for the G20 summit in April.

Take a look again at China’s proposal for basing the international reserve currency in the IMF and the topic of their upcoming meeting in advance of the G20. Suddenly Russia’s proposal has some legs.

What clout does BRIC bring to the proposal? Well they are the holders of vast portions of the currency reserves around the world:

China runs the world’s biggest reserves, Russia comes 3rd, India 4th and Brazil 7th, as of last autumn.

Keep an eye out for Brazil and India weighing in on this. Should they come out in favor of such a change, as has China, it could portend some fireworks at the G20.

In the meantime, read this by Mikkel Fishman. It will explain some of the deeper and less evident problems we face.  Then take a moment to look around and reflect.  In my estimation, this truly is the calm before the storm.

~McQ


Russia: The New Military and The New Currency

Russia is our friend. Don’t believe it? Well let’s look at a couple of things.

Just as the US starts talking about cutting defense spending and axing weapons systems and programs, what are our friends in Russia doing?

President Dmitry Medvedev on Tuesday announced a “large-scale” rearmament and renewal of Russia’s nuclear arsenal, accusing NATO of pushing ahead with expansion near Russian borders.

Meeting defence chiefs in Moscow, Medvedev said he was determined to implement reforms to streamline Russia’s bloated military and stressed Moscow continued to face several security threats needing robust defense capacity.

“From 2011, a large-scale rearmament of the army and navy will begin,” Medvedev said.

He called for a renewal of Russia’s nuclear weapons arsenal and added that NATO was pursuing a drive to expand the alliance’s physical presence near Russia’s borders.

“Analysis of the military-political situation in the world shows that a serious conflict potential remains in some regions,” Medvedev said.

So, new nukes and large-scale rearmament in the face of US defense cuts. As the article asks “reset” or new Cold War?

And then, just to really upset the apple cart, how about a new currency?

The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system.

The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve currencies or using its already existing Special Drawing Rights, or SDRs, as a “superreserve currency accepted by the whole of the international community,” the Kremlin said in a statement issued on its web site.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries.

The Kremlin has persistently criticized the dollar’s status as the dominant global reserve currency and has lowered its own dollar holdings in the last few years. Both President Dmitry Medvedev and Prime Minister Vladimir Putin have repeatedly called for the ruble to be used as a regional reserve currency, although the idea has received little support outside of Russia.

Now there’s not much “there” there as it pertains to this initiative, but it another indicator, among many, that the “Joe Biden Challenge” is alive and well and Russia is in the running to bring it to fruition.


Intellectually Incurious

Yesterday on the podcast, we talked about Pres. Obama’s attitude towards certain aspects of his presidential responsibilities.  Apropos of that discussion, he is receiving some criticism for his indifference to the markets.

Some Wall Street economists think President Obama could have voiced some sympathy about the plight of frightened shareholders when he compared the stock market’s plunge to an election tracking poll that “bobs up and down, day to day.”

They worry that the president is underestimating the important role the stock market plays in the economy’s performance, and that the markets’ precipitous slide is actually a vote of no confidence in the administration’s handling of the economy. There’s also a suspicion that Mr. Obama and his advisers think only wealthy people own stocks.

“There is some of that feeling that rich people are the ones who have stocks. He does have somewhat of that feeling. But you’ve got to remember that most people who own stocks aren’t rich,” said David Wyss, chief economist at Standard & Poor’s, the influential Wall Street financial research and forecasting firm…

…Mr. Wyss and some of his colleagues on Wall Street – where investors have lost trillions of dollars in savings and the market is not so much bobbing as dropping straight down – think Mr. Obama could have shown more concern for the markets, which represent the economy and signal its future direction.

During Mr. Bush’s tenure, there was constant criticism that he was “intellectually incurious”, e.g., he showed a lack of interest in the portions of his job he wasn’t required to be engaged in on a regular basis.  I wouldn’t dispute those criticisms, of course, but it seems to be a trait that Pres. Obama shares with his predecessor.

Pres. Obama appears to be fascinated by aspects of politics such as “green jobs” and health care that aren’t actually part of the president’s core portfolio, while being uninterested in the foreign and military policies that are essential parts of the president’s purview.At the moment, we’re in the midst of an economic crisis–and I use the word intentionally–that stems from a credit bubble collapse.  The stock market is a predictor of future earnings and profitability for private sector firms.  As such, it tells you things about the expectations investors (which at this point includes more than half of the population) have about the future income that their investments will produce.  What the collapse in the stock market tells us is that investors are voting with their money that future earnings will be substantially lower, meaning that firms all across the country will be less profitable.

What happens on a day-to-day basis, of course, may be subject to a variety of market whims and fancies, but long-term trends do indicate the direction of the economy.  The market is a leading indicator.  So when there are several straight weeks of decline in stock prices, the market is telling us something.

This seems not to be a reality that the president comprehends.

Instead, the president’s main focus seems to be on health care, green jobs, more policemen and prosecutors, and the like.  All of which may be wonderful things, and none of which will happen if the economy implodes. To the extent the current crisis forces him to concentrate on economic policy, he appears to resent it.

Similarly, the president has made missteps in foreign policy this week.  The Obama Administration apparently attempted to sell our Eastern European allies down the river by offering to shut them out of missile defense if the Russians cooperate on nuclear non-proliferation in Iran–until they got caught out on it.  That was a  major misstep.It was quickly followed by two minor missteps.

First was Sec. Clinton presenting the Russian foreign minister with a button which was supposed to say, in Russian, “Reset”, to symbolize the new engagement with the world the Obama Administration was supposed to bring about.  What the button actually said was “overcharge” in Russian.  On top of this, it’s generally a bad idea, symbolically, to present the Russians with a button to push of any sort, considering that the major foreign policy goal of the last half of the 20th century was to prevent the Russians from pushing “the button”.

Second was the treatment of Gordon Brown, the prime minister of the UK, during his visit.  Rather than pulling out all the stops to showcase the visit of the head of government of what, by nearly any measure, is the United States’ most important ally, Mr. Obama treated it as if the Deputy Agriculture Minister of Azerbaijan had showed up on the White House’s doorstep.  In what may be a first in my lifetime, the various press organs in Britain, from the commies at The Spectator Observer, to the staid tories of The Times of London all agreed that Pres. Obama’s treatment of Mr. Brown amounted to an egregious snub of the United Kingdom.

In addition to the above, one has to note the retention of Sec. gates at the DoD, along with the retention of the great majority of the Bush Administration’s positions on executive privilege and the prosecution of the Global War on Terror.

What all of these things add up to is a picture of a president who is essentially uninterested in military policy, or foreign policy, or, really, economic policy, and who in effect simply ignores them to the extent he is able, and delegates their operation to his subordinates.  What he cares about is government, and its ability to intervene in the marketplace, and to provide goods and services.  It is in those areas where his interest and attention actually lie, and the remainder of the executive branch can, as far as he’s concerned, operate on auto-pilot.

Take all of the above together, and it appears to present an emerging picture of a man who is truly intellectually incurious, and who wishes to ignore, to the extent possible, those aspects of the president’s job that he doesn’t find personally appealing.

Sadly, he appears to be fascinated by aspects of politics such as “green jobs” and health care that aren’t actually part of the president’s core portfolio, while being uninterested in the foreign and military policies that are essential parts of the president’s purview.


Russia Freezes Iranian Missile Sale

An interesting story out of Russia via the Jerusalem Post. And while good news, albeit of a temporary nature I’m sure, I’m betting there is much more to this than meets the eye.  This is about positioning in upcoming missile defense talks with the US:

Russia has frozen the sale of the state-of-the-art S-300 anti-aircraft missiles to Iran, the Russian newspaper Kommersant reported Wednesday.

Iranian Defense Minister Mostafa Mohammad Najjar was reportedly informed of the decision by his Russian counterpart Anatoly Serdyukov on his visit to Moscow on Wednesday.

Russia said the delivery of the systems would be delayed at least until the upcoming meeting between President Dmitry Medvedev and his US counterpart, Barack Obama. Kommersant cited Russia’s wish to prevent hindering dialogue with the new US administration.

Military diplomatic sources were quoted by Kommersant as saying that the issue had been the focus of Najjar’s visit.

Of course the important point is the sale is frozen, not canceled. While that’s good news for both the US and Israel (the S-300 system is reported to be a very good air defense system against not just aircraft, but cruise missiles), it may not be any more than a temporary sop to the Americans and a reminder to the Iranians that Russia is their major backer and can pull that backing at any time. And, interestingly, there’s one other reason (or at least so Israel claims):

Israel Radio quoted Moscow sources as saying that apart form the gesture to the Americans, Russia also wanted to avoid ruining a $100 million drone purchase from Israel.

I say interesting because the S-300 sale is an $800 million sale. You jeopardize an 800 million sale for a 100 million purchase? Or do you grab the 100 mil buy because you know the 800 mil sale is in the bag? I’d say the latter, meaning the freeze is most likely for show only. Unless, of course, the Russians are just incredibly stupid businessmen.

I don’t think they are, although they’re not as clever in other areas as they sometimes think. This seems to me to be a very crude (but probably effective) set up for an “aw gee and here we made this great gesture toward working with you and this is how you act?” result of our first meeting with Russia. Absolute world opinion gold for Putin and the boys if they manage it correctly and, of course, the perfect opportunity to then unfreeze the sale.  Can anyone guess who’d end up being embarrassed by such a scenario?

~McQ


Irony – Advice From Putin … But Will We Heed It?

Amazing that it is Russia giving the advice and the US deciding it isn’t valid:

Russian Prime Minister Vladamir Putin has said the US should take a lesson from the pages of Russian history and not exercise “excessive intervention in economic activity and blind faith in the state’s omnipotence”.

“In the 20th century, the Soviet Union made the state’s role absolute,” Putin said during a speech at the opening ceremony of the World Economic Forum in Davos, Switzerland. “In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.”

Unfortunately I think this lesson is mostly lost on us and it will, just as it did Russia, cost us dearly.

~McQ


America’s “New” Foreign Policy

Joltin’ Joe Biden previewed it in Germany yesterday:

As promised, Vice President Joe Biden reached out to the international community Saturday, saying the U.S. is open for talks with Iran and Russia to repair relations, and willing to work with allies to solve world problems.

But in his first major foreign policy speech for the new administration, the Democrat also warned that the U.S. stands ready to take pre-emptive action against Tehran if it does not abandon its nuclear ambitions and support for terrorism.

Repair relations?  Just words at the moment.

Pre-emptive action? I thought we quit doing that stuff. OK, pre-emptive action. Also known as maintenance of the status quo policy. “We want to repair relations but reserve the right to pre-emptively attack Iran”.

Good luck with that.

And while he said it is time to mend fences with Moscow, he said the U.S. continues “to develop missile defenses to counter a growing Iranian capability, provided the technology is proven and it is cost-effective.”

Continue to develop missile defenses? Status quo – but again, with the caveat “we want to mend fences”.

Good luck with that.

The article notes that Biden was “short on details”. No particular surprise there. But apparently the “tone” was just music to the diplomats ears.

For instance:

“I think Vice President Biden came to Munich today in a spirit of partnership,” British Foreign Secretary David Miliband told AP Television News. “I think he set an ambitious agenda with big goals and high objectives, and he called and challenged us to work with him. I think that’s the right spirit.”

That hits me as diplo-speak for “he’s going to do things the way we want them done”. And, of course, that’s not leadership.

Understand too that diplomats are also going to give this a positive spin because they stand to gain from it. That’s why Russia said:

“The tonality was rather encouraging. It was really a serious call to restart U.S. foreign policy — including, clearly, Russian-American relations,” said Konstantin Kosachev, head of the international relations committee in Russia’s lower parliament house.

That’s diplo-speak for “we think we can roll these guys”.

What details Biden did give included the aforementioned continuation of the missile defense and this:

“It’s time to press the reset button and to revisit the many areas where we can and should be working together with Russia,” said Biden. Yet, he added that the U.S. will continue to have differences with Moscow, including opposition to its efforts to carve out independent states in Georgia.

Again, “just words” and status quo.

And to Europe, Biden said:

Biden, who also met privately with a number of world leaders, including top officials from Russia, France, and Germany, told allies that they will be expected to share the burdens of fighting extremists and bolstering weaker governments and poor nations.

“America will do more, that’s the good news,” said Biden. “But the bad news is America will ask for more from our partners.”

I’m not sure why asking more from our “partners” is “bad news” but it certainly reflects a continuation of the status quo.

Lastly, this:

On another topic, Biden told the leaders that the U.S. needs their help in taking the detainees now held at Guantanamo Bay, Cuba.

He repeated Obama’s vow that the U.S. will adhere to its values, not torture, and will close the detention center at Guantanamo that has spurred such criticism from European allies.

Of course we’ve since learned that the Obama administration has reserved the right to approve more intensive interrogation techniques and, of course, you don’t need Guantanamo if you continue give the CIA permission to use rendition as a tool to deal with terrorists.

But apparently, to this point, that hasn’t really penetrated the good will that Obama still enjoys among the Euro types. Once the new wears off and they’re actually pushed to contribute “more” they’ll probably “discover” the duplicity of Biden’s words.

Hope and change.

~McQ

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