Foreign Minister Sergey Lavrov’s remarks and answers to media questions at the Primakov Readings International Forum, via videoconference, Moscow, June 9, 2021

Foreign Minister Sergey Lavrov’s remarks and answers to media questions at the Primakov Readings International Forum, via videoconference, Moscow, June 9, 2021

June 10, 2021

Mr Dynkin,

Ladies and gentlemen,

Friends,

I am grateful for the invitation to speak again at the Primakov Readings International Forum. It is one of the most highly respected international venues for a committed professional dialogue, although probably the youngest. I would like to thank the leadership of Institute of World Economy and International Relations (IMEMO) for suggesting the idea of this forum and for the commendable organisation of this year’s event amid the COVID-19 restrictions.

I would like to welcome all the forum’s participants, who represent the Russian and international community of experts and political analysts. A dialogue on all aspects of the current international order is especially important at this stage.

These readings are integrally connected with the intellectual heritage of Yevgeny Primakov, an outstanding statesman. It was during his term as the Foreign Minister of Russia that the principles of Russia’s current foreign policy were formulated. These principles are independence, pragmatism, a multi-vector approach, respect for international law and openness to cooperation with anyone who is willing to interact on the basis of equality and mutual respect.These principles have been incorporated in the Concept of the Foreign Policy of the Russian Federation, which was approved in 2000 after Vladimir Putin’s election as President of Russia and subsequently modified. The current wording of the Concept was adopted in 2016. But the principles I have mentioned, which Academician Primakov formulated, remain effective to this day.

Russia’s major advantage is that these principles allow us to ensure the predictability and sustainability of our foreign policy. This is especially important now that the world order is at an extremely contradictory stage of its development marked by increased turbulence. But as a Chinese saying goes, such periods also offer enormous opportunities, which we must make use of to boost cooperation in the interests of all nations. We can see that positive trends are gaining momentum. I would like to mention in this context primarily the strengthening of the new centres of economic and political influence and the promotion of democracy in interstate relations in general. Incidentally, Yevgeny Primakov predicted this process back in the middle of the 1990s in his concept of a multipolar world.

Russia will energetically promote the continuation of the peaceful movement towards a polycentric world based on the leading states’ collective guidance of efforts to resolve global problems. But we are also realists and hence cannot disregard the stubborn, and I would even say aggressive unwillingness of our Western colleagues to accept this objective reality. We cannot disregard the striving of the collective West to ensure itself a privileged international position at all costs. The results of the upcoming G7, NATO and US-EU summits will be a gauge of the current mentality in the leading Western countries.

Not only Russia but also many others face the situation where the West’s representatives are unprepared for an honest, facts-based dialogue, preferring to act in the “highly likely” spirit. There are many instances of this approach. This is certain to undermine trust in the very idea of dialogue as a method of settling differences and to erode the capabilities of diplomacy as a crucial foreign policy tool.

The zeal, with which our Western colleagues started promoting the notorious “rules-based world order” concept, looks even more irrational and devoid of prospects.  Rules are always needed. Let me remind you that the UN Charter is also a body of rules, but these rules have been universally accepted and coordinated by all members of the international community, and they are not called into question by anyone. This is called international law. The UN Charter is the main part of international law and its foundation. While dodging the term “international law” and using instead the expression “rules-based world order,” our Western colleagues have in mind a totally different thing: they want to develop certain West-centric concepts and approaches to be later palmed off as an ideal of multilateralism and the ultimate truth. These actions are undertaken in areas such as chemical weapons, journalism, cyber security, and international humanitarian law.  There are universal organisations dealing with all these issues, but our colleagues, primarily in the EU as well as in the United States, are eager to promote their own concept in each of these areas.  If asked why this is not being done at the top organisation of multilateralism, the UN, they give no clear answer. We understand that it is, of course, more difficult to advance some initiatives of theirs and reach agreements in a universal format, where there are not only the “docile” members of the Western club but also Russia, China, India, Brazil and African countries. We will see how this “rules-based world order” concept will be reflected in the outcomes of the events that have already been announced, including the so-called Summit for Democracy announced by US President Joe Biden, or in the initiatives in the area of multilateralism announced by President of France Emmanuel Macron and a number of other leaders.

I am confident that we cannot ignore the incontrovertible fact that the present world order is a sum of agreements between the countries that won World War II. Russia will object to those wishing to cast doubt on the outcome of that war. We cannot and will not play up to those who would like to reverse the natural course of history. We, incidentally, have no superpower ambitions, no matter how hard some people try to convince themselves and everyone else of the opposite. Nor do we have the messianic zeal, with which our Western colleagues are attempting to spread their axiological “democratising” agenda to the rest of the world.It has long been clear to us that the outside imposition of development models will do no good. Look at the Middle East, Northern Africa, Libya, Yemen and Afghanistan.

A specific feature of the current situation is that the coronavirus pandemic has greatly accelerated the events, helping to settle existing problems and at the same time creating new ones.  I am referring to the global economic decline, destroyed industrial and marketing chains, growing isolationism and geopolitical opportunism. This common trouble is also reminding us, through growing problems, about the unprecedented connection between all members of the international community. Nobody can weather it out in a safe haven. This is probably one of the main lessons we must draw from what is happening.

Russia calls for cooperation with everyone, as I have already mentioned, on the basis of mutual respect, equality and a balance of interests. We are aware of the value of each international partner, both in bilateral relations and in the multilateral format. We value our friendship with everyone who reciprocates this feeling and is willing to look for honest agreements, without ultimatums and unilateral demands.

The issues we are ready to discuss cover nearly all important spheres of life: security, trade, environmental protection, climate change, digital transformation, artificial intelligence and plenty more.

Russia is promoting its ideas in Eurasia. The principles I have mentioned underlie the operation of the Commonwealth of Independent States (CIS), the Collective Security Treaty Organisation (CSTO), the Eurasian Economic Union (EAEU) and the Shanghai Cooperation Organisation (SCO). These associations are based exclusively on the principle of voluntary participation, equality and the common good. There are no “bosses” and “subordinates” in them. These organisations have creative goals and are not spearheaded against anyone, and neither do they claim to spread their narrow values throughout the world, demanding that absolutely all states without exception comply with them, as some other integration structures are doing.

Our unconditional priorities include the strengthening of our comprehensive interaction with China. This year we will celebrate the 20th anniversary of the Treaty of Good-Neighbourliness and Friendly Cooperation between Russia and China. Another similar goal is to promote our privileged strategic partnership with India. This is how it is defined in the documents that were adopted at the top level. We are expanding our cooperation with ASEAN nations and other Asian-Pacific countries. We are doing this within the framework of the unification philosophy, which constitutes the basis of President Vladimir Putin’s initiative of the Greater Eurasian Partnership. It is open to absolutely all countries of our common Eurasian continent, and the membership of this association will dramatically increase the comparative advantages of all Eurasian countries in this highly competitive world upon the assumption that they will make good use of their natural, God-given advantages and will not try to create new or deepen the existing dividing lines on our continent.

Both China and India support, in principle, the concept of the Greater Eurasian Partnership, which I have already mentioned. Its merits have been highly assessed at the SCO. We are discussing it with ASEAN nations. We are also open for discussions with the EU as our natural neighbour on this huge continent.

I believe that forums such as the Primakov Readings provide ideal venues for discussing any related ideas. There can be alternative approaches by all means, but we would like our discussions to be focused on the future in the interests of all countries of this vast region.

Russia will actively continue to facilitate the settlement of international conflicts. We are working in Syria and helping the people of Nagorno-Karabakh to restore peaceful life after we stopped the bloodshed there. We are taking a vigorous part in international efforts to achieve a settlement in Afghanistan, Libya, around Iran, the Korean Peninsula and many other hot spots.

I am referring to this not to attract attention to our achievements. We do not have an inferiority complex (just as we do not have a superiority complex in global politics) but we are always ready to help those who need assistance. This is our historical mission that is rooted in the centuries of our ancient history. Therefore, we will continue working to this end even on those problems that seem insoluble at first sight like a settlement in the Middle East. We are actively trying to restore the work of the Quartet of International Mediators and promoting the concept of ensuring collective security in the area of the Persian Gulf. We are willing to host a meeting of the Israeli and Palestinian leaders in Moscow as soon as possible. Now it is necessary to wait for the results of the internal political processes in Israel. It is very unfortunate that no attention was paid to our repeated reminders over many years that the concept of normalising Israeli-Arab relations cannot be carried out at the expense of the Palestinian problem. I believe that this is a very serious problem that will only continue to get worse.

We are actively working to coordinate the rules of responsible conduct in the information space now in the UN’s multilateral format. We are promoting cooperation in countering the coronavirus. I would like to emphasise that contrary to the Western allegations, we are invariably interested in pragmatic, mutually beneficial relations with all parties, including the West, be it the United States, its NATO allies or the EU. We are promoting a package of initiatives to prevent the complete collapse of the agreements and understanding in disarmament, arms control and non-proliferation after the Americans destroyed many treaties, for instance, START-3. We suggested a voluntary moratorium on the deployment of the missiles covered by it at least in Europe. Despite our proposals on verifying the moratorium, the West continues avoiding any honest discussion. In much the same manner, NATO has been literally talking our ear off for over two years in response to our very specific proposals aimed at reducing tension and military threat along the entire Russia-NATO contact line.

We are willing to work with any partner but there will be no one-sided game. Neither sanctions nor ultimatums will help anyone talk with us and reach any agreements.

In conclusion, I will quote these words by Yevgeny Primakov: “A strong Russia should not be seen as a threat to world stability. Only the inertia of thinking may suggest the conclusion about a threat emanating from Russia…”

Russia will never give up its fundamental values and will be true to its spiritual sources and its stabilising role in world politics.Therefore, we will continue doing everything for the firm, non-confrontational promotion of our national interests and developing cooperation with as many countries as possible.

I would like to emphasise only one idea: do not interpret our willingness for dialogue with any partner as a weakness. President of Russia Vladimir Putin stressed recently in his response to Western ultimatums that we will determine ourselves the red lines in relations with our Western partners and will primarily uphold our views on the world arrangement, on how to develop international relations in full conformity with the principles fixed in the UN Charter rather than some agreements between a narrow circle of parties.

Question: A question from Wolfgang Schussel, head of the Dialog-Europe-Russia forum and Federal Chancellor of the Republic of Austria in 2000-2007. The leaders’ summit for Russia and the United States is invariably a major international event that introduces new vectors into the work of the diplomats, the military and business on specific issues. The meetings are not always successful like, for example, the most recent summit in Helsinki with the 45th US President Donald Trump. We hope this time everything will be different. President Biden is interested in arms control and resuming the Iranian nuclear deal.

What are your expectations for a possible new agenda after the meeting of the two leaders in any area, in particular, cyberspace, autonomous weapons, or the regional conflicts in Afghanistan, Syria, Libya and North Korea?

Sergey Lavrov: I am happy to greet my good friend Wolfgang Schussel. I thank him for the question.

We have repeatedly made our position known in connection with the upcoming summit in Geneva on June 16. We do not set our expectations high, nor do we entertain any illusions about potential “breakthroughs.” But there is an objective need for an exchange of views at the highest level on what threats Russia and the United States, as the two largest nuclear powers, see in the international arena. The fact that a conversation is happening between the leaders of the two leading nuclear powers is, of course, important. We strongly support this approach by our US colleagues.

Clearly, normalisation of Russian-US relations, I’ll stress this again, can only be possible if the principles of equality, mutual respect and non-interference in each other’s internal affairs are observed. This is a prerequisite not only for maintaining a normal, predictable and steady dialogue (which the Americans claim they want), but it is also important for removing the accumulated issues of confrontation between our countries. We are ready for a candid conversation like this.

I hope that in preparation for the summit, those who are now dealing with Russia in the Biden administration (they used to say “Sovietology,” which would now be called “Russology, I would guess,” though it would be nice if it was “Russophilia”), will finally appreciate the actions, interests and position of the Russian Federation, and our red lines, and will be willing to correct the mistakes in recent years and will not conduct a dialogue solely from a position that claims hegemony in global affairs.

Clearly, any dialogue is better than no dialogue.But if a hegemonic mindset continues to determine the US’s position, if our colleagues from the United States continue to follow in the footsteps of their own propaganda, which deafens the US elite as well, then there’s not much we can expect from this summit. In any case, I think it is important to have a candid exchange of views at the highest level, even if there are differences that many believe are insurmountable.

We share an interest in strategic stability. We have fairly strong contacts on how to approach this area of ​​international politics at this point. Frankly, we advocate a comprehensive approach and taking into account all, without exception, factors influencing strategic stability in our dialogue with the United States. I mean nuclear and non-nuclear, and offensive and defensive weapons. Anything that affects strategic stability must be discussed during a dialogue.

The Americans have a much narrower approach. They are only interested in certain aspects of our nuclear triad and are not inclined, at least at this point, to agree on a comprehensive concept that would include everything without exception.

I hope that, based on the preliminary work and consultations in preparation for this summit, President Vladimir Putin and President Joseph Biden will be able to determine a strategic policy for future work in these areas.

Mr Schussel mentioned cyber security as well. We have no shortage of goodwill here. Ever since 2016, when the Obama administration began accusing us of “meddling” in their elections, we have suggested dozens of times sitting down and laying out specific facts and concerns that both sides have in a professional and trust-based manner. What we received was a strong refusal to do so. Now, I hope, we will discuss this matter and see to what extent the Biden administration is ready to do sincere work in this area.

You mentioned Afghanistan, Syria, Libya and North Korea. We maintain communication on all these matters, especially Afghanistan, North Korea and certain aspects of the Syria crisis and the situation in Libya. Together with the Americans, we are participating in internationally recognised multilateral forums. I’m referring to the talks on the nuclear issue on the Korean Peninsula and what we call the expanded Troika on Afghanistan (Russia, the United States, China and Pakistan).

There is a bilateral mechanism for Syria, primarily dealing with deconfliction. We always emphasise the US’s illegal presence on Syrian soil, especially since it includes plundering Syria’s natural resources and taking advantage of its oil fields and farm land. They use the proceeds to support (everyone is aware of this) separatism on the eastern bank of the Euphrates River thus flirting with a very dangerous problem – I mean the Kurdish problem. These games could come to a sticky end.

Since the US armed forces and combat aircraft are present in Syria, we have a deconflicting mechanism maintained by our respective defence ministries. In addition, sometimes we also have political consultations on how to move forward. We would welcome the United States resuming its participation as an observer in the Astana format and, in general, being more committed to the key principles of UN Security Council Resolution 2254 on the Syrian settlement.

The summit has no agreed upon agenda on paper. Sometimes our colleagues from the European Union (at a time when we still had relations and interaction bodies) focused on the word-for-word, scrupulous coordination of each item, which should then become the agenda of the negotiations. We didn’t have this with the Americans. We just listed the topics that the parties intended to touch on. We are doing the same this time. The work continues. It won’t be a long wait. I think things will become clear soon.We are interested in positive results from the summit, but, as they say, it takes two to tango. And if one party is break dancing, tangoing becomes a more difficult proposition.

Question: The Trump administration threw out the mechanism of the INF Treaty. Russia responded with an unprecedented act of goodwill. The Russian leaders sent a proposal to the United States and NATO to introduce a moratorium on the deployment of medium and shorter-range missiles in Europe. The Trump administration did not respond. There was only a weak reaction from European capitals. Is it possible to continue the dialogue on this problem? Is the proposed moratorium possible at all?

Sergey Lavrov: The INF Treaty is history. It doesn’t exist anymore. We have expressed regret over this.

You mentioned a very important fact. Immediately after this happened, apart from expressing regret over the treaty’s demise, President of Russia Vladimir Putin announced a unilateral moratorium on the deployment of ground-based medium and short-range missiles in Russia. It banned the deployment of the missiles prohibited by the defunct treaty unless similar US systems appeared in a given area. This was a unilateral moratorium.

Later, a few years ago, when this moratorium failed to generate much interest, President Putin took one more step. He sent a detailed message to the US and the other NATO and EU members and our Eastern neighbours (about 50 states in all). In this message, the Russian leader described in detail our moratorium proposal and supplemented it with an invitation to cooperate. He suggested that the Western countries also announce a reciprocal moratorium on their own without signing any legally binding agreements, simply as a goodwill gesture. In this detailed message, we discussed the West’s skeptical statements about Russia’s unilateral moratorium on the deployment of ground-based systems that were banned by the former treaty. The West’s politicians reasoned: “Russia is as cunning as a fox. It has already deployed Iskanders in the Kaliningrad Region that violate the parameters of the former treaty” while the NATO countries have no counterpart, thus this would be an inequitable exchange. However, to begin with, nobody has proved that Iskanders violate INF-established criteria and bans on the range of missiles. The Americans refused to provide any rationale on this.

I would also like to note at this point that they are still stubbornly refusing to present satellite photos from July 2014 when the Malaysian airliner crashed. The court in the Netherlands openly announced recently that there is no hope that the Americans will provide them. So, this question is closed for the court. In other words, evidence of paramount importance is being concealed.

Likewise, nobody has ever shown us the satellite photos that were used by the Americans to prove that our Iskanders violate the INF Treaty.

Considering that the Western countries believe Russia has already done this ahead of them and as we suggested freezing this situation, Russia would benefit from this, President Vladimir Putin said it straight in his Address to the Federal Assembly: considering the mutual mistrust, we suggest measures to verify a reciprocal moratorium. We invite you to come to the Kaliningrad Region and see these Iskanders. In exchange, we want our experts to visit missile defence bases in Romania and Poland because Lockheed Martin, the producer of missile launchers openly promotes them on its website as dual purpose: for launching both counter-missiles and anti-strike cruise missiles. I think this is a very honest proposal. Let’s check: you are concerned about our Iskanders, and we are worried about the dual purpose of those missile defence launchers.

The only positive response came from President of France Emmanuel Macron. He said this was an interesting proposal and that he was ready to take part in implementing it via a multilateral dialogue. But this didn’t happen. The Americans ignored the proposal for obvious reasons since they do not want to let anyone visit their missile defence sites (this is a separate question), while all the others obediently kept silent.

Our proposal remains on the table. I think we will certainly bring this up at the Geneva summit on June 16. Let’s see the response.

Question: Often, especially recently, you have said that the European Union is an unreliable partner. Unfortunately, this is the case, especially against the backdrop of insane and unbecoming for the 21st century Russophobic propaganda and scandals that are made up without providing any evidence.

You have extensive political experience. Do you think the low level of leadership in the EU may be at least partially mitigated during this year’s elections in Germany and other countries? Will the overall crisis be able to give rise to modern European leaders who will “emancipate” themselves, at least a little, from the United States and fulfil their mission which is to serve their respective peoples? This calls for a radical change in the EU’s policy towards Russia. Unfair and ineffective sanctions must be forgotten and we must return to dialogue and mutual trust in order to overcome common problems which cannot be resolved without a full dialogue and cooperation, including with Russia.

We look forward to seeing you in Bulgaria for the unveiling of the bust of our teacher Yevgeny Primakov.

Sergey Lavrov: God willing, I will definitely be there. We maintain a dialogue with Bulgaria via our respective foreign ministries. However, recently, certain factors have appeared, not from our side, that are not conducive to an expansion of constructive interaction. I hope this is temporary.

As for your question about the European Union and our relations with the EU, I have covered this issue many times. We want relations with the European Union that are equal and mutually respectful. We cannot have relations with the EU based on demands for Russia to change its behaviour. The foreign ministers of Germany and other European countries have said many times that we need to be partners (they no longer say friends) with Russia, but it must change its behaviour first. This is a mindset that cannot be changed.

I was talking about the rules-based order which they came up with. In fact, it is the Western vision of how to maintain relations between countries in the 21st century and, moreover, how to organise life within a country. These “messianic” processes on the advancement of democracy are quite aggressive. But as soon as you start talking with the West about democracy in the international arena and ways to promote it not only within the borders of a country (this is each individual state’s concern), but in international affairs so everyone is treated equally and heeds the voice of the majority, but also respects the minority, they immediately back pedal. They do not want to discuss the democratisation of international relations. The very concept of a “rules-based international order” negates any hope that the West will get drawn into a discussion on democratising global processes in international relations.

Literally in May, promoting one of the main elements of the concept of a rules-based world order, namely effective multilateralism, French President Macron bluntly stated that multilateralism does not imply the need to achieve unanimity. “The position of conservatives should not be an obstacle for ambitious frontrunners,” he said. I think this is clear. “Conservatives” are revisionists (you can call them that, although these words are antonyms). We and China are called “conservatives who do not want change” and “revisionists who want to slow things down that move the Western world forward.” At the same time, President Macron did not mention either the UN or international law.

There are “ambitious front-runners” who promote this concept, and there are those who want to “conservatively” hold on to UN Charter principles. That’s the problem. This was expressed by the president of the country, which was among those who, at some point, called for the EU’s strategic autonomy. But these discussions have been muted even in Germany.

At one EU event, President of the European Council Charles Michel praised the return of the United States to Euro-Atlantic solidarity. EU leadership was clearly relieved to know that everything is “good” again, the United States is “at the helm” again and they can follow in its wake.

I’m not trying to hurt anyone’s feelings. I hope no one takes offense, but it’s a fact. These are publicly stated assessments that have been repeatedly uttered by EU leadership.

The Munich Security Conference was held in May where Charles Michel said that the alliance between the United States and Europe is the basis for a rules-based international order. International law was not mentioned. He stressed that it is necessary to aggressively promote democracy to protect this order from “attacks” by Russia, China, Iran and other “authoritarian regimes.” That is, it follows that democracy for these purposes needs to be promoted within these respective countries and not in the international arena. This is more than self-revelatory. Without reservation, a concept is being put forward that is openly seeking dominance, at least claiming it.

European Commission President Ursula von der Leyen said, for example, that with respect to digital transformation, it is necessary for the United States and Europe to develop a “rulebook” that the world can follow.

More recently, our US colleagues said that new trade rules must be determined by the West, not China. What does this mean? A reform of the World Trade Organisation (WTO) is being discussed, because the Americans have understood one simple thing: that based on the currently approved rules of international trade and economy, which the United States initiated after WWII (the Bretton Woods system, the International Monetary Fund, the World Bank and the World Trade Organisation), that determined the course of globalisation, China has achieved much greater success in playing the Americans on their field. So, WTO activities are now blocked. The United States does not allow the appointment of officers for vacancies in the Dispute Settlement Body. All claims brought to this body that the Americans would have surely lost, cannot be considered.

We are talking about creating a new system and reforming the WTO. It is being clearly said that “the new rules of international trade must be determined by the United States and Europe, not China.” That is what this is about. This underlies the concept of a rules-based order.

You asked about the potential outcome of the upcoming elections in European countries, in particular, Germany. This is a question that only the German people and the peoples of the other EU countries can answer.

I have already covered the prospects for the “emancipation” of the EU from the United States.

Question: The United States often introduces sanctions against foreign companies or countries by suspending them from SWIFT, a major financial tool, which they use by virtue of their position of hegemony in the world. As a matter of fact, many countries, including China and even some European countries are suffering from SWIFT, which is controlled by the United States. Recently, the Russian government said the dollar might be removed from the country’s currency reserve. The Chinese government has started issuing digital currency. In theory, digital currency could lead to the creation of a new international financial system, which would significantly alleviate the threat of being suspended from SWIFT. What do you propose that Russia and China do to create a new international financial transaction system and reduce their financial dependence on the US?

Sergey Lavrov: Russian President Vladimir Putin gave a detailed answer to this question when speaking at the St Petersburg International Economic Forum last week. We are not looking to pull out of the existing system, which largely relies on the dollar. The problems stem from the United States being unaware of its responsibility as the country issuing the main reserve currency in the world, or else the US is aware but blatantly abuses its role. There are quite a few stories of how everyone argued that the dollar could be used for political purposes, which makes it unreliable. As we continue to make the point that everyone must honour the universal multilateral approach and not politicise the mechanisms that have been agreed on once and for all but rather use them to achieve objectives that underlie these mechanisms, we, of course, are considering how to respond if our colleagues show yet again their willingness to dictate and punish and use international trade and transaction leverage for this purpose

I want to note that not a single official in the West ever in my memory demanded that Russia, China or any other country be disconnected from SWIFT. That is what some politicians are calling for, but this has never been borne out either in statements by officials from leading Western countries or in SWIFT administration statements.

We really want, and this was officially announced, to remove the dollar from our economy and our financial system. The other day a decision was taken to cease holding the country’s gold and forex reserves in dollars. Appropriate measures have already been taken. But I want to emphasise again that this does not mean that we are discarding the dollar altogether, however, for the reasons mentioned earlier we are interested in relying more on other currencies, including national currencies, in bilateral trade with our partners, including our Chinese partners, other SCO members and many other countries. We are also ready to support transactions that are not denominated in dollars and but that are based on the use of other currencies.

In this context, crypto-currency is a very popular topic today. China is vigorously developing it and has achieved remarkable results. We are also working on this in a substantive manner. I believe there will be a time when crypto currencies will play a significant role and occupy a considerable niche in international settlements, but it might be better to discuss the details of this with economists. The Russian Foreign Ministry watches political developments. We are concerned about how to make sure our country’s economic ties do not pose threats to our security.

Question: Currently, a fairly intensive three-way process is underway to restore transport connections in the region. This process involves Armenia, Russia and Azerbaijan, but not Turkey, which was a full participant in the last war in Karabakh and which is actually a party to the conflict. Meanwhile, you know that the Armenian-Turkish border has been blocked for 30 years after Armenia gained independence. This, by the way, is the only blockade on the territory of geographical Europe and transport lines are there, in particular, a railway which was built in Czarist Russia. It uses electricity from high-voltage power lines that have existed since Soviet times. Don’t you think that Turkey should be involved in this process of unblocking transport connections in the region and bear its share of the responsibility for this?

Sergey Lavrov: I would like to add that Iran does not take part in the work of this trilateral group either, and Iran is no less and, perhaps, more interested in having its interests taken into account. You asked whether we should involve Turkey in this work and make it bear responsibility. The work of the trilateral group on restoring economic ties and transport links is not about punishment; it is about resuming normal economic life, which existed until the late 1980s when the war broke out, which stopped only four years later.

Now the bloodshed is over. It ended a little later than we proposed to the parties. It is not our fault that the war lasted longer than it could have and the truce was reached later than it could have been reached. We were only intermediaries; we could not force either side to do this or that. We only convinced them that further bloodshed was pointless and extremely dangerous, first of all, for how people will continue to live on this land.

Currently, our peacekeepers are carrying out their mandate. There have been no major incidents. Both Baku and Yerevan recognise this. Any minor problems are quickly corrected. Yes, there are tensions at some sections of the border between Armenia and Azerbaijan but they have nothing to do with Nagorno-Karabakh. Simultaneously with the ceasefire, the leaders of our countries agreed on November 9, 2020 to unblock all communications. This was one of the main items that was agreed upon years ago by the OSCE Minsk Group chaired by Russia, France and the United States.

Following this agreement of principle, the leaders of Russia, Armenia and Azerbaijan met in January. They established a trilateral working group at the prime minister level to deal exclusively with unblocking of all economic, transport and other connections in the region. The examples you gave – railways, roads and electricity lines are all subject to negotiation where professionals will prioritise opening them.

Naturally, the parties are considering the interests of their other neighbours. It would probably be unrealistic to hope that having reached agreement the three sides could neglect the views of Turkey or Iran. This would be a mistake. Many strategic routes pass through this critical area: both north-south and east-west. The most important goal is to develop relations for the long-term perspective rather than think of involving or not involving someone else.

I understand that many people say that the status of Nagorno-Karabakh remains open. This will eventually be coordinated with the co-chairs of the OSCE Minsk Group. At this point, they should not worry too much about its status. Instead, they need to promote confidence measures and the settling of humanitarian issues, and help both Armenians and Azerbaijanis live together in peace, security and economic wellbeing. I can assure you that if we help establish this lifestyle in two or three years, it will be much easier to resolve all the problems of the status of this area.

I would not focus on these or other statements from the capitals of the countries in the region or the immediate parties to the conflict. Emotions tend to prevail in these statements for the most part. We urge everyone involved in this to continue to help those on the ground to remain calm and return to normal life. We are actively involved in doing this via our peacekeeping contingent and the Emergencies Ministry. The results of the efforts by the trilateral group will depend on how much the unblocking efforts help improve everyday life.

Regarding Turkey and its role in this, as I said, the participants of these trilateral discussions do consider the interests of Turkey and Iran because otherwise the opening of links will not produce the best results.

The Russia-Turkey centre is monitoring compliance with the ceasefire from Azerbaijan. With technical equipment, it ensures joint observation of the developments on the ground. This is a very useful part of this general agreement. It ensures the involvement of our Turkish colleagues in this process and is a stabilising factor.

Question: The Russia-India partnership continues to flourish even though the world is going through hard times. Our cooperation on the Sputnik V vaccine confirms this. India and all Indians are grateful for the assistance offered by our Russian friends during the receding second wave of the pandemic.

What short- and long-term lessons can the international community learn about the origin and spread of COVID-19? Some people are worried that even 18 months later, we do not know about the origin of the virus that first appeared in Wuhan. This will not help us in preventing future pandemics.

How can we balance our national responsibility and international cooperation to follow the international health regulations and help the WHO to identify and prevent future outbreaks?

Sergey Lavrov: In general, the coronavirus pandemic has certainly created an unprecedented challenge. It has become a kind of test for “true friendship.” As we know, a friend in need is a friend indeed. However, several states decided not to share their vaccines. Probably, this approach is not justified by human morality or ethics, especially under conditions of interdependence and globalisation. We share these moral principles, as do our dear Indian friends.

Thank you for your kind words about the assistance we have been providing to Indians in these difficult times. During the past month, we managed to organise several large consignments of humanitarian medical aid, including the Sputnik V vaccine and other medications. We are currently developing the production of this vaccine in India. We hope that by taking these and other steps, by pooling our efforts, we will manage to deal with this grievous disease and protect the health of our people as soon as possible.

As for revealing the source of the virus, as you know, the WHO has made serious efforts in this respect. It sent experts to China. They came from 10 countries, including Russia. They also represented related international agencies. The results of their inquiry were published immediately after their visit. They were also presented at the 74th World Health Assembly that ended last week.

You are right. There are no decisive conclusions on the initial origins of COVID-19 so far, but this is not unique. Neither WHO specialists nor we know yet the origins of the Ebola virus that appeared in the 1970s. The specialists continue working on this. As you know, I am not well versed in this discipline, but I am convinced that the specialists must continue this work without politicising it. Any attempt to politicise the situation around COVID-19 is similar to efforts we are seeing in other areas. They reflect a striving of some countries to use methods of unfair competition. We need to develop comprehensive and transparent international cooperation on further studies of the origin of the virus, and, most importantly, on overcoming the pandemic. Talk about who is to blame and who is innocent must not obstruct any response effort.

When emergencies in health protection occur, the main goal is to have strong national healthcare and sanitary-epidemiological systems. The COVID-19 pandemic has confirmed this conclusion. I think the countries with well-organised healthcare systems and a high ability to mobilise medical and other resources have made a more effective response to the challenge of the coronavirus infection.

As for international cooperation, we have been developing this for some time, practically from the start of the pandemic through both bilateral channels and via international agencies. We promote the realisation of the International Health Regulations. They were drafted at our initiative and approved by the WHO but have not yet been incorporated into practical systems in many countries. These regulations are the main instrument of international law in developing national systems for preventing and dealing with epidemics like this. So, the way out of the current crisis probably lies in coordination, transparency, as well as an ability and willingness to share experience and pool efforts.

Question: Would it be possible and desirable for the United States and Russia to undertake, as part of studying cyberspace challenges, to work on countering cyber attacks by criminal groups that use ransomware against a particular country emanating from Russia or the United States? What could the parameters of such cooperation be? Or is the level of mistrust so great that this kind of cooperation is simply not possible now?

Sergey Lavrov: We have been hearing accusations against us of all kinds of transgressions for many years now. With regard to the cyber world, I mentioned the 2016 elections. In later occurrences, a number of incidents in the United States or other countries were immediately and publicly ascribed to the Russian Federation. Not a single fact has ever been presented to us. Now, the latest incident (President Vladimir Putin commented on this at the St Petersburg International Economic Forum) is the notorious attack against Colonial Pipeline and meat processor GBS. Even you in your question wonder whether it is possible to establish cooperation between Russia and the United States on investigating such incidents and on fighting criminal groups, in particular those that demand ransom. Even from this question, it becomes clear that you are motivated by a surge in public opinion about two specific incidents. Notably, I would like to stress, that the US administration does not promote the thesis that the Russian state is responsible for these incidents.

Antony Blinken recently said that these are probably private hackers, but Russia must stop them, because they originate from its territory. As a reminder in this regard (double standards), when the problems in the United States were at their height, American social media and internet platforms were blocking access to information on a particular issue. This topic was discussed, among other things, at the OSCE and the Council of Europe. We emphasised the responsibility of the United States, just like any other country, to ensure that its citizens have 100 percent access to any kind of information. Then the American side told us: “Right, but these are the obligations of the state, and we are talking about the actions of private corporations. We cannot be responsible for their actions.” In this case, the Americans are urging Russia to find these “private operators” and still fulfil the function of the state to suppress illegal actions. Let’s make sure we all follow the rules, and that the rules are universally applicable. Any state that has signed on to the obligation to ensure freedom of access to information is obliged to do so regardless of who is hiding the information – a state entity or a private corporation. Moreover, the bulk of all information is now in the hands of private corporations.

Now, I would like to say a few words about cybersecurity. We not only want, but we have repeatedly proposed to the United States, even, perhaps, somewhat obtrusively, to deal with this issue. When, as part of the above accusations we heard in 2016 (the Obama administration began alleging these things back in October, before the election day) we were presented with claims, we reminded our American colleagues that there’s a closed channel between Moscow and Washington in case of incidents, including in cyberspace. After accusations against the Russian Federation of interfering in the US elections were loudly read out, we suggested that the Americans provide us, through this closed channel, with the facts corroborating their concerns. We sent this proposal, I think, seven times from October 2016 to January 2017, right up to the Trump inauguration. None of these proposals were answered by the Obama administration’s relevant services. Instead, an annoyed Barack Obama, at the end of his tenure, raided and seized our diplomatic property in the US and drove the diplomats out. This impulsive step was a response to our professional offers to do honest and specific work.

This is not the only example. The cybersecurity dialogue with Washington was frozen through no fault of ours. Subsequently, we proposed returning to it. In July 2017, we handed over a draft memorandum on establishing a Russian-American ICT security group. The response appeared to be positive, and we agreed to hold the first meeting in Geneva in early 2018. The US delegation went there, and the Russian delegation was on its way there, too, but when our specialists landed at the Geneva airport, they were told that the Americans canceled the meeting without providing any meaningful reason.

In September 2020, President Vladimir Putin, at his level, issued a statement on how we would want to see cooperation between the United States and the Russian Federation in developing a comprehensive programme of measures to restore cooperation in this sphere. It included specific proposals. After President Biden’s inauguration, we reaffirmed this proposal. It is being reviewed by the US administration. I hope that we will find out in Geneva the reaction of President Biden and his team. The UN is working on international cybersecurity in the context of military-political problems, and at the same time a decision was made to start developing a convention on combating cybercrime. This is exactly what happened to Colonial Pipeline and the GBS meat processing company. In both cases, a consensus was reached, although before that our Western colleagues had objections. But consensus was reached on both issues. I have reason to hope that this will help advance the bilateral dialogue as well. But most importantly, the dialogue must be conducted professionally, rather than loudly and without facts.

Question: Angela Merkel has been Germany’s chancellor for 16 years. What is your opinion of Russian-German relations over this period? How will they change?

Sergey Lavrov: This is another issue President Vladimir Putin spoke about during the St Petersburg International Economic Forum (SPIEF). He expressed his opinion of the professionalism and experience of Chancellor Merkel and his satisfaction with their cooperation. Of course, we are monitoring the developments in Germany in the context of the upcoming elections. We hope that their outcome will ensure what I wanted to describe as continuity in our relations, but it would be better if it were not just continuity in the form of a regular dialogue, but continuity that would also take into account the lessons of the past 16 years.

When President Putin assumed his position in the Kremlin after the 2000 election, one of his first foreign visits was to Germany. He addressed the Bundestag in German. Many of us, including yours truly, perceived the emotional and positive energy of his address as the addition of a personal dimension to the previous historical reconciliation of the Russian and German nations. This was obvious.  He invested a huge part of his authority and his policy into Russian-German relations, into reconciliation that should take the form of practical deeds in great many spheres. We are not to blame that our relations have cooled. Incidentally, alarming signs appeared even before 2013 or 2014. For example, in 2010, then President of Russia Dmitry Medvedev had a summit meeting with Chancellor Merkel in Meseberg. One of the decisions reached concerned the establishment of a Russian-German crisis management committee. It was not designed as a simple discussion venue, but as a body that would coordinate joint crisis settlement mechanisms. On the practical level they mentioned Transnistria. The document was coordinated, but Germany later abandoned all efforts to implement it.

Of course, we are aware that the main reason for a far from sunny state of our bilateral relations is support provided by Berlin, the EU in general and the West as a whole to the armed, bloody and anti-constitutional coup that took place in Ukraine in February 2014, barely 12 hours after Germany, France and Poland, acting through their foreign ministers, said they would guarantee compliance with the agreement on a settlement between President Viktor Yanukovych and the opposition.  The agreement was buried by the opposition signatories the very next day. Germany, France, Poland and the EU, which these countries represented, did nothing to challenge the opposition in response to our calls; worse than that, they even encouraged the new turn of events. Those who came to power put forth their anti-Russia position in their very first statements; they called for throwing Russians out of Crimea and sent trains with armed thugs there.

Germany and other European countries closed their eyes to these developments (the United States did the same), saying that reality on the ground had changed. In addition to this extremely negative policy, they accused us of violating the rules they themselves invented, and denounced the free expression of the people’s will in Crimea as annexation. Sanctions were adopted against Russia for the failure of European diplomacy to force the opposition to honour the agreements reached with President Yanukovych through the mediation of Germany, France and Poland.

This is when it all began. But we did not get confrontational; we did not cancel the planned Russia-EU summit. Despite all of this, in 2014 President Putin attended the celebrations of the allied landing in Normandy and the opening of the Second Front. It was there that the sides coordinated the Normandy Format, which led to the signing of the Minsk Agreements in February 2015. We thought once again that the document would be honoured. But just as in the case of the February 2014 agreement, the Minsk Agreements are not being implemented, and it is deeply regrettable that Germany and France, as parties of the Normandy format, are trying to justify Kiev’s absolutely destructive position. Vladimir Zelensky said more than once that he doesn’t want to implement the Minsk Agreements, but that he wants to keep them because as long as they exist there will be sanctions against Russia. Our German, French and other colleagues have never tried to overturn this logic or as much as comment on such statements.   We do want to have normal relations with Germany and work together with it to settle the crises that exist in our common space, in our neighbourhood. But we would like to see that Germany is able to honour agreements.

We appreciate Berlin’s stand in the face of US attacks on Nord Stream 2, which began during Donald Trump’s presidency. President Putin mentioned this as well. But he also pointed out that Germany has done this for a reason, because this is in the fundamental interests of Germany. Incidentally, the story with Nord Stream 2 is not over yet. I have read comments by Antony Blinken to the effect that they are discussing ways for Ukraine to preserve fees for the transit of gas to the EU. We have a transit agreement with Ukraine until 2024. What will happen after that should be discussed, but the US administration is already discussing what should be done to protect Ukraine from harm. According to Blinken, one of the possible ways is to extend the transit agreement “for many years into the future,” so that Ukraine will continue to benefit from the transit fees. If this doesn’t work out, another option is to compensate for the transit fees that Kiev may lose, which is something the Europeans should do.

In other words, the Europeans’ attitude to the issues on which we are cooperating will be put to the test many times yet. I hope very much that the German people will be guided by their interests, just as they always have been throughout their history. We are interested in strengthening our partnership as much as possible. Many people say that the Russian-German partnership and rapprochement threaten the trans-Atlantic alliance. But this is an issue for the future periods of geopolitical research.

A little less conversation, a little more action

Foreign Minister Sergey Lavrov’s opening remarks at a meeting with US Secretary of State Antony Blinken on the sidelines of the Arctic Council Ministerial Meeting, Reykjavik, May 19, 2021
A little less conversation, a little more action

May 20, 2021

by Pepe Escobar and first posted at Asia Times

So Sergey Lavrov and Tony Blinken met for nearly two hours at the Harpa Concert Hall in Reykjavik, on the sidelines of the ministerial session of the Arctic Council.

Frosty? Not really. Even if the get together may not have been a throwback to a Reagan-Gorbachev funfest in the good old Cold War days. After all, there was a NATO warship parked right outside the windows of Harpa Hall – like a prop in a Marvel blockbuster.

Self-described “amateur guitarist” Blinken may have been relatively swayed by the charms of the 1968 Elvis stunner A Little Less Conversation.

Well, at least there was some conversation. As for “a little more action”, as Elvis sang it, it remains to be seen. A good sign is that they addressed each other as “Sergey” and “Tony”. Blinken even attempted a “Spasiba”.

Let’s start with Lavrov – who routinely dwells in the Valhalla of diplomacy, unlike average apparatchik Blinken.

We agreed to continue our joint actions, which are developing quite successfully, on regional conflicts where the interests of the United States and Russia coincide. This is the nuclear problem of the Korean Peninsula, and the situation with efforts to restore the Joint Comprehensive Plan of Action on the Iranian nuclear program. This is Afghanistan, where the expanded troika consisting of Russia, China, the United States, Pakistan is actively working. We discussed how at this stage we can make all our joint actions more effective.

So there was “a very useful conversation” (Lavrov again) on what they do coincide (revival of the JCPOA), don’t coincide (Afghanistan) and hardly coincide (North Korea).

More than useful, actually: “constructive”. Lavrov again: “There is an understanding of the need to overcome the unhealthy situation that developed between Moscow and Washington in previous years.”

Lavrov made it very clear what we are at a stage of mere “proposal” to “start a dialogue, considering all aspects, all factors affecting strategic stability: nuclear, non-nuclear, offensive, defensive. I have not seen a rejection of such a concept, but experts still have to work on it.”

So Blinken did not reject it. The devil is how the “experts” will “work on it”.

Those pesky “laws of diplomacy”

It’s quite useful to compare what they said to each other – at least according to what was leaked.

Lavrov stressed discussions must be “honest, factual and with mutual respect”. Most important area of cooperation is “strategic stability”. He crucially invoked the “laws of diplomacy” – something that the Hegemon has not exactly been fond of lately: they “call for reciprocity, especially when it comes to responding to any kind of unfriendly action.” Implied is Moscow’s willingness to solve problems “inherited from previous US administrations.”

Blinken said the US wants a predictable and stable relationship: “It’s our view that if the leaders of Russia and the United States can work together cooperatively, our people, the world can be a safer and more secure place.” Areas where interests “intersect and overlap” include battling Covid-19 and climate change, apart from Iran, Afghanistan and North Korea.

“Russian aggression” though could not simply be thrown into the Arctic Sea: “If Russia acts aggressively against us, our partners, our allies, we will respond… not for purposes of escalation, not to seek conflict, but to defend our interests.”

So “experts” will have a field day – actually, days, weeks and months – figuring out how which brands of “Russian aggression” attack “our interests.”

As it stands, it looks like the bilateral Putin-Biden summit next month in a “European diplomatic capital” – as rumors swirl in Brussels – may be a go. To hope that it would take place, for instance, in Nursultan – the diplomatic capital of Eurasia – is a long shot.

Lavrov: “We will prepare proposals for our presidents both on these issues [the work of diplomatic missions] and the matters related to our dialogue on strategic stability.”

It’s quite enlightening to consider two parallel developments to Reykjavik.

The State Dept. confirmed it will waive sanctions against the Swiss-based company overseeing the construction of Nord Stream 2. And SWIFT confirmed to the Russian Central Bank that business continues as usual, and Moscow won’t be cut off from the system.

These may be interpreted as goodwill gestures ahead of the possible June summit. Afterwards, no one knows.

It’s also enlightening to note what Lavrov and Blinken did not discuss: vaccine diplomacy.

Sergey Naryshkin, the director of the SVR foreign intel, is now on the record saying that the registration of Sputnik V vaccine at the EU is being stalled by “signals from the corridors of power” in Brussels – something I confirmed weeks ago with relatively independent diplomats. The European Medicines Agency (EMA) still sustains that the vaccine may be registered before the end of the month.

And then there are glaring cases like Brazil, the target of tremendous pressure by Washington to prevent Sputnik V’s approval. Sputnik V has been registered by 61 nations, overwhelmingly in the Global South.

Let’s assume that Cold War 2.0, in theory, may have been put on hold. Now it’s time then for a “little more action”. Will it come to the point that Sergey and Tony will agree on “a little less fight, a little more spark” and dance to the rhythm of “all this aggravation ain’t satisfactioning me”?

Related

America’s Neoliberal Financialization Policy vs. China’s Industrial Socialism

America’s Neoliberal Financialization Policy vs. China’s Industrial Socialism

April 15, 2021

By Michael Hudson and posted with special permission

Nearly half a millennium ago Niccolo Machiavelli’s The Prince described three options for how a conquering power might treat states that it defeated in war but that “have been accustomed to live under their own laws and in freedom: … the first is to ruin them, the next is to reside there in person, the third is to permit them to live under their own laws, drawing a tribute, and establishing within it an oligarchy which will keep it friendly to you.”[1]

Machiavelli preferred the first option, citing Rome’s destruction of Carthage. That is what the United States did to Iraq and Libya after 2001. But in today’s New Cold War the mode of destruction is largely economic, via trade and financial sanctions such as the United States has imposed on China, Russia, Iran, Venezuela and other designated adversaries. The idea is to deny them key inputs, above all in essential technology and information processing, raw materials, and access to bank and financial connections, such as U.S. threats to expel Russia from the SWIFT bank-clearing system.

The second option is to occupy rivals. This is done only partially by the troops in America’s 800 military bases abroad. But the usual, more efficient occupation is by U.S. corporate takeovers of their basic infrastructure, owning their most lucrative assets and remitting their revenue back to the imperial core.

President Trump said that he wanted to seize Iraq’s and Syria’s oil as reparations for the cost of destroying their society. His successor, Joe Biden, sought in 2021 to appoint Hillary Clinton’s loyalist Neera Tanden to head the government’s Office of Management and Budget (OMB). She had urged that America should make Libya turn over its vast oil reserves as reparations for the cost of destroying its society. “We have a giant deficit. They have a lot of oil. Most Americans would choose not to engage in the world because of that deficit. If we want to continue to engage in the world, gestures like having oil rich countries partially pay us back doesn’t seem crazy to me.”[2]

U.S. strategists have preferred Machiavelli’s third option: To leave the defeated adversary nominally independent but to rule via client oligarchies. President Jimmy Carter’s national-security advisor Zbigniew Brzezinski referred to them as “vassals,” in the classical medieval meaning of demanding loyalty to their American patrons, with a common interest in seeing the subject economy privatized, financialized, taxed and passed on to the United States for its patronage and support, based on a mutuality of interest against local democratic assertion of nationalistic self-reliance and keeping the economic surplus at home to promote domestic prosperity instead of being sent abroad.

That policy of privatization by a client oligarchy with its own source of wealth based on the U.S. orbit is what American neoliberal diplomacy accomplished in the former Soviet economies after 1991 to secure its Cold War victory over Soviet Communism. The way in which client oligarchies were created was a grabitization that utterly disrupted the economic interconnections integrating the economies. “To put it in a terminology that harkens back to the more brutal age of ancient empires,” Brzezinski explained, “the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected and to keep the barbarians from coming together.”[3]

After reducing Germany and Japan to vassalage after defeating them in World War II, U.S. diplomacy quickly reduced the Britain and its imperial sterling area to vassalage by 1946, followed in due course by the rest of Western Europe and its former colonies. The next step was to isolate Russia and China, while keeping “the barbarians from coming together.” If they were to join up, warned Mr. Brzezinski, “the United States may have to determine how to cope with regional coalitions that seek to push America out of Eurasia, thereby threatening America’s status as a global power.”[4]

By 2016, Brzezinski saw Pax Americana unravelling from its failure to achieve these aims. He acknowledged that the United States “is no longer the globally imperial power.”[5] That is what has motivated its increasing antagonism toward China and Russia, along with Iran and Venezuela.

TRANSITION: the problem was not Russia, whose Communist nomenklatura let their country be ruled by a Western-oriented kleptocracy, but China. The U.S.-China confrontation is not simply a national rivalry, but a conflict of economic and social systems. The reason why today’s world is being plunged into an economic and near-military Cold War 2.0 is to be found in the prospect of socialist control of what Western economies since classical antiquity have treated as privately owned rent-yielding assets: money and banking (along with the rules governing debt and foreclosure), land and natural resources, and infrastructure monopolies.

This contrast in whether money and credit, land and natural monopolies will be privatized and duly concentrated in the hands of a rentier oligarchy or used to promote general prosperity and growth has basically become one of finance capitalism and socialism. Yet in its broadest terms this conflict existed already 2500 years ago. in the contrast between Near Eastern kingship and the Greek and Roman oligarchies. These oligarchies, ostensibly democratic in superficial political form and sanctimonious ideology, fought against the concept of kingship. The source of that opposition was that royal power – or that of domestic “tyrants” – might sponsor what Greek and Roman democratic reformers were advocating: cancellation of debts to save populations from being reduced to debt bondage and dependency (and ultimately to serfdom), and redistribution of lands to prevent its ownership from becoming polarized and concentrated in the hands of creditors and-landlords.

From today’s U.S. vantage point, that polarization is the basic dynamic of today’s U.S.-sponsored neoliberalism. China and Russia are existential threats to the global expansion of financialized rentier wealth. Today’s Cold War 2.0 aims to deter China and potentially other counties from socializing their financial systems, land and natural resources, and keeping infrastructure utilities public to prevent their being monopolized in private hands to siphon off economic rents at the expense of productive investment in economic growth.

The United States hoped that China might be as gullible as the Soviet Union and adopt neoliberal policy permitting its wealth to be privatized and turned into rent-extracting privileges, to be sold off to Americans. “What the free world expected when it welcomed China into the free trade body [the World Trade Organization] in 2001,” explained Clyde V. Prestowitz Jr, trade advisor in the Reagan administration, was that, “from the time of Deng Xiaoping’s adoption of some market methods in 1979 and especially after the collapse of the Soviet Union in 1992 … increased trade with and investment in China would inevitably lead to the marketization of its economy, the demise of its state-owned enterprises.”[6]

But instead of adopting market-based neoliberalism, Mr. Prestowitz complained, China’s government supported industrial investment and kept money and debt control in its own hands. This government control was “at odds with the liberal, rules-based global system” along the neoliberal lines that had been imposed on the former Soviet economies after 1991. “More fundamentally,” Prestowitz summed up:

China’s economy is incompatible with the main premises of the global economic system embodied today in the World Trade Organization, the International Monetary Fund, the World Bank, and a long list of other free trade agreements. These pacts assume economies that are primarily market based with the role of the state circumscribed and micro-economic decisions largely left to private interests operating under a rule of law. This system never anticipated an economy like China’s in which state-owned enterprises account for one-third of production; the fusion of the civilian economy with the strategic-military economy is a government necessity; five year economic plans guide investment to targeted sectors; an eternally dominant political party names the CEOs of a third or more of major corporations and has established party cells in every significant company; the value of the currency is managed, corporate and personal data are minutely collected by the government to be used for economic and political control; and international trade is subject to being weaponized at any moment for strategic ends.

This is jaw-dropping hypocrisy – as if the U.S. civilian economy is not fused with its own military-industrial complex, and does not manage its currency or weaponize its international trade as a means of achieving strategic ends. It is a case of the pot calling the kettle black, a fantasy depicting American industry as being independent of government. In fact, Prestowitz urged that “Biden should invoke the Defense Production Act to direct increased U.S.-based production of critical goods such as medicines, semiconductors, and solar panels.”

While U.S. trade strategists juxtapose American “democracy” and the Free World to Chinese autocracy, the major conflict between the United States and China has been the role of government support for industry. American industry grew strong in the 19th century by government support, just as China is now providing. That was the doctrine of industrial capitalism, after all. But as the U.S. economy has become financialized, it has de-industrialized. China has shown itself to be aware of the risks in financialization, and has taken measures to attempt to contain it. That has helped it achieve what used to be the U.S. ideal of providing low-priced basic infrastructure services.

Here is the U.S. policy dilemma: Its government is supporting industrial rivalry with China, but also supports financialization and privatization of the domestic economy – the very policy that it has used to control “vassal” countries and extract their economic surplus by rent-seeking.

Why U.S. finance capitalism treats China’s socialist economy as an existential treat

Financialized industrial capital wants a strong state to serve itself, but not to serve labor, consumers, the environment or long-term social progress at the cost of eroding profits and rents.

U.S. attempts to globalize this neoliberal policy are driving China to resist Western financialization. Its success provides other countries with an object lesson of why to avoid financialization and rent-seeking that adds to the economy’s overhead and hence its cost of living and doing business.

China also is providing an object lesson in how to protect its economy and that of its allies from foreign sanctions and related destabilization. Its most basic response has been to prevent an independent domestic or foreign-backed oligarchy from emerging. That has been one first and foremost by maintaining government control of finance and credit, property and land tenure policy in government hands with a long-term plan in mind.

Looking back over the course of history, this retention is how Bronze Age Near Eastern rulers prevented an oligarchy from emerging to threaten Near Eastern palatial economies. It is a tradition that persisted down through Byzantine times, taxing large aggregations of wealth to prevent a rivalry with the palace and its protection of a broad prosperity and distribution of self-support land.

China also is protecting its economy from U.S.-backed trade and financial sanctions and economic disruption by aiming at self-sufficiency in essentials. That involves technological independence and ability to provide enough food and energy resources to support an economy that can function in isolation from the unipolar U.S. bloc. It also involves decoupling from the U.S. dollar and from banking systems linked to it, and hence from U.S. ability to impose financial sanctions. Associated with this aim is creation of a domestic computerized alternative to the SWIFT bank-clearing system.

The dollar still accounts for 80 percent of all global transactions, but less than half of today’s Sino-Russian trade, and the proportion is declining, especially as Russian firms avoid dollarized payments or accounts from being seized by U.S. sanctions.

These protective moves limit the U.S. threat to Machiavelli’s first option: destroy the world if it does not submit to U.S.-sponsored financialized rent extraction. But as Vladimir Putin has framed matters: “Who would want to live in a world without Russia?”

Kin Chi: My quick comment: The USA surely would want to destroy its rival, taking the first option. But it knows it is impossible to succeed, even in the case of Russia, and not to mention China. Thus it hopes for the rival to disintegrate from within, or for substantial interest blocs from within to be complicit with US interests. Hence we need to assess how Russia and China are reacting to this challenge, given that there are multiple contesting forces within each country. And that is also why we have been very concerned with pro-US neo-liberal political economists and policy-makers in these two countries.

I agree with you that China has put much investment into infrastructure and industry. However, we have been concerned with China’s financialization moves. Hence your statement that “China has avoided financialization” may not be the actual case, as various moves have been taken in financialization, but we can say that China seems to be aware of the risks in financialization, and has taken measures to attempt to contain it, causing discontent from US financial interests which would want to see China going further down the road.

It is interesting that yesterday, the White House expressed concern over the China-Iraq use of digital RMB to settle oil accounts as this would be beyond US monitoring of transactions.

  1. Niccolo Machiavelli, The Prince (1532), Chapter 5: “Concerning the way to govern cities or principalities which lived under their own laws before they were annexed.” 
  2. Neera Tanden, “Should Libya pay us back?” memo to Faiz Shakir, Peter Juul, Benjamin Armbruster and NSIP Core, October 21, 2011. Mr. Shakir, to his credit, wrote back: “If we think we can make money off an incursion, we’ll do it? That’s a serious policy/messaging/moral problem for our foreign policy I think.” As president of the Center for American Progress, Tanden backed a 2010 proposal to cut Social Security benefits, reflecting the long-term Obama-Clinton objective of fiscal austerity at home as well as abroad. 
  3. Zbigniew Brzezinski, The Grand Chessboard: American Primacy and its Geostrategic Imperatives (New York: 1997), p. 40. See the discussion by Pepe Escobar, “For Leviathan, It’s So Cold in Alaska,” Unz.com, March 18, 2021. 
  4. Brzezinski, ibid., p. 55. 
  5. Brzezinski, “Towards a Global Realignment,” The American Interest (April 17, 2016) For a discussion see Mike Whitney, “The Broken Checkboard: Brzezinski Gives Up on Empire,” Counterpunch, August 25, 2016. 
  6. Clyde Prestowitz, “Blow Up the Global Trading System, Washington Monthly, March 24, 2021.. 

US economic decline and global instability

US economic decline and global instability

January 19, 2021

by Phillyguy for The Saker Blog

Summary

The US emerged from WWII as the world’s preeminent economic and military power. Seven decades later, American power is in decline, a direct consequence of decades of neoliberal economic policies, spending large amounts of public money on the military and attainment of economic/military parity by Russia and China. These policies have eroded US economic strength and are undermining the role of the dollar as the world’s reserve currency, key pillars of US global power. In this essay, we highlight how this situation evolved and its implications for US foreign policy and international relations.

Foundations of American Global Hegemony

The US emerged from WWII as the world’s leading military and economic power. This power was further solidified at the United Nations Monetary and Financial Conference, held in Bretton Woods, New Hampshire in 1944, which came to be known as the ‘Bretton Woods Agreement’. This agreement: 1) pegged the value of member country’s currencies to the US dollar, which was pegged to the price of gold, and 2) created the International Monetary Fund (IMF) and International Bank for Reconstruction and Development, later known as the World Bank. The purported goals of the Bretton Woods system were to ‘stabilize currencies and promote international economic growth’. This conference also recognized the US dollar as the world’s reserve currency. 12

International economic relations started to change in the mid-1970s as US corporate profits began to stagnate/decline, a direct consequence of spending lots of taxpayer money on wars in Korea and Vietnam and increased competition from rebuilt economies in Europe, primarily Germany (Marshall Plan) and Asia- Japan, South Korea (Korean and Vietnam wars) and more recently China. US policy makers responded to these economic challenges in several ways. 1) Recognizing that the government had insufficient gold reserves to cover all of the dollars in circulation, in 1971 President Richard Nixon was forced to suspend convertibility of the dollar into gold, effectively devaluing the US dollar and making it a fiat currency. 3 2) In the early 1980s, US policy makers began instituting neoliberal economic policies. Neoliberalism can be broadly defined as policies promoting free-market capitalism, deregulation, and a reduction in government spending and was widely promoted in the US by President Ronald Reagan (1981-1989) and in the UK by Prime Minister Margaret Thatcher (1975-1990). 4 These policies included multiple tax cuts for the wealthy, financial deregulation, attacks on labor and poor, job outsourcing and spending $ trillions of taxpayer money on the military. 5 A short description of these policies and their impact on US society follows.

Tax Cuts

Beginning with the Reagan Administration, a number of tax cuts were enacted which reduced and/or eliminated top tax rates, corporate taxes and inheritance taxes (aka ‘death tax’; see Table 1). It should be noted that to market this legislation and ‘sell’ it to a generally uninformed American public, these bills frequently contain words or phrases in their titles which convey a positive and progressive message, such as ‘Economic Recovery’, ‘Tax Reform’, ‘Economic Growth and Tax Relief’, ‘Jobs and Growth’ and ‘Jobs Act’. After all, who is against ‘Economic Recovery’ and ‘Growth’ or a ‘Jobs Act’? However, to quote Phaedrus (Greek; circa 444 – 393 BC) ‘things are not always what they seem’. Each of these pieces of legislation was the result of massive lobbying campaigns by large financial interests- banks and corporations, with the goal of rolling back ‘New Deal’ tax and economic legislation enacted by President Franklin D. Roosevelt during the depths of the Great Depression (1933-1939) 67 and ‘open up’ the economy to unregulated and risky financial schemes, which under the right circumstances can yield substantial profits, but when things do not proceed as planned, can lead to large losses, as observed during the 2008 financial collapse. An analysis by the Institute on Taxation and Economic Policy (ITEP) concluded that between 2001-2018, 65% of the benefit from these tax cuts went to the wealthiest (top 20%) households, while federal tax revenues declined $5.1 Trillion and federal deficits grew $5.9 Trillion. 8 As a result of the COVID19 pandemic, federal deficits are now hemorrhaging.

Attacks on Labor and Poor

In 1981, members of the Professional Air Traffic Controllers Organization (PATCO) went on strike. President Reagan declared the strike a threat to ‘national safety’ and ordered all workers back to work, under the Taft-Hartley Act (1947). Of the circa 13,000 striking air traffic controllers, only 1,300 returned to work; Reagan fired the remaining 11,345 air traffic controllers who were still out. 9 The decline in labor solidarity was readily apparent as there was little support for striking PATCO workers from other unions. As a result, this began a frontal assault on union workers and labor.

During the 1992 presidential campaign, Bill Clinton vowed to ‘end welfare as we have come to know it’ 10 and in 1996, signed the Personal Responsibility and Work Opportunity Reconciliation Act, creating the Temporary Assistance for Needy Families (aka TANF) program 11, which changed the financing and benefit structure of cash assistance to poor people, Predictably, these changes did not ‘end welfare’ but increased poverty. Not surprisingly, Conservatives in Congress want to use the TANF model to ‘reform’ other federal programs such as Medicaid.

Job Outsourcing

The North American Free Trade Agreement (NAFTA), enacted Jan, 1994, created a ‘free trade’ agreement between Canada, Mexico, and US. While not fully appreciated at the time, this trade agreement would have a major impact on US industrial policy and jobs. NAFTA enabled large American corporations such as auto makers- Ford, General Motors, etc., to build manufacturing plants in Mexico taking advantage of lower wage rates and import the finished products back into the country duty free. The savings in labor costs is significant- the 2020 manufacturing wage in the US- $23/hr 12 vs $2.50/hr in Mexico 13 (90% lower) and not surprisingly, decreased labor costs boost corporate profits. On the negative side, NAFTA has: 1) led to the loss 4.5 million manufacturing jobs, with many of these displaced workers were forced to take lower paying jobs, 2) reduced growth in the export of manufactured products and services, 3) increased trade deficits with Canada and Mexico 14.

Job outsourcing has acquired the acronym ‘Globalization’ implying that it is a natural form of economic evolution, enabling large corporations to make their operations more cost-effective and efficient. Not surprisingly, the reality is somewhat different. Since passage of NAFTA, large corporations from the US and other countries have moved their manufacturing to Mexico, China, India, and other low-wage platforms to reduce labor costs, take advantage of lax environmental regulation and more favorable tax policies which increase corporate profits. It should be stressed that these polices have been voluntarily enacted by large financial interests in the US and other countries based on economic decisions and the relentless drive of capitalism to maximize corporate profits. During his 2016 ‘Make America Great Again’ campaign, presidential candidate Donald Trump repeatedly stated that China has ‘stolen’ American jobs and been involved in massive ‘theft’ of intellectual property 15 . Indeed, China has aggressively pursued economic development and has clearly taken advantage of technology transfer by multinational corporations 16. However, China is certainly not unique as these practices are frequently used by other developing countries. For example, during the Industrial Revolution (circa 1760-1840), the developing US manufacturing base relied largely on knowledge and technologies that had been developed in Europe, primarily the UK. No doubt, some of this technology was acquired by unscrupulous methods. Thus, while Trump was correct in pointing out that many American jobs had indeed moved to China, he has repeatedly failed to acknowledge that these jobs were deliberately moved by American corporations because it is more profitable. Trump’s allegations also beg the obvious question, if large US corporations and their functionaries in government were concerned about technology transfer to China, they should not have moved their production and associated ‘sensitive’ technology out of the US in the first place. Following his electoral victory in 2016, Trump attempted to force corporations to repatriate outsourced jobs. While some US-based firms left China, little of this production was moved back to the US; the vast majority were relocated to Vietnam, Thailand, India, Mexico and other low-wage platforms 17. A fundamental axiom of Capitalism is that business enterprises always seek the highest rate of return on their capital investments. Further, US CEO compensation is typically tied to stock price. Given this reality, large US corporations have curtailed domestic business spending (i.e., investing in new plants and equipment) and instead have allocated large amounts of money for stock buybacks. The reason for this behavior is clear- investments in new plants and equipment have payback periods ranging from years-decades, while spending money on share buybacks and stock futures results in near instantaneous increase of equity prices and higher financial compensation for corporate management. No one forced the CEOs of Apple, Nike, Levis, GM, etc. to move their RD/production facilities to China or other countries. Rather, this was done deliberately to maximize corporate profits. Unfortunately, the proverbial ‘chickens are coming home to roost’. The US is lagging behind China in 5G technology because corporate CEOs have been more interested in boosting stock price and their financial compensation, rather than investing in new plants and equipment to compete with China in this technology.

Financial Deregulation

The Glass-Steagall Act was part of the Banking Act of 1933, and established a barrier or ‘firewall’ between commercial banks, which accept deposits from working people and issue loans and investment banks that sell investment products, such as stocks and bonds. 7 Not surprisingly the financial industry lobbied heavily to repeal the Glass-Steagall Act; in 1999, this lobbying paid off as Bill Clinton enacted the Gramm–Leach–Bliley Act (GLBA; aka the Financial Services Modernization Act), which repealed the depression era Glass-Steagall Act thus loosening regulations on banking. Prior to leaving office, Clinton also signed The Commodity Futures Modernization Act of 2000 (CFMA) into law, which exempted over-the-counter (OTC) derivatives from regulation.

A derivative is defined as a financial security whose value is based or ‘derived’ from an underlying asset- bonds, commodities, currencies, interest rates, stocks and market indexes. 18 Not surprisingly, derivatives can potentially yield a large financial reward to savvy investors. On the down side, derivatives carry significant ‘market risk’ and lead to financial losses, which can rapidly accelerate during periods of collapsing equity prices. Warren Buffett has described the $ multi-quadrillion derivatives market as “financial weapons of mass destruction. 19 As Pepe Escobar has pointed out, ‘If Tehran were totally cornered by Washington, with no way out, the de facto nuclear option of shutting down the Strait of Hormuz would instantly cut off 25 percent of the global oil supply. Oil prices could rise to over $500 a barrel or more even $1000 a barrel. The 2.5 quadrillion of derivatives would start a chain reaction of destruction.’ 20

Financial deregulation enacted during the Clinton Administration (see Table 1) have been considered a major cause of the 2007-2008 GFC. 21 As pointed out by Pam Martins-

‘The Glass-Steagall Act had kept the U.S. financial system safe for 66 years. It took just nine years after its repeal by Clinton for Wall Street to enrich its own pockets to the tune of billions of dollars, blow up the U.S. economy, and then collect an astounding and secret $29 trillion in below-market-rate loans from the Federal Reserve to bail itself out.’ 22

Unfortunately, none of the structural economic problems giving rise to the 2008 crisis were resolved and as we are now seeing, have returned with a vengeance from the COVID19 pandemic. As a result, American Capitalism confronts the deepest crisis since the Great Depression, plagued by excess capacity and slack demand, high unemployment, with millions of families facing eviction from their homes, food insecurity, loss of medical insurance and financial ruin. Debt levels have exploded- projected US government debt for 2020- $3.1 Trillion (CBO estimate), while total debt levels are projected to reach $80 trillion, up from $71 trillion at the end of last year. 23 A further indication of the severe structural economic problems confronting American capitalism is that the financial industry has been unable to recover from the Global Financial crisis of 2008 and is still dependent on taxpayer support to function. Indeed, since April, the FED has pumped circa $ 7 Trillion of taxpayer-backed funds to Wall St for share buybacks and to purchase toxic corporate debt and mortgage-backed securities. 24 Without this support, many corporations and banks will collapse. 25

Enduring Economic Power

Despite continuing economic decline, the US still wields considerable global economic power, which stems from several factors.

1) Dollar- The US dollar is the world’s reserve currency, and as of 2019, comprises 60% of central bank foreign exchange reserves; circa 90% of forex trading involves the U.S. dollar. 2627 The dollar (i.e., ‘Petrodollar’) is used for purchase of crude oil. 28

2) FED– The US Federal Reserve System was set up following the 1910 secret meeting of executives from large banks- J.P. Morgan, Rockefeller, and Kuhn, Loeb & Co. for ten days on Jekyll Island, Georgia, which was followed by Congress passing the Federal Reserve Act (Dec, 1913), which established the Federal Reserve System as the central bank of the United States. The Chairman, currently Jerome Powell, and FED Governors are appointed by the US President. Thus, the ‘FED’ was set up by private bankers to support the interests of large banks and has effectively no public control over its actions. 29 Of the 12 Reserve banks in the Federal Reserve System, the New York FED (NY FED) wields the most power. 30 The NY FED directs monetary policy through open market operations, emergency lending facilities, quantitative easing, and foreign exchange transactions. It also stores gold on behalf of the U.S. and foreign governments, other nation’s central banks, and international organizations. FED policies, such as setting interest rates and money supply are closely followed by the European Central Bank (ECB), Bank of England, Bank of Japan (BOJ) and other central banks.

3) SWIFT– The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system is used to conduct financial transactions between 11,000 SWIFT member institutions and is the largest financial network in the world. 31 SWIFT is described as a ‘cooperative society’ under Belgian law, owned by its member financial institutions and headquartered in La Hulpe, Belgium. Due to its dominant global economic position, the US has been able to exert a strong influence on SWIFT policies, such as enforcing unilateral US economic sanctions (effectively a form of financial warfare) on the Islamic Republic of Iran, Russia, Venezuela, Cuba, North Korea and other countries deemed an obstacle to US global hegemony. 32

WWII and subsequent events shaping US foreign policy

Nuclear Attacks on Japan

The twentieth century was marked by turbulence, economic depression, war and economic prosperity. Eclipsing all prior conflicts, WWII was the deadliest conflict in human history, resulting in circa 75 million fatalities, with approximately twice as many civilian vs military casualties. During the war, the Soviet Union, much of Europe and Japan experienced high casualties and physical destruction. At the end of the war, the US dropped ‘Little Boy’ an enriched uranium gun-type fission device on Hiroshima, Japan on Aug 6, 1945, followed 3 days later, with ‘Fat Man’, a plutonium implosion-type nuclear weapon dropped on Nagasaki, resulting in circa 250,000 casualties. 33

While much has been written about the decision by the US to attack Japan, when the outcome of the war was all but certain, several things stand out.

1) The Soviet Union suffered the most physical destruction and casualties in WWII, a minimum of 25 million. In comparison, the US experienced circa 400,000 casualties.

2) During the war, the Soviet Union was an ally of the US/allied forces. As the war began winding down, this relationship rapidly changed, as the ruling elite, led by President Harry Truman were positioning the US as the world’s leading military power and viewed the USSR as a threat to American global hegemony. Thus, by dropping atomic bombs on Japan, the US was: i) sending an unmistakable message to the global community of US military might, and ii) also sending a warning to Stalin and the Soviet Union to not interfere with US global policies.

3) As pointed out by Prof Michel Chossudovsky, Center for Research on Globalization, as early as 1945 “the Pentagon had envisaged blowing up the Soviet Union with a coordinated nuclear attack directed against major urban areas. The Pentagon estimated that a total of 204 atomic bombs would be required to Wipe the Soviet Union off the Map”. 34

Iron Curtain & Truman Doctrine

On March 5, 1946 former British PM Winston Churchill delivered a speech at Westminster College, Fulton, MO, dubbed the ‘Iron Curtain speech’, stating

‘From Stettin in the Baltic to Trieste in the Adriatic an ‘iron curtain’ has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia, all these famous cities and the populations around them lie in what I must call the Soviet sphere, and all are subject in one form or another, not only to Soviet influence but to a very high and, in some cases, increasing measure of control from Moscow.’ 35 In his speech, Churchill stressed the need for the US and UK to work together, acting as ‘guardians of peace and stability’ against the menace of Soviet communism. As a representative of the [former] British Empire, Churchill was signaling that the UK would willingly serve as a junior partner to American imperialism.

In a speech to Congress March 12, 1947, President Harry Truman laid out the ‘Truman Doctrine’, whose primary goal was to ‘contain Soviet geopolitical expansion’ and more broadly, implied American support for other countries ‘threatened’ by Soviet communism. The Truman Doctrine became the bedrock of post-WWII US foreign policy and in 1949, led to establishment of North Atlantic Treaty Organization (NATO). Truman’s speech is considered by many to be the start of the ‘Cold War’.

Demise of Soviet Union

Between 1988–1991 the Soviet Union experienced a process of internal disintegration which began with growing unrest in its various constituent republics are subsequent political and legislative conflicts between the republics and the central government. This is not surprising considering that the country was the largest country in the world, covering a vast land mass of 22,400,000 square km2 with a diverse population of circa 290 million consisting of 100 distinct nationalities. In addition, the USSR faced near continuous hostility from the US, UK and other imperialist powers since its very inception. The collapse of the Soviet Union and ‘end’ of the Cold War was interpreted by some in the US, notably Charles Krauthammer as the beginning of a US-directed ‘unipolar’ movement and a ‘new world order’ by President GW Bush. As is usually the case in global affairs, things did not go exactly as planned- the cold war never ‘ended’ and a ‘multipolar’ world emerged.

Project for the New American Century (PNAC)

The PNAC was founded by William Kristol and Robert Kagan in the Spring of 1997 as ‘a non-profit, educational organization’ that had a neo-conservative philosophy with close ties to the American Enterprise Institute (AEI) and endorsed strong American global leadership. 36 The PNAC had a particular focus on Iraq, predating the Bush Presidency and in Jan, 1998, sent a letter to then President Bill Clinton stating:

‘We are writing you because we are convinced that current American policy toward Iraq is not succeeding……We urge you to seize that opportunity, and to enunciate a new strategy that would secure the interests of the U.S……That strategy should aim, above all, at the removal of Saddam Hussein’s regime from power’. 37

In Sept 2000, ironically a year prior to 911, the PNAC would publish an influential policy document “Rebuilding America’s Defenses” that would serve as a blueprint for US foreign policy in the 21st century. Summarized in its Statement of Principles:

‘As the 20th century draws to a close, the United States stands as the world’s most preeminent power. Having led the West to victory in the Cold War, America faces an opportunity and a challenge: Does the United States have the vision to build upon the achievement of past decades? Does the United States have the resolve to shape a new century favorable to American principles and interests?’

‘[What we require is] a military that is strong and ready to meet both present and future challenges; a foreign policy that boldly and purposefully promotes American principles abroad; and national leadership that accepts the United States’ global responsibilities.’

‘Of course, the United States must be prudent in how it exercises its power. But we cannot safely avoid the responsibilities of global leadership of the costs that are associated with its exercise. America has a vital role in maintaining peace and security in Europe, Asia, and the Middle East. If we shirk our responsibilities, we invite challenges to our fundamental interests. The history of the 20th century should have taught us that it is important to shape circumstances before crises emerge, and to meet threats before they become dire. The history of the past century should have taught us to embrace the cause of American leadership.” 38

The PNAC advocated: 1) increased ‘defense’ spending to ‘carry out our global responsibilities today and modernize our armed forces for the future’, 2) ‘strengthen our ties to democratic allies and to challenge regimes hostile to our interests and values’, 3) ‘promote the cause of political and economic freedom abroad’, and 4) ‘accept responsibility for America’s unique role in preserving and extending an international order friendly to our security, our prosperity, and our principles’.

Many PNAC members would go on to hold high level positions in the GW Bush administration, including: Elliott Abrams, Richard Armitage, John Bolton, Dick Cheney (Vice President), Eliot Cohen, Paula Dobriansky, Aaron Friedberg, Francis Fukuyama, Zalmay Khalilzad, Lewis “Scooter” Libby, Richard Perle, Peter Rodman, Donald Rumsfeld, Paul Wolfowitz, Robert Zoellick, William Schneider and James Woolsey. 39 Not surprisingly, these individuals would play a major role in shaping post-911 US foreign policy.

911 and Eruption of US Military Activity

On the morning of Tuesday, Sept 11, 2001 the US experienced the deadliest attack in its history. According to the ‘official’ narrative, nineteen people affiliated with al-Qaeda, a radical Islamic group, hijacked 4 jet aircraft- 2 from Boson, 1 from Newark and 1 from Washington Dulles. Two of these aircraft subsequently crashed into the World Trade Center (WTC) in NYC resulting in the collapse of building 1 (WTC1) and building 2 (WTC2), one hit the Pentagon and the fourth crashed into an empty field in Shanksville, PA. 40 Two decades later, there are still multiple outstanding questions about 911, including what did the intelligence community- FBI, CIA know about the hijackers prior to 911, why didn’t the Pentagon immediately scramble fighter jets to intercept the hijacked aircraft, and why did steel framed buildings that had been ostensibly engineered to survive an impact from an airplane, rapidly collapse? 41

As it turned out, 911 would be a ‘watershed’ event, showcased in President George W. Bush’s 2002 State of the Union address where he delivered his [in]famous ‘axis of evil’ speech, designating three countries- North Korea, Iran and Iraq- as rogue states that he claimed ‘harbored, financed and aided terrorists’. 42 Indeed, 911 would set the stage for US military engagements, currently stretching from the Levant, to Caspian Basin, Persian Gulf, South-Central Asia, China Sea, Indian Ocean, Horn of Africa, the Maghreb, to Eastern Europe and Russian border (Figure 1). 4344. These conflicts and conflict zones are summarized in Table 2.

Invasion of Afghanistan

The Pentagon has had a longstanding interest in Afghanistan, due to its strategic location in southern Asia- sharing borders with Tajikistan, Uzbekistan, and Turkmenistan to the north, Iran to the west, and Pakistan to the south and east. During the Soviet–Afghan War (1979-1989), the Mujahideen, headed by Osama Bin Laden fought a nine-year guerrilla war against the Soviet Army and Afghanistan government, receiving material and financial support from the US, Pakistan, Iran, Saudi Arabia, and other countries and has been described as a ‘Cold War-era proxy war’, pitting the US against the USSR. In October 2001, immediately following 911, the U.S. launched its invasion of Afghanistan, rapidly ‘defeating’ the Taliban, and soon thereafter, installing a new government headed by Hamid Karzai in Kabul, and declaring the country ‘liberated’. 45. It soon became obvious that this rapid ‘success’ would be short lived. Despite spending over $1 trillion of US taxpayer money and deploying more than 100K troops, the conflict in Afghanistan continues and is the longest war in US history. The Taliban currently control >50% of Afghan territory and Afghanistan has the dubious distinction of supplying >90% of the world’s heroin 46

War on Iraq

Following defeat of the Central Powers in WWI, the Paris Peace Conference (1919-1920) assembled diplomats from 32 countries, resulting in the creation of the League of Nations, denounced by Lenin as a “thieves’ kitchen” and the ‘awarding’ of German and Ottoman overseas possessions as “mandates,” primarily to Britain and France. 47 Well aware of Iraq’s large energy reserves and strategic importance, Winston Churchill managed to cobble together Basra, Bagdad and Mosul into the ‘state’ of Iraq, while at the same time, carve out the state of Kuwait, which has 499 km of Coastline on the Persian Gulf, compared with Iraq, which has 58 km. 4849 This was likely done to limit Iraqi coast line and access to the Gulf.

The collapse of the Soviet Union and 911 attacks provided the directors of US foreign policy considerable latitude to pursue a more aggressive foreign policy. As described above, the PNAC laid out their perspective in their 2000 policy manifesto ‘Rebuilding America’s Defenses’. The Bush Administration was literally infiltrated with PNAC members, led by Vice President Dick Chaney and Defense Secretary Don Rumsfeld who were well aware of Iraq’s large energy reserves and was ‘ripe’ for the picking. All that was missing was a ‘marketing’ strategy, using 911 as a rationale for initially invading Iraq and then attempting to widen US control of other countries in the Middle East, with the goal of governing the regions vast energy reserves and selling this to a skeptical American public. This was accomplished using corporate media and testimony by Colin Powell, a respected former four-star Army General and 12th Chairman of the Joint Chiefs of Staff. The stage would be set by a 2002 piece by Michael Gordon and Judith Miller in the paper of record (NYT), alleging that Iraqi leader Saddam Hussein was secretly building ‘weapons of mass destruction’ (WMD). 50 This piece would form the basis of Collin Powell’s Feb 5, 2003 Speech before the UN, setting up a casus belli (Latin, ‘occasion for war’) for the 2003 invasion and occupation of Iraq. 51 As is now well known, the piece by Gordon and Miller was essentially fabricated as was much of Powell’s UN speech. 52 As preparations for Invading Iraq were being formulated, President Bush, Vice President Dick Cheney, Defense Secretary Donald Rumsfeld and others estimated the costs of the conflict to be below $100 billion and ‘reassuring’ nervous Americans that Iraq’s oil ‘would cover’ the cost of the war. 53 As is now readily apparent, the Iraq war which is still ongoing, has been a strategic disaster, resulting in thousands of American casualties, killing or displacing circa 25% of the Iraq population, led to the creation of ISIS and has cost US taxpayers circa $ 5 Trillion. The extent of this disaster was pointed out in vivid detail by Thomas Ricks, former US military reporter for the Washington Post, in his 2006 book- ‘Fiasco: The American Military Adventure in Iraq, 2003 to 2005. As pointed out by General Wesley Clark in his 2007 interview with Amy Goodman, US plans to invade Iraq were formulated within days after 911. In addition, these plans also included strategies for ‘taking out’ six other countries in 5 years, including Syria, Lebanon, Libya, Somalia, Sudan and Iran.” 43

Libya, Syria and Yemen

On Mar 19, 2011 a multi-state NATO-led coalition began a military intervention in Libya, to implement UNSC Resolution 1973, which ‘demanded’ an immediate ceasefire in Libya, including an end to the current attacks against civilians and imposed a no-fly zone and new sanctions on the Qadhafi regime and its supporters. This resolution would be used by US/NATO to overthrow the Libyan government and kill Libyan leader Muammar Gaddafi. Secretary of State Hillary Clinton would later ‘joke’ about Qaddafi’s death, commenting ‘We came, we saw, he died’. 54 In a 2016 interview with the BBC, President Barack Obama stated- failing to prepare for the aftermath of the ousting of Libyan leader Col Muammar Gaddafi was the ‘worst mistake’ of his presidency’. 55 Gaddafi’s removal plunged the country into chaos and became an international arms bazaar for radical Islamic groups, as he predicted. 56 Since 2014, the country has fractured- split between forces loyal to the Tripoli-based Government of National Accord (GNA), supported by Turkey and Qatar and the Libyan National Army (LNA) led by Benghazi-based Field Marshal Khalifa Haftar and supported by Egypt, United Arab Emirates (UAE) and Russia.

The US has been intent on ‘regime change’ in Syria since at least 2007. 43 Syria occupies a strategic position in Western Asia, sharing borders with Israel, Lebanon, Turkey, Iraq and Jordan (see Figure 1). Direct US involvement in the war on Syria began in 2014, with the support of US vassals- Bahrain, Jordan, Qatar, Saudi Arabia, UAE and Israel, with the goal of removing President Bashar al-Assad from power, a policy which remains in effect today. Due to the loyalty of the Syrian Arab Army (SAA) along with support from Hezbollah, the Islamic Republic or Iran and Russian Air Force and advisors, Syrian forces have fortified control over much of the country and Bashar al-Assad remains in power.

Yemen occupies a strategic position on the Arabian Peninsula, abutting the Bab-el-Mandeb strait, which connects the Arabian Sea to the Red Sea and the Mediterranean. Thus, the Bab-el-Mandeb Strait is considered a strategic ‘chokepoint’ that can be closed during a military crisis and thus, of interest to major global powers. 57 In 2015, the Houthi Ansarullah movement overthrew the Yemeni government, led by Abdrabbuh Mansur Hadi, forcing him to flee to neighboring KSA. In response, Mohammed bin Salman (aka MBS), Crown Prince of Saudi Arabia, formed a ‘coalition’ consisting of circa 10 countries, including Gulf Cooperation Council (GCC)- the United Arab Emirates (UAE), Bahrain, Kuwait, Qatar, along with Egypt, Jordan, Sudan and Morocco. While not directly involved in the Yemen conflict, the US, UK and other imperialist countries have provided the Saudi coalition with intelligence, logistical and material support. 58 As pointed out by HRW and others, the war on Yemen has been a humanitarian disaster, leading to massive cholera epidemics, poverty, starvation and physical destruction of the country’s infrastructure. 5759

2021 and Beyond

The US emerged from WWII as the world’s dominant economic and military power. This power has been facilitated by the dollar’s privileged status as the world’s reserve currency, giving Washington the ability to print money and effectively ‘weaponize’ the dollar. Since the mid-1970s, US global power has been systematically undermined from decades of neoliberal economic policies and costly wars. Since 2001, the US has been involved in conflicts in Afghanistan (longest war in US history), Iraq, Libya, Syria and Yemen. These conflicts have been humanitarian disasters, resulting in the injury or death of thousands of American soldiers, while displacing/killing an estimated 37 million people in the affected countries. The ongoing refugee ‘crisis’ in Europe is a direct consequence of these wars, with millions of people escaping the chaos, violence and poverty that US/NATO wars have created. 60

The costs of these wars to American taxpayers have been staggering. In addition to spending circa $14 trillion on the Pentagon (2001-2020) 61, post-911 conflicts have cost taxpayers circa $6.4 trillion. 60 Despite expending astronomical amounts of financial and human capital on these wars, the American empire has been unable to extract significant imperial rent from these countries. Unfortunately, the Pentagon is incapable of extricating itself from these conflicts as doing so is an admission of failure and by extension military/geopolitical weakness. No amount of jingoistic and bellicose rhetoric from politicians in Washington or talking heads on corporate media changes this reality.

The Trump administration has accelerated US global isolation by exiting or contemplating leaving: Paris Climate Accord, Trans-Pacific Partnership (TTP), Joint Comprehensive Plan of Action (JCPOA; Iran Nuclear deal), Intermediate-Range Nuclear Forces (INF) Treaty, Open Skies Treaty, UN Human Rights council, World Trade Organization (WTO) and several other agreements. 62 At the same time, China has been actively negotiating multiple trade agreements, including: $400 billion comprehensive energy and security agreement with Iran 63; Regional Comprehensive Economic Partnership (RCEP) with 15 Asian countries including Japan, South Korea, New Zealand and Australia and is the largest trade deal in history 64; EU-China Comprehensive Agreement on Investment 65. Significantly, the US is not a party to any of these agreements and trade will be conducted using regional currencies, excluding the dollar. Not surprisingly, these trade deals are exacerbating tensions between the US, China and other countries. 66 US economic decline has now progressed to the point where the very survival of the American Empire depends on continued money printing to prop up Wall St and large banks, subsidize the military and war. This was recently summarized by economist Richard Wolff- “The Federal Reserve is sustaining US capitalism — directly by loaning to corporations and indirectly by loaning to the federal government — to run a huge deficit, excess of trillion dollars… The federal government is not an intrusion; the federal government is the only thing that keeps private capitalism from a complete bust… And what do we know about this way that the Federal Reserve is keeping capitalism going? It’s funding the most extreme inequality in a century of American history.” 25

Thus, the US is stuck between the proverbial ‘rock and a hard place’. The very functioning of the American state- keeping Wall St. and large banks solvent and funding the Pentagon and ongoing wars, requires continued public support- i.e., providing unlimited amounts of ultra-cheap money from the Treasury, as laid out in a recent presentation by FED chair Jerome Powell. 67 Indeed, anytime there is so much as a hint that interest rates are going up, equity markets fall. These policies have become so ingrained and accepted as the ‘normal’ functioning of the state, that they were not addressed by Donald Trump or Joe Biden, during the 2020 campaign. The problem is that this is further undermining the strength of the dollar and jeopardizing its role as the world’s reserve currency 68, readily seen from the rising price of gold, which increased 25% last year. History tells us that over the last 700 years, world reserve currencies maintain their position on average 100 years. 69 At this point, the dollar has been the reserve currency for 77 years. 70 As the global economic vise continues to tighten, American foreign policy is becoming increasingly reckless and bellicose, while debt levels continue rising, putting increasing downward pressure on the dollar. When the dollar crashes the American Empire will crash with it. The American ruling elite are courting a rendezvous with disaster.

Notes

1. Bretton Woods Agreement and System by James Chen Apr 30, 2020; Link:

https://www.investopedia.com/terms/b/brettonwoodsagreement.asp

2. Launch of the Bretton Woods System- The international currency system became operational in 1958 with the elimination of exchange controls for current-account transactions By Robert L. Hetzel Federal Reserve History; Link: https://www.federalreservehistory.org/essays/bretton_woods_launched

3. Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls- With inflation on the rise and a gold run looming, President Richard Nixon’s team enacted a plan that ended dollar convertibility to gold and implemented wage and price controls, which soon brought an end to the Bretton Woods System. By Sandra Kollen Ghizoni, Federal Reserve Bank of Atlanta Aug 1971; Link: https://www.federalreservehistory.org/essays/gold-convertibility-ends

4. The Politics of Privatization: How Neoliberalism Took Over US Politics By Brett Heinz; Sept 8, 2017; Link: http://www.faireconomy.org/the_politics_of_privatization

5. Neoliberalism – the ideology at the root of all our problems- Financial meltdown, environmental disaster and even the rise of Donald Trump – neoliberalism has played its part in them all. Why has the left failed to come up with an alternative? By George Monbiot Apr 15, 2016; Link: https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot

6. New Deal by History.com Editors Nov 27, 2019; Link: https://www.history.com/topics/great-depression/new-deal

7. Glass-Steagall Act by History.com Editors Aug 21, 2018; Link: https://www.history.com/topics/great-depression/glass-steagall-act

8. Federal Tax Cuts in the Bush, Obama, and Trump Years Report July 11, 2018 Institute on Taxation and Economic Policy; Link: https://itep.org/federal-tax-cuts-in-the-bush-obama-and-trump-years/

9. Labor Day: Ronald Reagan and the PATCO Strike by David Macaray HuffPost Aug 20, 2017; Link: https://www.huffpost.com/entry/labor-day-ronald-reagan-and-the-patco-strike_b_59a6d604e4b05fa16286beb1

10. How Bill Clinton’s Welfare Reform Changed America- Bill Clinton’s 1992 presidential campaign placed welfare reform at its center, claiming that his proposal would “end welfare as we have come to know it.” By Mary Pilon Aug 29, 2018; Link: https://www.history.com/news/clinton-1990s-welfare-reform-facts

11. The Real Lessons from Bill Clinton’s Welfare Reform- The 1996 creation of the Temporary Assistance for Needy Families program effectively killed cash assistance. Now, Republicans want to use it as a model for the rest of the social safety net. By Vann R. Newkirk II Feb 5, 2018; Link:

https://www.theatlantic.com/politics/archive/2018/02/welfare-reform-tanf-medicaid-food-stamps/552299/

12. United States Average Hourly Wages in Manufacturing-1950-2020 Data; Link: https://tradingeconomics.com/united-states/wages-in-manufacturing

13. Mexico Nominal Hourly Wages in Manufacturing- 2007-2020 Data; Link: https://tradingeconomics.com/mexico/wages-in-manufacturing

14. NAFTA’s Legacy: Lost Jobs, Lower Wages, Increased Inequality; Link: https://www.citizen.org/wp-content/uploads/nafta_factsheet_deficit_jobs_wages_feb_2018_final.pdf

15. The White House is only telling you half of the sad story of what happened to American jobs by Linette Lopez Jul 25, 2017; Link: https://www.businessinsider.com/what-happened-to-american-jobs-in-the-80s-2017-7

16. China, Saudi Arabia and the US: Shake Up and Shake Down. By Prof. James Petras Global Research, Dec 04, 2017; Link: http://www.globalresearch.ca/china-saudi-arabia-and-the-us-shake-up-and-shake-down/5621487

17. Why bringing manufacturing jobs to the U.S. from China is “highly unlikely” by Victoria Craig Marketplace Morning Report Aug 27, 2020; Link: https://www.marketplace.org/2020/08/27/trump-manufacturing-jobs-china-trade-war-deal/

18. Derivative By Jason Fernando Dec 5, 2020; Link: https://www.investopedia.com/terms/d/derivative.asp

19. What are the Main Risks Associated with Trading Derivatives? By J.B. Maverick Apr 3, 2020; Link: https://www.investopedia.com/ask/answers/070815/what-are-main-risks-associated-trading-derivatives.asp

20. War on Iran & Calling America’s Bluff by Pepe Escobar April 24, 2019; Link: https://consortiumnews.com/2019/04/24/pepe-escobar-war-on-iran-calling-americas-bluff/

21. Bill Clinton – 25 People to Blame for the Financial Crisis – TIME; Link:

http://content.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877322,00.html

22. The Bizarre Action in U.S. Treasuries Is Linked to the U.S. National Debt and the Repeal of the Glass-Steagall Act By Pam Martens and Russ Martens: Aug 29, 2019; Link: https://wallstreetonparade.com/2019/08/the-bizarre-action-in-u-s-treasuries-is-linked-to-the-u-s-national-debt-and-the-repeal-of-the-glass-steagall-act/

23. World economy engulfed by “debt tsunami” by Nick Beams Nov 20, 2020; Link: https://www.wsws.org/en/articles/2020/11/21/debt-n21.html

24. The Fed Man Song (to the music of Beatles ‘The Taxman’) by Jack Rrasmus Nov 16, 2020; Link:

The Fed Man Song (to the music of Beatles ‘The Taxman’)

25. Capitalism is on life support by Richard Wolff Democracy at Work Jan 4, 2021; Link: https://www.youtube.com/watch?v=jYrgFU-P63g

26. IMF Currency Composition of Official Foreign Exchange Reserves (COFER); Link:

https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4

27. Why the US Dollar Is the Global Currency By Kimberly Amadeo July 23, 2020; Link: https://www.thebalance.com/world-currency-3305931

28. The Rise of the Petrodollar System: “Dollars for Oil” By Jerry Robins Thu, Feb 23, 2012; Link: https://www.financialsense.com/contributors/jerry-robinson/the-rise-of-the-petrodollar-system-dollars-for-oil

29. Federal Reserve Act; Link: https://www.federalreserve.gov/aboutthefed/fract.htm

30. Federal Reserve Bank of New York By Investopedia Staff Dec 18, 2020; Link: https://www.investopedia.com/terms/f/federal-reserve-bank-of-new-york.asp

31. SWIFT; Link: https://www.swift.com

32. SWIFT and the Weaponization of the U.S. Dollar- The U.S. has used the system as a stick before. Continuing down this path could trigger de-dollarization and an ensuing currency crisis. Saturday, Oct 6, 2018; Link: https://fee.org/articles/swift-and-the-weaponization-of-the-us-dollar/

33. The Atomic Bombings of Hiroshima and Nagasaki; Link:

https://www.atomicarchive.com/resources/documents/med/med_chp10.html

34. “Wipe the Soviet Union Off the Map”, 204 Atomic Bombs against 66 Major Cities, US Nuclear Attack against USSR Planned During World War II When America and the Soviet Union Were Allies. By Prof Michel Chossudovsky Global Research, Oct 27, 2018; Link: http://www.globalresearch.ca/wipe-the-ussr-off-the-map-204-atomic-bombs-against-major-cities-us-nuclear-attack-against-soviet-union-planned-prior-to-end-of-world-war-ii/5616601

35. The Sinews of Peace (‘Iron Curtain Speech’) Mar 5, 1946; Link: https://winstonchurchill.org/resources/speeches/1946-1963-elder-statesman/the-sinews-of-peace/

36. Project for the New American Century Oct 16, 2019; Link: https://militarist-monitor.org/profile/project_for_the_new_american_century/

37. 1998 PNAC Letter to President Clinton on Iraq Jan 26, 1998; Link: https://zfacts.com/zfacts.com/metaPage/lib/98-Rumsfeld-Iraq.pdf

38. Rebuilding America’s Defenses- Strategy, Forces and Resources for a New Century. A Report of The Project for the New American Century By Donald Kagan, and Thomas Donnelly Sept, 2000; Link: https://cryptome.org/rad.htm; https://archive.org/details/RebuildingAmericasDefenses

39. List of PNAC Members associated with the Administration of George W. Bush; Link: https://gyaanipedia.fandom.com/wiki/List_of_PNAC_Members_associated_with_the_Administration_of_George_W._Bush

40. The 9/11 Commission Report- Final Report of the National Commission on Terrorist Attacks Upon the United States; Link: https://govinfo.library.unt.edu/911/report/911Report_Exec.pdf

41. Architects & Engineers for 9/11 Truth; Link: www.ae911truth.org

42. President Bush cites ‘axis of evil,’ Jan. 29, 2002 By Andrew Glass Politico Jan 29, 2019; Link: https://www.politico.com/story/2019/01/29/bush-axis-of-evil-2002-1127725

43. “We’re going to take out 7 countries in 5 years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan & Iran.” Interview with General Wesley Clark Global Research, Feb 06, 2018; Link: https://www.globalresearch.ca/we-re-going-to-take-out-7-countries-in-5-years-iraq-syria-lebanon-libya-somalia-sudan-iran/5166

44. A Timeline of the U.S.-Led War on Terror- In the wake of the attacks of 9/11, President George W. Bush called for a global “War on Terror,” launching an ongoing effort to thwart terrorists before they act. By History.com Editors May 5, 2020; Link: https://www.history.com/topics/21st-century/war-on-terror-timeline

45. A timeline of U.S. troop levels in Afghanistan since 2001 AP July 6, 2016; Link:

https://www.militarytimes.com/news/your-military/2016/07/06/a-timeline-of-u-s-troop-levels-in-afghanistan-since-2001/

46. Washington’s Twenty-First-Century Opium Wars: How a Pink Flower Defeated the World’s Sole Superpower- America’s Opium War in Afghanistan by Alfred McCoy Tom Dispatch Feb 21, 2016; Link: https://tomdispatch.com/alfred-mccoy-washington-s-twenty-first-century-opium-wars

47. The First World War – A Marxist Analysis of the Great Slaughter by Alan Woods June 2, 2019; Link: https://www.marxist.com/first-world-war-a-marxist-analysis-of-the-great-slaughter/16.-the-treaty-of-versailles-the-peace-to-end-all-peace.htm

48. Paris 1919: How the Peace Conference Shaped the Middle East; Link:

https://www.arcgis.com/apps/MapJournal/index.html?appid=afb36eefd9184d99afb1d654dc987767

49. The Impact of Western Imperialism in Iraq, 1798-1963 By Geoff Simons Dec, 2002; Link: https://www.globalpolicy.org/component/content/article/169-history/36399.html

50. Threats and Responses: The Iraqis; U.S. Says Hussein Intensifies Quest for A-Bomb Parts By Michael R. Gordon and Judith Miller NYT Sept. 8, 2002; Link:

https://www.nytimes.com/svc/oembed/html/?url=https%3A%2F%2Fwww.nytimes.com%2F2002%2F09%2F08%2Fworld%2Fthreats-responses-iraqis-us-says-hussein-intensifies-quest-for-bomb-parts.html#?secret=uidQmCNcdY

51. Colin Powell Still Wants Answers- In 2003, he made the case for invading Iraq to halt its weapons programs. The analysts who provided the intelligence now say it was doubted inside the C.I.A. at the time. By Robert Draper NYT Jan. 11, 2021; Link: https://www.nytimes.com/2020/07/16/magazine/colin-powell-iraq-war.html

52. Lie After Lie: What Colin Powell Knew About Iraq 15 Years Ago and What He Told the U.N.- The evidence is irrefutable: Powell consciously deceived the world in his 2003 presentation making the case for war with Saddam Hussein. By Jon Schwarz

Jon Schwarz The Intercept Feb 6, 2018; Link:

https://theintercept.com/2018/02/06/lie-after-lie-what-colin-powell-knew-about-iraq-fifteen-years-ago-and-what-he-told-the-un/

53. The cost of the Iraq war Mar 19, 2013; Link: https://www.registerguard.com/article/20130319/OPINION/303199842

54. The Libya Gamble- A New Libya, with ‘Very Little Time Left’. The fall of Col. Muammar el-Qaddafi seemed to vindicate Hillary Clinton. Then militias refused to disarm, neighbors fanned a civil war, and the Islamic State found refuge. By Scott Shane and Jo Becker NYT Feb. 27, 2016; Link: https://www.nytimes.com/2016/02/28/us/politics/libya-isis-hillary-clinton.html

55. President Obama: Libya aftermath ‘worst mistake’ of presidency BBC April 11, 2016; Link: https://www.bbc.com/news/world-us-canada-36013703

56. Coups and terror are the fruit of Nato’s war in Libya- The dire consequences of the west’s intervention are being felt today in Tripoli and across Africa, from Mali to Nigeria by Seumas Milne The Guardian May 22, 2014; Link: https://www.theguardian.com/commentisfree/2014/may/22/coups-terror-nato-war-in-libya-west-intervention-boko-haram-nigeria

57. Strategic Importance of the Indian Ocean, Yemen and Bab-el-Mandeb Strait by Phillyguy for The Saker Blog Aug 5, 2020; Link: https://thesaker.is/strategic-importance-of-the-indian-ocean-yemen-and-bab-el-mandeb-strait/

58. Ending the Yemen war is both a strategic and humanitarian imperative by John R. Allen and Bruce Riedel Brookings Monday, Nov 16, 2020;

https://www.brookings.edu/blog/order-from-chaos/2020/11/16/ending-the-yemen-war-is-both-a-strategic-and-humanitarian-imperative/embed/#?secret=48yOxEXf85

59. U.S. War Crimes in Yemen: Stop Looking the Other Way- The State Department warned for years that the U.S. was complicit in war crimes in Yemen. No one put a stop to it. Foreign Policy in Focus by Andrea Prasow Sept 21, 2020; Link:

https://www.hrw.org/news/2020/09/21/us-war-crimes-yemen-stop-looking-other-way

60. Costs of War Brown University; Link: https://watson.brown.edu/costsofwar

61. U.S. military spending from 2000 to 2019; Link: https://www.statista.com/statistics/272473/us-military-spending-from-2000-to-2012/

62. Here are all the treaties and agreements Trump has abandoned By Zachary B. Wolf and JoElla Carman, CNN Fri, Feb 1, 2019; Link: https://www.cnn.com/2019/02/01/politics/nuclear-treaty-trump/index.html

63. A China-Iran bilateral deal: Costs all around- Beijing sees an opportunity in Tehran’s international isolation – but may not realise the tangle it is entering. By Jeffrey Payne Sept 2, 2020; Link: https://www.lowyinstitute.org/the-interpreter/china-iran-bilateral-deal-costs-all-around

64. China signs huge Asia Pacific trade deal with 14 countries By Jill Disis and Laura He, CNN Business Tue Nov 17, 2020; https://www.cnn.com/2020/11/16/economy/rcep-trade-agreement-intl-hnk/index.html

65. The Strategic Implications of the China-EU Investment Deal- The EU-China Comprehensive Agreement on Investment is a win for China, and a blow to transatlantic relations. By Theresa Fallon Jan 4, 2021; Link: https://thediplomat.com/2021/01/the-strategic-implications-of-the-china-eu-investment-deal/

66. EU–US tensions mount after EU signs trade deal with China by Alex Lantier Jan 4, 2021; Link: https://www.wsws.org/en/articles/2021/01/05/euch-j05.html

67. Fed chief pledges massive support for Wall Street will not cease by Nick Beams Jan 16, 2021; Link: https://www.wsws.org/en/articles/2021/01/16/powl-j16.html

68. Is the US Dollar’s Role as the World’s Reserve Currency Under Threat? International Banker. Sept 30, 2020; Link: https://internationalbanker.com/finance/is-the-us-dollars-role-as-the-worlds-reserve-currency-under-threat/

69. 3 Major Signs That Precede the Fall of World Reserve Currencies- Economics by Graham Smith Oct 24, 2019; Link: https://news.bitcoin.com/3-major-signs-that-precede-the-fall-of-world-reserve-currencies/

70. 75 Years ago the U.S. Dollar Became the World’s Currency. Will that last? By Greg Rosalsky Jul 30, 2019; Link:

https://knpr.org/npr/2019-07/75-years-ago-us-dollar-became-worlds-currency-will-last

Figure 1 and Tables 1, 2

Figure 1. Map of Western Asia and Middle East. Source: https://ian.macky.net/pat/map/easa/easa.html

Table 1. Major economic legislation since the election of Ronald Reagan in 1980.

DateTitleAdministration
1981Economic Recovery Tax ActReagan
1986Tax Reform Act of 1986Reagan
2001Economic Growth and Tax Relief Reconciliation Act (EGTRRA)GW Bush
2003Jobs and Growth Tax Relief Reconciliation Act (JGTRRA)GW Bush
2010Tax Relief, Unemployment Insurance Reauthorization, and Job Creation ActBush/Obama
2012American Taxpayer Relief ActBush/Obama
2017Tax Cuts and Jobs Act (TCJA)Trump
1993North American Free Trade Agreement (NAFTA)Clinton
1996Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA)Clinton
1999Gramm–Leach–Bliley Act (GLBA; Financial Services Modernization Act)Clinton
2000Commodity Futures Modernization Act (CFMA)Clinton

Table 2. US involvement in conflicts and conflict zones since 911.

ConflictAdministrationDate
AfghanistanGW Bush2001-present
IraqGW Bush2003-present
LibyaObama2011- present
UkraineObama2014-present
SyriaObama2014-present
YemenObama2014-present
Eastern Europe/Russian BorderClinton- Trump1997-Present
China Sea/Western PacificObama/Trump2011-present
Persian GulfBush/Obama/Trump2003-present

US Deputy Secretary of State Was Afraid to Eat Russian Soup. Navalny and SWIFT (Ruslan Ostashko)

Source

Translated by Sasha and subtitled by Leonya.

During the US Deputy Secretary of State Stephen Biegun’s visit in Moscow the Russian Foreign Minister Sergei Lavrov treated him to shchi [soup] with forest mushrooms. The journalists noted however that during the public part of the negotiations, the Americans did not touch the treat. They must have heard plenty of their media’s fairy tales about the supposed poisoning of Navalny.

The Rubber Duckies Führer’s overdose on unknown substances had an interesting side effect: while the Western tabloids shriek about poisoning of the fighter with the regime, the US State Department threatens Russia with horrible punishments if the German medics part with the remnants of their consciences and write what our opponents want.

Russian Ministry of Foreign Affairs:

“During his meeting with the Russian Foreign Minister Sergei Lavrov, ‘Deputy Secretary of State Stephen Biegun declared a possibility of adopting by Washington of serious measures of the information about poisoning of the opposition figure Aleksei Navalny is confirmed,’” as the Russian Foreign Ministry informs: “Having qualified the event as an ‘incident’, the American party stressed that ‘in case of confirmation of the version about his poisoning as an oppositionist, Washington will put in place such measures, at whose background the reaction of the American society at the Russian interference in the presidential elections in USA in 2016 would grow dim.’ It was said in the message by the widespread Russian internal political department.”

I myself remembered this idiomatic expression: “You can’t scare a hedgehog with a naked butt.” The interesting side effect I mentioned above however is this. While trying to scare us, the representatives of the darned hegemon are themselves so frightened of us that while as a guest of Lavrov, they sat as if they’d ate manure. *Picture from Twitter* “’Shchi with forest mushrooms’: Sergei Lavrov treats the Deputy Secretary of State Stephen Biegun to Russian cuisine.” Look at their faces in the photo, particularly in contrast to the satisfied expression of the Russian minister. *Twitter post by user Vladimir Kornilov* “I see the American distinguished guests do not risk trying Lavrov’s shchi with forest mushrooms. They even keep their hands away from the cutlery. They’d better cut to tea.”

I have a feeling these ferocious negotiators did not risk the tea either. They quite seriously believe over there that the polonium in Litvinenko’s tea was put there by the perfidious GRU, and not, for instance, by the man of a bright face named Berezovsky. Knowing Lavrov’s sense of humor, we can suppose that our diplomats deliberately chose a dish containing mushrooms as a treat. Perhaps they wanted to see the sour expressions of the sworn ‘partners’. Anyhow, the social networks audience appreciated the situation:

Russian Twitter users:

Oleg Ivanovich – “What can these savages understand about the Russian mushrooms. They should have waited in the corridor while Lavrov ate and didn’t spoil his appetite with their sour physiognomy.”

Svetlana Bezrodnaya – “Let them drink water from sealed bottles! While our man eats with pleasure. 🙂 ”

Aleksandr Kotov – “They probably don’t even know this dish at all. 🙂 ”

Natalya – “They think we will poison them with forest mushrooms… What is the tea for then? I’m just joking. In reality they are used to eating sandwiches from McDonald’s with their hands. They are not trained in etiquette. And so they are shy. Alright… let them wait for tea. Although neither do they drink tea – they swish Coca-Cola! Let them watch them eat then!”

Komandovat’ paradom budu ya – “Tea is the yummiest. From the Omsk airport.”

Prosta staraya sobaka – “They [the Americans] don’t eat anything in Russia except for McDonald’s. :)”

[bvxfyrf – “Ivan just listens and eats, while they have already shit themselves. Well done, Lavrov – you got to finish a meal in peace.”

Ekaterina Lavrikova – “Don’t feed these creatures. Let them bring their own hotdogs.”

dymkag – “Lyolik [Navalny] was poisoned by Lavrov. Let’s disperse.”

Viktor Domakur – “The highest master-class from a professional, most subtle… no unnecessary words and from the bottom of the heart! And gives them pears for dessert!”

I’m not sure about the dessert but I know another thing: the USA are far from being able to harm Russia with any sanctions. What will they do even if the German medics produce a lie that the Rubber Duckies Führer was poisoned by ‘Novichok’? [Ed. – The video was originally published on August 31st, 3 days before the Novichok story on Navalny! How predictable the MSM is…] Turn off the SWIFT, of which the stupid [liberal] creative class have been dreaming for years? That would be a shot in their own foot. As our spiteful fellow citizens rightfully note, they need this SWIFT more than we do.

Vkontakte DB:

“SWIFT is one of the systems (Russia and China already have their own and they are friends with each other) which allows money transfer between banks in different countries. If we suppose that the SWIFT is turned off then: Europe will not be able to receive either gas for heating nor fertilizers for the long depleted soils, or a multitude of essential goods. Because without the SWIFT it will not be able to pay for them in any other way but by pulling goods wagons with metal gold to the Russian border and signing barter acts. In the US, they will have to close down Boeing, for instance, and many similar enterprises which will be left and many similar enterprises which will be left without rolled titanium from Russia (which is physically irreplaceable, because the rerecapitalization of Apple doesn’t help to produce material value from numbers in bank accounts), or sapphire glass and other materials. The deliveries will not happen because there’ll be no payment mechanism.”

All the Western juridical persons’ branches and partner companies as well as owning stakes in Russian enterprises will become senseless, because there will be no way of exporting the profits. If any Russian company pays dividends in any way it will end up replenishing some account in a Russian bank. And it will be impossible to extract this money from there for export. There will no mechanism allowing transfer of the paid coupon profit from the account in Sberbank to Deutsche Bank. There will be no use for dealership networks or sales in general on the Russian territory. There will be no way of extracting the money.”

Just like that. Had they eaten the mushrooms offered by the Russian generosity, then they wouldn’t have started foaming at the mouth… Obama had already torn us into pieces for Crimea. Yet here we are, sitting and laughing. And where has that Obama gone?

Afterword of Ruslan Ostashko:

We have done it! It was hard, but the best Russian political channel on Runet is now with you again [on YouTube.] How this happened is talked about in an independent video. Right now, I want to mention those people who helped make it possible to bring this channel back. Of course, it’s thanks to you, our respectable subscribers. You didn’t leave us in such a hard moment. Aside from support, you gave us the strength. You didn’t allow us to put our hands down and sacrifice our hope for better times. And it was you who helped us with money. We collected the necessary sum the previous month and this month. It’s thanks to only your money, we saved the whole team that fought 24/7 against YouTube for the return of our channel. While at the same time not forgetting about the clips, compilations and publishing videos.

We developed a cool team of many different yet professional specialists who are recharged with the idea of our big community in PolitRussia. Thank you for helping keep it alive. Check out the links that are under each of our videos if you like what we do and you have the availability to make a translation. Together we can do anything.

China: everything proceeding according to plan

China: everything proceeding according to plan

August 24, 2020

by Pepe Escobar with permission by the author and first posted at Asia Times

Let’s start with the story of an incredibly disappearing summit.

Every August, the leadership of the Chinese Communist Party (CCP) converges to the town of Beidaihe, a seaside resort some two hours away from Beijing, to discuss serious policies that then coalesce into key planning strategies to be approved at the CCP Central Committee plenary session in October.

The Beidaihe ritual was established by none other than Great Helmsman Mao, who loved the town where, not by accident, Emperor Qin, the unifier of China in the 3rd century B.C., kept a palace.

2020 being, so far, a notorious Year of Living Dangerously, it’s no surprise that in the end Beidaihe was nowhere to be seen. Yet Beidaihe’s invisibility does not mean it did not happen.

Exhibit 1 was the fact that Premier Li Keqiang simply disappeared from public view for nearly two weeks – after President Xi chaired a crucial Politburo gathering in late July where what was laid out was no less than China’s whole development strategy for the next 15 years.

Li Keqiang resurfaced by chairing a special session of the all-powerful State Council, just as the CCP’s top ideologue, Wang Huning – who happens to be number 5 in the Politburo – showed up as the special guest at a meeting of the All China Youth Federation.

What’s even more intriguing is that side by side with Wang, one would find Ding Xuexiang, none other than President Xi’s chief of staff, as well as three other Politburo members.

In this “now you see them, now you don’t” variation, the fact that they all showed up in unison after an absence of nearly two weeks led sharp Chinese observers to conclude that Beidaihe in fact had taken place. Even if no visible signs of political action by the seaside had been detected. The semi-official spin is that no get-together happened at Beidaihe because of Covid-19.

Yet it’s Exhibit 2 that may clinch the deal for good. The by now famous end of July Politburo meeting chaired by Xi in fact sealed the Central Committee plenary session in October. Translation: the contours of the strategic road map ahead had already been approved by consensus. There was no need to retreat to Beidaihe for further discussions.

Trial balloons or official policy?

The plot thickens when one takes into consideration a series of trial balloons that started to float a few days ago in select Chinese media. Here are some of the key points.

1. On the trade war front, Beijing won’t shut down US businesses already operating in China. But companies which want to enter the market in finance, information technology, healthcare and education services will not be approved.

2. Beijing won’t dump all its overwhelming mass of US Treasuries in one go, but – as it already happens – divestment will accelerate. Last year, that amounted to $100 billion. Up to the end of 2020, that could reach $300 billion.

3. The internationalization of the yuan, also predictably, will be accelerated. That will include configuring the final parameters for clearing US dollars through the CHIPS Chinese system – foreseeing the incandescent possibility Beijing might be cut off from SWIFT by the Trump administration or whoever will be in power at the White House after January 2021.

4. On what is largely interpreted across China as the “full spectrum war” front, mostly Hybrid War, the PLA has been put into Stage 3 alert – and all leaves are canceled for the rest of 2020. There will be a concerted drive to increase all-round defense spending to 4% of GDP and accelerate the development of nuclear weapons. Details are bound to emerge during the Central Committee meeting in October.

5. The overall emphasis is on a very Chinese spirit of self-reliance, and building what can be defined as a national economic “dual circulation” system: the consolidation of the Eurasian integration project running in parallel to a global yuan settlement mechanism.

Inbuilt in this drive is what has been described as “to firmly abandon all illusions about the United States and conduct war mobilization with our people. We shall vigorously promote the war to resist US aggression (…) We will use a war mindset to steer the national economy (…) Prepare for the complete interruption of relations with the US.”

It’s unclear as it stands if these are only trial balloons disseminated across Chinese public opinion or decisions reached at the “invisible” Beidaihe. So all eyes will be on what kind of language this alarming configuration will be packaged when the Central Committee presents its strategic planning in October. Significantly, that will happen only a few weeks before the US election.

It’s all about continuity

All of the above somewhat mirrors a recent debate in Amsterdam on what constitutes the Chinese “threat” to the West. Here are the key points.

1. China constantly reinforces its hybrid economic model – which is an absolute rarity, globally: neither totally publicly owned nor a market economy.

2. The level of patriotism is staggering: once the Chinese face a foreign enemy, 1.4 billion people act as one.

3. National mechanisms have tremendous force: absolutely nothing blocks the full use of China’s financial, material and manpower resources once a policy is set.

4. China has set up the most comprehensive, back to back industrial system on the planet, without foreign interference if need be (well, there’s always the matter of semiconductors to Huawei to be solved).

China plans not only in years, but in decades. Five year plans are complemented by ten year plans and as the meeting chaired by Xi showed, 15 year plans. The Belt and Road Initiative (BRI) is in fact a nearly 40-year plan, designed in 2013 to be completed in 2049.

And continuity is the name of the game – when one thinks that the Five Principles of Peaceful Coexistence, first developed in 1949 and then expanded by Zhou Enlai at the Bandung conference in 1955 are set in stone as China’s foreign policy guidelines.

The Qiao collective, an independent group that advances the role of qiao (“bridge”) by the strategically important huaqiao (“overseas Chinese”) is on point when they note that Beijing never proclaimed a Chinese model as a solution to global problems. What they extol is Chinese solutions to specific Chinese conditions.

A forceful point is also made that historical materialism is incompatible with capitalist liberal democracy forcing austerity and regime change on national systems, shaping them towards preconceived models.

That always comes back to the core of the CCP foreign policy: each nation must chart a course fit for its national conditions.

And that reveals the full contours of what can be reasonably described as a Centralized Meritocracy with Confucian, Socialist Characteristics: a different civilization paradigm that the “indispensable nation” still refuses to accept, and certainly won’t abolish by practicing Hybrid War.

The World Is Dedollarizing

Global Research, July 19, 2019

What if tomorrow nobody but the United States would use the US-dollar? Every country, or society would use their own currency for internal and international trade, their own economy-based, non-fiat currency. It could be traditional currencies or new government controlled crypto-currencies, but a country’s own sovereign money. No longer the US-dollar. No longer the dollar’s foster child, the Euro. No longer international monetary transactions controlled by US banks and – by the US-dollar controlled international transfer system, SWIFT, the system that allows and facilitates US financial and economic sanctions of all kinds – confiscation of foreign funds, stopping trades between countries, blackmailing ‘unwilling’ nations into submission. What would happen? – Well, the short answer is that we would certainly be a step close to world peace, away from US (financial) hegemony, towards nation states’ sovereignty, towards a world geopolitical structure of more equality.

We are not there yet. But graffities are all over the walls signaling that we are moving quite rapidly in that direction. And Trump knows it and his handlers know it – which is why the onslaught of financial crime – sanctions – trade wars – foreign assets and reserves confiscations, or outright theft – all in the name of “Make America Great Again”, is accelerating exponentially and with impunity. What is surprising is that the Anglo-Saxon hegemons do not seem to understand that all the threats, sanctions, trade barriers, are provoking the contrary to what should contribute to American Greatness. Economic sanctions, in whatever form, are effective only as long as the world uses the US dollar for trading and as reserve currency.

Once the world gets sick and tired of the grotesque dictate of Washington and the sanction schemes for those who do no longer want to go along with the oppressive rules of the US, they will be eager to jump on another boat, or boats – abandoning the dollar and valuing their own currencies. Meaning trading with each other in their own currencies – and that outside of the US banking system which so far even controls trading in local currencies, as long as funds have to be transferred from one nation to another via SWIFT.

Many countries have also realized that the dollar is increasingly serving to manipulate the value of their economy. The US-dollar, a fiat currency, by its sheer money mass, may bend national economies up or down, depending in which direction the country is favored by the hegemon. Let’s put the absurdity of this phenomenon in perspective.

Today, the dollar is based not even on hot air and is worth less than the paper it is printed on. The US GDP is US$ 21.1 trillion in 2019 (World Bank estimate), with current debt of 22.0 trillion, or about 105% of GDP. The world GDP is projected for 2019 at US$ 88.1 trillion (World Bank). According to Forbes, about US$ 210 trillion are “unfunded liabilities” (net present value of future projected but unfunded obligations (75 years), mainly social security, Medicaid and accumulated interest on debt), a figure about 10 times the US GDP, or two and a half times the world’s economic output.

This figure keeps growing, as interest on debt is compounded, forming part of what would be called in business terms ‘debt service’ (interest and debt amortization), but is never ‘paid back’. In addition, there are about one to two quadrillion dollars (nobody knows the exact amount) of so-called derivatives floating around the globe. Aderivative is a financial instrument which creates its value from the speculative difference of underlying assets, most commonly derived from such inter-banking and stock exchange oddities, like ‘futures’, ‘options’, ‘forwards’ and ‘swaps’.

This monstrous debt is partly owned in the form of treasury bonds as foreign exchange reserves by countries around the world. The bulk of it is owed by the US to itself – with no plans to ever “pay it back” – but rather create more money, more debt, with which to pay for the non-stop wars, weapon manufacturing and lie-propaganda to keep the populace quiet and in lockstep.

This amounts to a humongous worldwide dollar-based pyramid system. Imagine, this debt comes crashing down, for example because one or several big (Wall Street) banks are on the brink of bankruptcy, so, they claim their outstanding derivatives, paper gold (another banking absurdity) and other debt from smaller banks. It would generate a chain reaction that might bring down the whole dollar-dependent world economy. It would create an exponential “Lehman Brothers 2008” on global scale.

The world is increasingly aware of this real threat, an economy built on a house of cards – and countries want to get out of the trap, out of the fangs of the US-dollar. It’s not easy with all the dollar-denominated reserves and assets invested abroad, all over the globe. A solution may be gradually divesting them (US-dollar liquidity and investments) and moving into non-dollar dependent currencies, like the Chinese Yuan and the Russian Ruble, or a basket of eastern currencies that are delinked from the dollar and its international payment scheme, the SWIFT system. Beware of the Euro, it’s the foster child of the US-dollar!

There are increasingly blockchain technology alternatives available. China, Russia, Iran and Venezuela are already experimenting with government-controlled cryptocurrencies to build new payment and transfer systems outside the US-dollar domain to circumvent sanctions. India may or may not join this club – whenever the Modi Government decides which way to bend – east or west. The logic would suggest that India orients herself to the east, as India is a significant part of the huge Eurasian economic market and landmass.

India is already an active member of the Shanghai Cooperation Organization (SCO) – an association of countries that are developing peaceful strategies for trade, monetary security and defense, comprising China, Russia, India, Pakistan, most Central Asian countries and with Iran waiting in the wings to become a full-fledged member. As such, SCO accounts for about half of the world population and a third of the world’s economic output. The east has no need for the west to survive. No wonder that western media hardly mention the SCO which means that the western average public at large has no clue what the SCO stands for, and who are its members.

Government-controlled and regulated blockchain technology may become key to counter US coercive financial power and to resist sanctions. Any country is welcome to join this new alliance of countries and new but fast-growing approach to alternative trading – and to finding back to national political and financial sovereignty.

In the same vein of dedollarization are Indian “barter banks”. They are, for example, trading Indian tea for Iranian oil. Such arrangements for goods to be exchanged against Iranian petrol are carried out through Indian “barter banks”, where currencies, i.e. Iranian rials and Indian rupees, are handled by the same bank. Exchange of goods is based on a list of highest monetary volume Indian trade items, against Iranian hydrocarbon products, for example, Iran’s large import of Indian tea. No monetary transaction takes place outside of India, therefore, US sanctions may be circumvented, since no US bank or US Treasury interference can stop the bilateral trade activities.

At this point, it might be appropriate to mention Facebook’s attempt to introduce a globe-spanning cryptocurrency, the Lira. Little is known on how exactly it will (or may) function, except that it would cater to billions of facebook members around the world. According to Facebook, there are 2.38 billion active members. Imagine, if only two thirds – about 1.6 billion – opened a Libra account with Facebook, the floodgate of libras around the world would be open. Libra is or would be a privately-owned cryptocurrency – and – coming from Facebook – could be destined to replace the dollar by the same people who are now abusing the world with the US-dollar. It may be projected as the antidote to government-controlled cryptocurrencies, thus, circumventing the impact of dedollarization. Beware of the Libra!

Despite US and EU sanctions, German investments in Russia are breaking a 10-year record in 2019, by German business pouring more than €1.7 billion into the Russian economy in the first three months of 2019. According to the Russian-German Chamber of Commerce, the volume of German companies’ investments in Russia is up by 33% – by € 400 million – since last year, when total investments reached € 3.2 billion, the largest since 2008. Despite sanctions which amounted to about € 1 billion combined for 140 German companies surveyed and registered with the Chamber of Commerce, and despite western anti-Russia pressure, Russia-German trade has increased by 8.4 percent and reached nearly € 62 billion in 2018.

In addition, notwithstanding US protests and threats with sanctions, Moscow and Berlin continue their Nord Stream 2 natural gas pipeline project which is expected to be finished before the end of 2019. Not only is the proximity of Russian gas a natural and logical supply source for Germany and Europe, it will also bring Europe independence form the bullying sales methods of the United States. And payments will not be made in US dollars. In the long-run, the benefits of German-Russian business and economic relations will far outweigh the illegal US sanctions. Once this awareness has sunk in, there is nothing to stop Russian-German business associations to flourish, and to attract other EU-Russian business relations – all outside of the dollar-dominated banking and transfer system.

President Trump’s trade war with China will eventually also have a dedollarization effect, as China will seek – and already has acquired – other trading partners, mostly Asian, Asian-Pacific and European – with whom China will deal in other than dollar-denominated contracts and outside the SWIFT transfer system, for example using the Chinese International Payment System (CIPS) which, by the way, is open for international trade by any country across the globe.

This will not only circumvent punishing tariffs on China’s exports (and make US customers of Chinese goods furious, as their Chinese merchandise is no longer available at affordable prices, or no longer available at all), but this strategy will also enhance the Chinese Yuan on international markets and boost the Yuan even further as a reliable reserve currency – ever outranking the US-dollar. In fact, in the last 20 years, dollar-denominated assets in international reserve coffers have declined from more than 90% to below 60% and will rapidly decline further as Washington’s coercive financial policies prevail. Dollar reserves are rapidly replaced by reserves in Yuan and gold, and that even in such staunch supporters of the west as is Australia.

Washington also has launched a counter-productive financial war against Turkey, because Turkey is associating and creating friendly relations with Russia, Iran and China – and, foremost, because Turkey, a NATO stronghold, is purchasing the Russian S-400 cutting-edge air defense system – a new military alliance which the US cannot accept. As a result, the US is sabotaging the Turkish currency, the Lira which has lost 40% since January 2018.

Turkey will certainly do whatever it can to get out from under the boot of the US-dollar stranglehold and currency sanctions – and further ally itself with the East. This amounts to a double loss for the US. Turkey will most likely abandon all trading in US dollars and align her currency with, for example, the Chinese Yuan and the Russian ruble, and, to the detriment of the Atlantic alliance, Turkey may very likely exit NATO. Abandoning NATO will be a major disaster for the US, as Turkey is both strategically, as well as in terms of NATO military power one of the strongest – if not the strongest – nation of the 29 NATO members, outside of the US.

If Turkey exits NATO, the entire European NATO alliance will be shaken and questioned. Other countries, long wary of NATO and of storing NATO’s nuclear weapons on their soils, especially Italy and Germany, may also consider exiting NATO. In both Germany and Italy, a majority of the people is against NATO and especially against the Pentagon waging wars form their NATO bases in their territories in Germany in Italy.

To stem against this trend, the former German Defense Minister, Ursula von der Leyen, from the conservative German CDU party, is being groomed to become Jean-Claude Juncker’s successor as President of the European Commission. Mr. Juncker served since 2014. Ms. Von der Leyen was voted in tonight, 17 July, with a narrow margin of 9 votes. She is a staunch supporter of NATO. Her role is to keep NATO as an integral part of the EU. In fact, as it stands today, NATO is running the EU. This may change, once people stand up against NATO, against the US vassal, the EU Administration in Brussels, and claim their democratic rights as citizens of their nation states.

Europeans sense that these Pentagon initiated and ongoing wars and conflicts, supported by Washington’s European puppet allies, may escalate into a nuclear war, their countries’ NATO bases will be the first ones to be targeted, sinking Europe for the 3rdtime in 100 year into a world war. However, this one may be all-destructive nuclear – and nobody knows or is able to predict the damage and destruction of such a catastrophe, nor the time of recovery of Mother Earth from an atomic calamity.

So, let’s hope Turkey exits NATO. It would be giant step towards peace and a healthy answer to Washington’s blackmail and sabotage against Turkey’s currency. The US currency sanctions are, in the long run, a blessing. It gives Turkey a good argument to abandon the US dollar and gradually shift towards association with eastern moneys, mainly the Chinese Yuan, thereby putting another nail in the US-dollar’s coffin.

However, the hardest blow for Washington will be when Turkey exits NATO. Such a move will come sooner or later, notwithstanding Ms. Von der Leyen’s battle cries for NATO. The breaking up of NATO will annihilate the western power structure in Europe and throughout the world, where the US still maintains more than 800 military bases. On the other hand, the disbanding of NATO will increase the world’s security, especially in Europe – for all the consequences such an exit will bear. Exiting NATO and economically exiting the US-dollar orbit is a further step towards dedollarization, and a blow to US financial and military hegemony.

Finally, investments of the Chinese Belt and Road Initiative (BRI), also called the New Silk Road, will be mostly made in Yuan and local currencies of the countries involved and incorporated in one or more of the several BRI land and maritime routes that eventually will span the globe. Some US-dollar investments may serve the People’s Bank of China, China’s Central Bank, as a dollar-divesting tool of China’s huge dollar reserves which currently stands at close to two trillion dollars.

The BRI promises to become the next economic revolution, a non-dollar economic development scheme, over the coming decades, maybe century, connecting peoples and countries – cultures, research and teaching without, however, forcing uniformity, but promoting cultural diversity and human equality – and all of it outside the dollar dynasty, breaking the nefarious dollar hegemony.

*

Note to readers: please click the share buttons above or below. Forward this article to your email lists. Crosspost on your blog site, internet forums. etc.

This article was originally published on New Eastern Outlook.

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Saker Blog, the New Eastern Outlook (NEO); and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance. He is a Research Associate of the Centre for Research on Globalization.

Russian Economic Resilience

November 24, 2018

by Gary Littlejohn for The Saker Blog

Introduction

Western political commentaries about the condition of the Russian economy are becoming increasingly illusory, as additional economic sanctions are imposed for a series of increasingly implausible reasons, the most recent ones including those being for alleged Russian complicity in chemical weapons attacks in Syria, those supposedly for the alleged attack on Sergei and Yulia Skripal, and some more regarding Crimea. It might seem self-evident that such measures are pretty futile, given the obvious effect that earlier sanctions have had in galvanising the Russian government into action to mitigate the effects of almost any conceivable future sanctions, but that very failure might be precisely the motive for the West’s renewed sanctions. Existing sanctions have been of limited effectiveness, and Russia is now self-evidently capable of defending itself against virtually any conventional military attack. Even the US recognizes that it would face considerable difficulty in a war against Russia.

For that reason, other sanctions apparently need to be employed to probe the economy for possible other weaknesses, or at least to slow down the development of serious Russian competition in new sectors, such as civil aviation. An additional motive is probably to weaken Russia militarily prior to starting a conflict, despite the assessments above. What Professor Stephen Cohen describes as the ‘war party’ seems to harbour an insatiable hatred for Russia, and despite the problems encountered in the recent exercises such as Trident Juncture 2018, preparations seem to be taking place for a conventional conflict with Russia.

The sanctions currently in place are summarised here:

In any case, despite the evidence coming from international financial institutions and credit rating agencies that the Russian economy is growing in 2018, there are still claims from inside and outside Russia that this will not last and that Russia should somehow change course to avoid future or incipient difficulties. The most notable recent internal claim that Russia must concede defeat from Western sanctions comes from the economist Kudrin, while a well-known French economist Picketty has published a report misleadingly indicating that Russia continues to suffer from much greater wealth inequality than other industrial countries.

I remain of the view that Russia will remain resilient in the face of sanctions, but that it may well have difficulty in reaching its goal of 5 per cent growth per annum by 2024, partly for internal reasons, and partly because the world economy is facing a major near-term crisis that would have a serious impact on Russia, through no fault of its own. As an indication of the causes of what I believe is the coming global financial crisis, it is worth recalling that global debt is now 60 per cent higher than it was at the time of the last financial crisis of 2008, and that no major reforms of the Western-dominated global financial institutional structure have taken place. Moreover, the same kind of banking behaviour is becoming increasingly evident, with complex financial packages known as derivatives being based once again on dubious loans that are likely to be unpaid, or at least not repaid in full. These are so-called ‘non-performing’ loans. These clouds on the economic horizon have become darker owing to President Trump’s policy of trade wars with countries that he considers to be engaging in unfair competition with the USA. In addition, while Western economists have for some years predicted the slowing down of Chinese economic growth, and have been wrong, there is now reason to believe that the Chinese economy really is slowing down, while still growing.

If this apparent slow-down continues, it will have a negative effect on the rest of the world economy, as the second link above shows already. In addition, there is increasing evidence of poor economic performance in the EU:

Since a great deal of Russian trade is with China and the Eurozone currency area, such developments beyond Russian control could have a greater impact on Russian economic performance than sanctions. In addition, the boost to the Russian economy in 2018 from high oil prices looks vulnerable or at least unlikely to continue at the present level:

It is true that the oil price has recovered a little in the hours following the above report, but the need to cut production shows that continuing high oil prices cannot be taken for granted, and Russia has not yet decided to cut its own oil production. This has resulted in a further decline in the oil price.

Yet there is no denying that in 2018 the Russian economy has continued to grow, and this is now widely recognised by various Western credit rating agencies and international financial institutions.

The Emerging Consensus on Russian Economic Performance

The IMF has unequivocally reported that the Russian economy has grown in 2018, although it claims that some institutional factors will impede future growth. Its growth estimate for 2018 is 1.7 per cent and for 2019 it is 1.8 per cent. This implies that Russia will have difficulty in reaching its aim of 5 per cent growth per annum by 2024, as laid down in President Putin’s Address to the Nation on March 1st 2018. Nevertheless, the idea that Western sanctions are crushing the Russian economy, as some US Senators have implied, seems fanciful. This is the case even if one does not criticise the IMF for ignoring the possible changes that have already taken place in various sectors, such as agriculture, finance, civil aviation, car manufacture and big data. And indeed the official Russian figure on growth for the second quarter [Q2] of 2018 indicates that the economy is 1.8 per cent larger than it was in Q2 for 2017, so we may end up with an overall growth figure for 2018 that is slightly higher than the IMF estimate.

The main credit agencies have also publicly signed up to the narrative of continuing growth. For example, Moodys has also forecast growth along lines similar to those of the IMF. My own view is that such forecasts are unduly pessimistic, but only if one assumes that the world economy remains stable over the next few years. Thus it has been argued that the Russian financial sector has been somewhat underdeveloped, and yet the official figures from the Russian government statistical agency Rosstat show that in 2018 finance has been the fastest growing sector. In sharp contrast to the UK, where the financialisation of the economy has grown like a monster and now greatly influences economic priorities at the expense of productive investment and sound long-term growth, in Russia the finance sector until recently has been lacking in capacity to cope properly with the needs of the economic restructuring that has been taking place. One of the main reasons for this recent positive change has been the closure of around 100 banks with too high a proportion of non-performing loans, which has probably reduced the room for corruption and for capital flight, instead facilitating the focus of capital on the more productive sectors of the economy.

Nevertheless, sanctions did initially produce a recession in 2014, and it took two years to recover from that and restart growth. The loss of income over those two years has been estimated at about 6 per cent of GDP compared to the result of a steady growth rate during those two years.

It seems pretty clear that the outflow of capital from Russia which has been going on for over 25 years has been facilitated by the City of London, which has enabled the creation of anonymous companies (the names of whose directors are not publicly disclosed) that can readily be used to move funds to offshore tax havens. For example the recently discovered scandal whereby a branch of Danske Bank located in Estonia evaded oversight and acted as a conduit for the outflow of about $180 billion from CIS countries over a ten-year period has brought to light the fact that London-based anonymous companies were the main vehicle for hiding this outflow of funds. Closing such gaps by greater supervision of the activities of Russian banks should help stop this drain on the Russian economy. Yet there is still ongoing outflow of capital from Russia, which remains a potential cause for concern, and the Russian Central Bank expects sanctions to continue until at least 2021.

Unfortunately, the reduction in the outflow of funds from 2014 to 2017 has not yet led to a reverse flow of funds back into Russia to any great extent, because the Russian policy of “de-offshoreization” has had a limited impact so far, according to a recent report by Bloomberg. In addition, Russian millionaires continue to keep about 70 per cent of their assets abroad.

The ongoing (if now more limited) damage from sanctions would be more readily recuperated if so much capital was not still leaving Russia.

Yet it is important to stress that not all capital leaving Russia constitutes capital flight. As the link above says:

“According to the Central Bank, there are two main factors that make the outflow of capital grow. First off, Russian banks pay their foreign debts. Secondly, other sectors of economy invest in foreign assets. Earlier, the Central Bank reported the net outflow of $31.9 billion in January-September of 2018. Thus, as much as $10.3 billion were withdrawn from Russia in October.

It is worthy of note that Russia managed to improve its trade balance: its surplus amounted to $154.6 billion vs. $90.5 billion a year earlier. In addition, foreign exchange reserves (gold reserves) of the Central Bank of the Russian Federation have grown by $35.7 billion. The National Welfare Fund played a significant role in the trend: the reserves of the fund were growing owing to oil and gas super-profits (with the price of oil over $40 per barrel). According to the Central Bank, the outflow of capital from Russia for 2018 may reach $66 billion. This will be the largest indicator since 2014 ($152 billion), when the West imposed its first sanctions on Russia.”

In contrast to the outflow of capital, which as the Central Bank indicates can be beneficial, Russia has become more successful at attracting foreign direct investment [FDI] especially in the energy sector, despite sanctions. The most notable example of this is the flagship Yamal Liquefied Natural Gas [LNG] project in the Arctic. This was built with Russian, Chinese and French funding. In recent days, Saudi Arabia has expressed an interest in the follow-up project at Yamal, known as Arctic 2, as it tries to diversify its economy ahead of the decline in its own oil resources.

Arctic 2 will be even larger than the original project. One unexpected result of Yamal has been that Russian LNG has even occasionally found American customers.

In addition, Russia is using the present demand for oil to try to pressure some customers to use Euros rather than US dollars to buy their oil.

And whatever the fluctuations in the price of oil and gas, Russia is still using pipelines to secure greater stability in energy sales. The Nord Stream 2 pipeline has now reached the German shore and the Pride of Siberia pipeline in the Far East is also close to completion, but less publicity has been given to the fact that the Turk Stream pipeline has also now reached Turkish landfall.

Overall, the strong performance in the energy sector in generating available investment funds for other sectors, and the strengthening of the financial sector coupled with a growth of FDI should enable Russia to invest more effectively in future.

Other indicators of Russian economic performance

One Western economic appraisal recording some aspects of Russian economic performance is that of the World Economic Forum [WEF]. This indicates that Russia has improved on its competiveness index ranking, going up two places to 43rd out of 140 countries that are listed.

“…Russia’s standing was buoyed in the WEF rating this year by stable macroeconomics, a large market size, information and communications technology adoption and human capital…”

The factors that were thought to count against it were:

“Meanwhile, low transparency, innovation, limited interaction and diversity were listed as factors that hurt the Russian economy, along with weak institutions, workforce skills, lower social capital and a vulnerable financial system.”

These latter claims suggest that, to some extent at least, old prejudices are still in play. Contrary to these claims, Russia has a very low debt-to-GDP ratio, two sovereign wealth funds that have benefitted this year from the high price of oil, and a restructured and growing financial sector. Workforce skills are probably increasing with the inward migration of ethnic Russians from Ukraine, and it is clear that the reform of local government is ongoing. The IMF ‘ease of doing business’ index shows that transparency is increasing, contrary to the impression given by the WEF. Furthermore, both innovation and the diversification of the economy are clearly growing in agriculture, civil aviation, civilian space activity, car manufacture, and possibly in the future in the use of big data, as indicated in Putin’s speech of 1st March. The effects of measures to deal with many of these issues can be found on the Rosstat website:

Concentrating on innovation, and taking agriculture first, the Q2 figures self-evidently do not include the very recent results of the Russian harvest this year. This has once again (for the third year) exceeded earlier estimates, and the diversification within agriculture is clear, as well as the adoption of modern machinery where possible.

This video is less than 5 minutes long. The figures shown from 1 minute to 1 minute 30 seconds are worth noting. They show how much four agricultural sectors produced in relation to total Russian demand for these products. Even in meat production, Russia has produced 93 per cent of its own needs. For grain, it produced 170 per cent of its own needs. In sugar, the estimate was that 80 per cent of needs would be produced within Russia, whereas the actual output was 105 per cent, and in vegetable oil, the expected 80 per cent of demand being met internally turned out to be 153 per cent. The result is that Russia supplied more than half of the world’s wheat exports this year.

Russia is rapidly turning into an exporter in areas other than grain, and this growing export potential (with its geopolitical implications) has meant that a series of foreign ministers, as well as the World Health Organization, attended this exhibition. This rapidly changing agricultural performance is bound to increase overall economic growth in the coming years. One surprising new export crop is soya:

This might only be 3.9 million tonnes in a Chinese soya market of 95 million tonnes, but it will doubtless grow in future.

Note that the YouTube video above includes a statement that a possible reduction in VAT from 20 per cent to 10 per cent is envisaged for next year, which would reduce any upward pressure on prices, and there may be more funding for the existing policy of promoting certain agricultural regions. This raises the issue of how the performance of such special regions will be evaluated. For example, will the Ministry of Economic Development be involved and will there be specific measures such as the use of social accounting matrices to ‘capture’ the specific economic development in such regions? The ongoing growth in food production not only tends to reduce inflation and help the balance of payments, but also stimulates demand for agricultural machinery and relevant services. The planned increase in rural road construction should also foster growth in this sector.

Turning to another sector, the new American sanctions being imposed on Russian civil aviation are rightly seen as simply an attempt to contain Russian competition in this area, but as Ruslan Ostashko has argued, it will be technically easy to develop Russian alternatives to U.S. civil aviation electronics, given the capabilities shown in military avionics. Although the performance in flight tests of the MC-21 (a future competitor to the Boeing 737Max) is probably the precipitating cause of such sanctions, these sanctions cannot affect the use of composite materials in this civil aircraft, because no other plane has such technology and the components and materials were developed exclusively in Russia. So there is no way to prevent such a development programme by using sanctions. Similarly, on the wide body passenger jet being developed the new engines can readily be developed in Russia without relying on foreign expertise.

In car and bus production, the new Kamaz autonomous [driverless] bus was on display at the recent motor show in Moscow. No Western manufacturer has yet brought a similar vehicle to market. Doubtless the lessons learned in developing the Aurum luxury range of automobiles will soon cascade on to other car production.

With regard to big data, the use of distributed ledger recording of transactions is already well advanced in Russia, and not only in the area of cryptocurrencies. Apart from the fact that three of the largest five such companies are located in Russia, Russia has other potentially helpful ‘factor endowments’ in the area of big data. Firstly, there is the expertise in electronics that permitted Russia to develop its own microchip extremely rapidly. Doubtless the performance in this area will continue to improve. Secondly, there is the expertise in all aspects of computing which was evident to me 25 years ago when I visited the Computer Centre of the Russian Academy of Sciences [RAS], and the formerly secret nuclear city of Obninsk. For example, at the RAS I was shown a fully functional graphical user interface as good as MS Windows, but capable of running on an Intel 286 chip, whereas MS Windows (which had only just appeared in the West) required a 386 chip as a minimum. At the time, Russia lacked the financial capacity to market such a graphical user interface. In addition, a private company engaged in trade with China was using the programming language APL to construct its own database, without needing a proprietary commercial package. This would have enabled it to exceed the capacity limits of Western commercial database programmes available in those days, and the same would have been true of spreadsheets. In Obninsk, APL was also being used in nuclear safety, neural networking and statistical analysis quite separately from the macroeconomic modelling that was being done at the RAS. Thirdly, Russia could easily locate data warehouses near natural gas sources, thereby avoiding the transmission costs of the energy to run them, and (given the average cold temperatures in Russia) would incur lower costs in cooling such buildings. Electrical resistance of semiconductors generates heat, and this makes cooling of server buildings an issue for big data in some countries. Cryptocurrencies and other distributed ledger applications are pretty energy-intensive.

No need to surrender

In the light of such economic potential, it should be surprising that the well-known economist Kudrin is suggesting that Russia needs to make concessions to the West to ease the impact of sanctions.

Alexei Kudrin is Head of the Accounts Chamber and a former finance minister, so prima facie one would expect him to talk sense. Yet he considers that sanctions are the main threat to the President’s goals, as expressed in the Address to the Nation of 1st March. It should by now be clear that it would take far greater changes in the world economy, such as another financial crash, to throw the objectives for 2024 into serious jeopardy. There are positive elements in the balance of payments (oil, agriculture and arms, with civil aviation likely to be a growing sector) that will enable the Russian government to fund most of the objectives now set for 2014, in my view. The sovereign funds are increasing at the moment, and while this form of saving is a precautionary counter-measure to probable further sanctions, the fact that Russia is pretty much self-sufficient in raw materials, and has a growing skills base (with ethnic Russians coming from both Ukraine and Kazakhstan) should mean that additional sanctions will have a limited effect. There is also the likely prospect of military innovations cascading into the civilian economy, as used to happen in the USA, and this is particularly relevant for civil aviation and big data.

There is the additional problem that the West is stagnating economically and technologically, and has evident difficulty in developing new technologies, including in space. Where the West (and Far East) has had a technological lead with smart phones, the global market is showing clear signs of saturation. The same is true of social media, where stocks are declining quite steeply at the moment, and where Russia or China have rival products already in place. It is likely that the West has little to offer Russia if sanctions are lifted, given the changes that have already taken place in Russia. Sanctions are mainly about financial power and that is already ebbing away in the West. Russia on the other hand will continue to strengthen gradually owing to the growing strength and sophistication of Russian financial institutions, the policies of currency swaps to facilitate non-dollar trade, alternatives to SWIFT developed in both Russia and China, and perhaps in future more “de-offshoreization”.

The ‘failure of nerve’ shown by Kudrin indicates the pernicious effect of Western neoliberal ideology, and raises once again the issue of its influence on aspects of Russian economic policy-making. This can be seen in the case of the pension reform earlier this year, for which Kudrin had lobbied over a period of some years. Having looked again at the research report that was published in Russia just before the law was changed on the age at which people become eligible for a state pension, I am even more convinced that it was premature to introduce this legislation. The report looked at the interaction between demographic and economic changes in present-day Russia covering five aspects, and argued that to raise the age of pension eligibility would adversely affect the economy, and slow down economic growth. While this would not be the case in many industrial societies most of which have a very different demographic profile, Russia is unusual and it would have been preferable to delay the introduction of such a measure, in order to avoid the negative impact just at a time when economic growth was picking up.

There was an analogous case with South Africa at the end of Apartheid in 1994, where the political settlement that was reached included enormous pension payments to South African civil servants. An econometric and demographic analysis there showed that it would have been possible to have a ‘pension holiday’ for a few years in order to devote those funds to kick-starting the economy – a high priority at the time. It was shown that this would not really have adversely affected those pension payments, but strong vested interests prevented this temporary diversion of pension payments from taking place.

The Saker has commented on Putin’s adroit response to the political backlash that took place in mid-2018 when the new pension law was introduced during the football World Cup. The subsequent changes to the legislation may have mitigated some of the adverse effects, but the outcome will not be as good as if the legislation had been postponed for a few years to facilitate the desired acceleration of the economic growth rate.

Why Russian growth may not be constrained by the factors highlighted by the Washington Consensus.

Russia is simply running a mixed economy, with most of it privately owned and parts of it in public ownership. This was considered perfectly normal in Western Europe from 1945 until the late 1970s, and even now forms quite a large segment of economic activity in countries such as France. The advantages of such public sector activity include reaping the benefits of ‘natural monopolies’ such as railways or utilities where competition is likely to be restricted under normal market conditions. These benefits then potentially include additional state revenues, long-term time horizons for investment planning and at times greater democratic control. In the UK the fact that foreign state-owned companies now own companies that were originally privatised is an indicator of how the ‘logic’ of natural monopolies can sometimes prevail even in competitive market conditions. It is much easier to develop a realistic long-term national economic strategy if those natural monopolies are under government control.

In general, more equal societies grow more quickly, contrary to the mythology of the neoliberal Washington Consensus. It is increasingly clear that the increased inequality of income and wealth generated by the neoliberal policies of that last 38 years has acted as a drag on growth and has contributed to the economic instability that resulted in the financial crash of 2008. Russia is widely considered to be a very unequal society, but this view ignores the impact of measures to reduce such inequalities of income and wealth, especially poverty reduction measures that have had a significant impact. This now includes minimum wage legislation that appears to have been influenced by the research of Professor James K. Galbraith at the University of Austin, Texas.

The view that wealth inequality in Russia is huge has recently been given a boost from a book by the well-known French economist Thomas Piketty. However, that book has been subject to very serious critique by the Swedish economist Jon Hellevig:

Hellevig argues that under its present leadership, Russia has been moving towards a more equal society, a trend that seems to be continuing despite the glaring inequality of income and wealth. Hellevig’s point is that these glaring inequalities are not dire in terms of international comparisons.

“After identifying the deficiencies, we have adjusted the main findings announced by the Piketty scholars to reflect the actual data. Corrected data shows that instead of earning 45-50% of national income as claimed by the our Piketty scholars, the top 10% of Russians earned less than 30% of the income. Correspondingly, our corrected data shows that instead of owning more than 70% of the national wealth, the wealth of the top 10 percent of the population was 39% of private wealth and 32% of total national wealth.”

This refutation by Hellevig, which shows that the glaring inequalities are not dire in terms of international comparisons, indicates how Russian society has changed since the 1990s. The so-called ‘oligarchs’ have less weight in the economy and almost certainly less political power. It seems that the member of the Duma who stated that there are no oligarchs any more may well have been correctly pointing to the changed political landscape, even if that was probably an overstatement. The wealthy no longer seem to dominate the political agenda completely, in contrast to the 1990s. Insofar as they do have an impact on policy, it seems to be through the ongoing influence of neoliberal ideologists such as Kudrin and others in certain parts of the government.

Returning to the potentially strategic importance of the state in economic performance, the historical evidence indicates that since the 18th century state-sponsored growth has been vital for stimulating economic growth, especially for industrialisation. The famous five Asian tigers are clear examples of this during the last 40 years or so, but in fact all economies have relied initially on state-sponsored growth in the early phases of industrialisation. Even the UK relied on the dominance of the Royal Navy to support its dominant trade position and ensure that the colonies, especially India, supplied the economic surplus necessary to finance the industrial revolution. Historically, it is only the leading global economy (the UK, then the USA, then China) that advocates free trade, after it has achieved its dominance.

Russia fulfils both criteria for long-term growth, namely, it is not too unequal and has a state-sponsored growth strategy. It also has the most fundamental feature for long-term growth, namely population growth, and is now the only technologically advanced society to have this positive demographic profile. That is a result both of growing optimism about the future and of more stable families. Among ethnic Russians and some minorities this is almost certainly a result of the restored influence of Christianity.

Conclusion

While Russia may well struggle against growing global economic ‘headwinds’ to achieve its aim of 5 per cent growth per annum by 2024, it quite clearly has the resilience to cope with the current sanctions in place and to help shield other economies from sanctions by using currency swaps, occasional barter agreements, the use of an alternative international payments system to SWIFT and other measures. By contrast, the EU seems unable to help shield Iran against US sanctions because it does not possess an alternative to SWIFT and SWIFT itself has already caved in to US financial threats and refused to process payments going to Iran. In addition, the EU can find no member state willing to host any financial institution designed to facilitate trade between the EU and Iran in fulfilment of the nuclear deal that the US has recently withdrawn from. Apart from Russia, only China has the financial muscle and its own alternative to SWIFT to help Iran to withstand the US sanctions.

The fact that Russia is innovating in agriculture, energy production, civilian space activity, civil aviation, automobiles and intends to do so in big data (partly for greater transparency and responsiveness in government administration) shows that its prospects for economic growth remain good.

http://thesaker.is/russian-economic-resilience/

 

SWIFT Explained: a Tool of US Empire??

“RIC”: BRICS after Bolsonaro

November 08, 2018

by Ghassan Kadi for The Saker Blog

BRICS is the acronym of the “alliance” that includes Brazil, Russia, India, China and South Africa.

In reality, and with all due respect to Brazil and South Africa, BRICS is about RIC.

With Russia, India and China, in any order, there lies the future of Eurasia; the virtually unchartered quarter that houses over one third of the entire world population; a huge chunk of landmass, rich in resources, not only human resources, and just waiting for the right moment to make its mark in history.

The so-called “Silk Road”, or in reality silk roads, was historically the network of caravan paths that ancient traders took on their journeys from east to west, linking worlds largely unknown to each other, long before Vasco da Gama’s highly documented trips.

And whilst the ancient cultures of India and China flourished in their own right, apart from Alexander’s conquest, the Muslim and subsequent Mongol conquests, there was little historic geopolitical interaction between that far Far East and the Middle East; let alone Europe. The long icy and hard terrain made it very difficult, even for the brave at heart, to take the journey from Beijing to Vienna. The temptations to make that trip did not match the hardship of the journey for the averagely motivated traveler.

But this is all about to change. The new “Silk Road”, the network of super highways that the “RIC” nations are intent to build is going to change this status quo and shorten land distances.

The Trans-Siberian railway is a Russian route and constructing it linked Vladivostok with Moscow, but it was not intended to link China with Europe. If anything, it helped bolster the isolation of the USSR. But the new “Silk Road” project will change the transportation map of the world upside down once and for ever.

The determination to build this massive road network does not need either Brazil or South Africa; again with all due respect to both nations.

By taking many considerations into account, we must be realistic and say that the electoral win of Brazilian candidate Bolsonaro will not affect the prospect of the “Silk Road” one way or the other. The repercussions of his election will affect Brazil more than any other country. Purportedly, his policies will affect global climate, but this is another issue. His fiscal and international policy making decisions may put Brazil under the American sphere of influence, and this unfortunately can and will affect Brazil very adversely, but the damage is likely to be restricted to Brazil only.

With or without Brazil, BRICS can survive, but for it to survive and make a difference, it will need to become more serious about conducting its business.

The first step towards becoming more proactive is best done by establishing proper trust and conciliation between the three major players; Russia, China and India.

The love-hate relationship that marred the Soviet-Maoist era took a while to heal. The Russians and the Chinese seem to have gone many steps ahead towards establishing trust and confidence in each other. But China and India continue to have serious problems, and for as long as they have border and sovereignty disputes, this hinders them from becoming effective partners in every way.

Furthermore, BRICS needs a preamble and a Statement of Purpose. At the moment, it doesn’t have one. With all of its hypocrisies, the Western alliance camouflages itself behind the veil of Christian values, democracy and the “free world” slogans. Thus far, the only undeclared statement of purpose for BRICS seems to be that of defiance to the Western alliance.

The BRICS alliance will face a struggle founding an attractive preamble. Orthodox Christian Russia, predominantly Hindu India and Communist/Taoist/Buddhist China have little in common religiously speaking. Perhaps the BRICS leaders should be using common political grounds instead. They certainly cannot use democracy; not only because such an adoption would make them look as copycats, but also because they have different ideas about democracy, and Russia and China definitely do not endorse Western-style democracy.

In reality however, BRICS can use abstract lofty principles as their preamble; principles such as morality, honesty, and if they want to be less “theological” as it were, they could use principles such as “International law”, “International equality” and the like.

Apart from accumulating gold, building bridges and super road networks, planning fiscal measures to cushion the effects of a possible collapse of the Western economy on their own economies, developing state-of-the-art hypersonic weaponry and giving a clear message announcing that the world is no longer unipolar, the BRICS alliance ought to make clear statements about what kind of alternative world it envisions.

This is very important, because a significant percentage of the world population does not know what to expect if the BRICS alliance becomes the new dominant financial and military power. They have special concerns about China because they don’t know much about China, and they worry not only about whether or not China will be a new colonial super power, but they also worry about one day waking up and seeing traffic signals in Mandarin; so to speak.

To many people across the globe, the Chinese culture, language and modus operandi look like something from another planet.

The Cyrillic Russian and the Devanagari Indian scripts are no less daunting than the Mandarin script, but many Indians and Russians speak English and the West has had much more cultural interaction with both Russia and India than it ever did with China.

Furthermore, for the BRICS alliance to become more viable, it will need to develop a military alliance akin to that of NATO. When and if such an alliance is forged, then members will be protected as any attack on one will be considered as an attack on the whole coalition. Such an alliance will not increase the chances of war. Quite the contrary in fact, as it can lead to much needed stability. If for argument sake North Korea were a member, it would not be in a situation where it can claim that it needs nuclear weapons for self-defense, and secondly, the West would not be threatening to attack for fear of a major global escalation. The Cold-War, costly and potentially disastrous as it was, presents a successful model of nuclear deterrence. And in retrospect, had Vietnam been a member of the Warsaw Pact (or a similar one that included the USSR), it is possible that America’s war on Vietnam would have been averted. A more realistically plausible scenario is the case of former Yugoslavia. Had the Warsaw Pact been still standing, NATO would have never attacked Serbia back in 1999.

To be able to afford a more effective military deterrent, be a viable stand-alone economic power and to be attractive to the rest of the world, the BRICS coalition will ultimately need more member nations. Ideally, it would be of huge significance if Japan could be convinced to join it. The inclusion of Japan will not only add a huge financial power to the group, but it will also generate an in-house regional security to the China Sea region. Baby steps have been recently made between China and Japan towards conciliation, and much more needs to be done. It will take a lot of work and good intentions on both sides to undo a long history of hostilities and distrust.

Other nations that can and arguably should enter the coalition are; Venezuela, Mexico, Argentina, Iran, Iraq, Syria, Korea, Malaysia, Vietnam, Indonesia, and post Erdogan Turkey. Why post Erdogan? Because Erdogan’s Turkey can turn BRICS into a bag of TRICS.

Resource-rich Australia has much to gain in joining such an alliance as this will not only bolster its own security, but it will also secure economic stability and on-going trade.

Thus far, all the official visits that the RIC leaders have exchanged, all the business deals they made, all the projects they are embarking on, huge as they are, are only baby steps towards turning their alliance into one that can lead the world and establish the necessary moral, financial and security foundations that are capable of underpinning it.

Over and above establishing a new world reserve currency, setting up an alternative to the US-based Internet and WWW, SWIFT, etc, the brave new world will need hope, trust, morality and concrete assurances for a long-awaited change for the better. These are the real challenges facing the BRICS alliance now; not the Bolsonaro win.

%d bloggers like this: