On Dec 21, 1943, my parents got married in a big North Minneapolis church.  While it was a large and happy affair, it was not expensive because neither of my parents could afford that.  My father, the photobug, gave his camera to a friend to record the event but friend neglected to take off the lens cap so one of the biggest events in my parent's lives would never make it to the family scrapbooks.  They would make it quite clear to us children that they had chosen the day with the longest night of the year quite deliberately—it was a family joke we all knew long before we had any idea what it meant.

The reason my parents could have a big sprawling wedding without it costing much was because my father was in his last year at a Lutheran seminary and my mother was this highly popular parish worker at the big church.  So we children would be preacher's kids.  This is a difficult life.  Everyone knows who you are and everyone believes they have a right to pass moral judgements on your actions. Personally, I hated every minute of it.  But my mother would make it a point to remind me just how many PKs in Nordic Lutheran history made important contributions to human progress.  This wasn't a lot of comfort but I grew up hoping that this highly stressful childhood could possibly lead to some very successful outcomes.

This leads to a very interesting question.  If becoming a clergyman was a preferred occupational destination for bright young students for the last 2000 years in Christendom, shouldn't there be a difference in outcomes between the societies that removed their clergy from the gene pool and those that did not?  When Martin Luther, a man once sworn to celibacy fell in love, he needed a set of rationales for why Lutheran clergy should marry.  Mostly, he explained, a man without a family is unqualified to understand the problems of parishioners who have families.  And from all accounts, Luther obviously loved his wife and children going so far as to compose music for them.  The Catholics who want to believe that Luther was a great heretic who destroyed the unity of the church often point to his failure to keep his vows of celibacy as proof positive that he was a bad person.

As a practical matter I decided as a child that I could never be a Catholic for the simple reason that if my father had been one, I would not exist.  Buying into my mother's notion that a childhood in a parsonage was this special gift that would lead to making me a significant person in the culture like Ingmar Bergman, was MUCH more difficult to believe when asked to sit on wooden pews through very long devout observances.  I still don't see the link.  Nevertheless, it is quite obvious that the Protestant clergy have far fewer problems with sexual issues like pedophilia.  Yes they have sex scandals, but they are of the regular variety—the preacher has an affair with the organist, etc.  Luther was right!  It is a good thing for the clergy to have normal sex lives—the kind that includes the preacher and his wife bragging to their children (every year on their anniversary) that they chose the longest night of the year to marry and that sex is a gift from a loving God that is intended to make us happy.  My parents had many hang-ups—sex was not one of them.

I see some Australian Catholics have come to agree with Dr. Luther.  And while I would strongly suggest that they abandon clerical celibacy, I would also suggest they look into the question of the resulting preacher's kids.  After all, they can be real troublemakers. They can also become real reactionaries—yes Frau Merkel, I am talking about you.

Catholic Church In Australia: 'Obligatory Celibacy May Have Contributed To Abuse'

Religion News Service | By Josephine McKenna  12/14/2014

VATICAN CITY (RNS) The Roman Catholic Church in Australia acknowledged that “obligatory celibacy” may have contributed to decades of clerical sexual abuse of children in what may be the first such admission by church officials around the world.

A church advisory group called the Truth, Justice and Healing Council made the startling admission Friday (Dec. 12) in a report to the government’s Royal Commission, which is examining thousands of cases of abuse in Australia.

The 44-page report by the council attacked church culture and the impact of what it called “obedience and closed environments” in some religious orders and institutions.

“Church institutions and their leaders, over many decades, seemed to turn a blind eye, either instinctively or deliberately, to the abuse happening within their diocese or religious order, protecting the institution rather than caring for the child,” the report said.

“Obedience and closed environments also seem to have had a role in the prevalence of abuse within some religious orders and dioceses. 
Obligatory celibacy may also have contributed to abuse.”

The council’s CEO, Francis Sullivan, who has held various administrative roles in the health sector, including heading Catholic Health Australia, said clergy training should include “psychosexual development.”

“It’s a no-brainer,” Sullivan said. “You need to address how sexuality is understood and acted out by members of the clergy.”

But the Chicago-based Survivors Network of those Abused by Priests, which represents around 20,000 victims worldwide, said the latest report did little to help protect those at risk from abuse.

“Decisive action is needed, not more reports,” SNAP national director David Clohessy said. “The church hierarchy knows what’s needed. It simply refuses to give up its power and enable secular authorities to investigate and prosecute those who commit and conceal sexual violence against the vulnerable.”

The Vatican’s chief spokesman, the Rev. Federico Lombardi, could not be reached for comment Friday. But Maltese Bishop Charles Scicluna, the Vatican’s former chief prosecutor for abuse cases, tried to put the report in context in remarks to the Italian daily La Stampa.

“You mustn’t forget that most abuse occurs in the family,” he said. “Obviously I don’t exclude individual cases where celibacy is lived badly that may have psychological consequences. But it should be said clearly that it is certainly not the origin of this sad and very painful phenomenon and remember that there is no nexus between cause and effect.”

The suggestion of a link between celibacy and child sexual abuse has divided Australian Catholic leaders in the past.

Cardinal George Pell, former archbishop of Sydney and now head of the Vatican’s powerful economic ministry, acknowledged there may be a connection when he testified before a separate government inquiry in Australia last year. He was unavailable for comment at the Vatican Friday.

The independent Australian council is made up of church and lay members and is supervised by some of the nation’s senior archbishops, though its views do not necessarily reflect those of all senior clergy. more

It's hard not to admire the French—mostly because they excel at those facets of life that are improved by caring, such as food, clothing, or sex.  My first clear demonstration of what the French consider style came during the building of the Chunnel in the 1980s.  This project was, by necessity, a cooperative venture between Thatcher's UK and Mitterand's France.  But while the engineering problems were daunting enough, the real hassles came when Thatcher's neoliberalism (which taught that public investment in large-scale infrastructure projects was a very bad idea) encountered the French Socialists who believed that such projects are just one of the things a government does.  So while the Brits argued about whether the money should be spent, the French enthusiastically subscribed to public shares.  Finally, the big day arrived when the tunneling crews from each side met in the middle.  The last rock is moved and a worker from each side reaches through the hole to exchange flags for the photographers.  The Brit was wearing a standard-issue safety orange outfit.  The Frenchman has on a outfit designed by a Paris fashion house in taupe with some sporty stripes going up the sleeve.  One side had obviously given the outfits for that historic occasion a lot of thought.  The other, none at all.

In my mind, neoliberalism's overwhelming flaw is that it demands doing things on the cheap and makes it impossible to do things with style or elegance.  As I have been arguing since the 1980s, you cannot build an green society without Elegant Technology so anything that disrupts this possibility will be lethal over time.  Building on the cheap is reason #1 why we are heating up the planet.

Right now, the French economy is in serious trouble.  The neoliberalism built into the EU's structure makes being French almost economically impossible.  So the lords of finance have just installed a new economics minister whose job it is is to make France more enthusiastically neoliberal.  If he is even partially successful, the French will probably vote to leave the EU.  My guess is that there is still enough left of French culture to trigger such a revolt.  These are people who believe that if you cannot live with style, what's the point?  The article below is from Der Spiegel.  Germany is pretty enthusiastically neoliberal so they see the appointment of an extremist like Macron as a hopeful sign.  Careful what you wish for folks.

Reforming France: Emmanuel Macron's Impossible Mission

By Julia Amalia Heyer

French Economics Minister Emmanuel Macron: "If being a politician means wanting to be re-elected at any price, then I'm not one."

Thirty-six year old Economics Minister Emmanuel Macron has been tasked by French President Hollande with reforming the country. But it won't be easy. Socialists view him with suspicion and the party's left wing is already preparing for battle.

Recently, he gave voice to the question himself. It was last Thursday at 8:30 a.m. and Emmanuel Macron, dressed in a teal suit coat and navy blue tie, found himself at a podium in the Grand Palais in Paris. "Why am I actually a Socialist?" he asked his audience.

For a former investment banker who was recently assigned with the unenviable task of reforming his country as economics minister, it is an excellent question.

Macron's audience last Thursday morning was made up of perhaps 70 business leaders in an event organized by an economics magazine. Most of them were just as elegantly dressed as Macron himself, and they chuckled with amusement at his question.

But instead of answering his own question, the minister for economics, industry and information technology unfurled his far-reaching vision for a reinvigorated France. He spoke of the common welfare, which needed to once again take precedence over individual interests. And he underscored his exposition with a quote from the Socialist reformer Jean Jaurès from the year 1887.

It is the French way, a method of situating one's self in the grand arch of history. And it suits Macron well.

France must change, he said last Thursday from the podium in the vast palace on the Champs-Élysées, and it wasn't the first time he had uttered the sentiment. The country isn't doing well, he continued. "Those who say we can continue on like this for another 10 years are lying." Macron's tone was far from shrill. Rather, he spoke calmly, almost quietly.

Emmanuel Macron has been France's economics minister for three-and-a-half months now and, at 36 years, he is the youngest member of Hollande's cabinet. Since he was appointed to renew the country, he has been called everything from a "high-flyer," to a "beacon of hope" to a "careerist." The magazine Marianne recently even referred to him as a "wolf in sheep's clothing." There are some within François Hollande's inner circle who say he is the president's "last wildcard."

Symbolic Break

Back in March, Hollande heralded a political about-face by naming the conservative Social Democrat Manuel Valls as prime minister. Macron's appointment was a further symbolic break from the president's disappointing first two years in office.

Macron's predecessor at the Economics Ministry, Arnaud Montebourg, was a convinced Colbertist, an approach which calls for significant state control over the economy. Many in France still see it as the only valid model.

But Macron intends to push through far-reaching economic reforms of the kind that have thus far been largely shunned. There is much riding on his success and on whether Hollande and his party give him a free hand. The central question is whether France can find the strength to free itself of its current plight.

This week will go a long way toward determining whether it can. On Wednesday, Macron will be presenting his first significant draft law to the cabinet in Paris, the so-called "Loi Macron," including 107 different measures. The party's left wing has already said it will oppose the package.

The law, says Socialist lawmaker Jean-Jacques Urvoas, contains 107 "fragmentation bombs," while former Environment Minister Delphine Batho would not exclude the possibility of what she termed a "parliamentary accident." Many Socialists do not completely trust Macron because of the four years he worked as an investment banker with Rothschild. They see him as a handmaiden for high finance and as a careerist. "He probably doesn't even know how to get to party headquarters," one Socialist party member spat when President Hollande announced his appointment at the end of August.

Indeed, the criticism of Macron and his signature draft law makes it look for the moment as though the government may not get the support it needs when the package comes up for a vote in parliament, currently scheduled for January. Its failure would be the final proof that significant change is not compatible with the Hollande era.

'Responsibility Pact'

Macron is hoping to open up his country's overregulated, static labor market. One element of his plan, for example, calls for the elimination of legal protections which grant monopoly-like powers to dozens of professions. Notaries, pharmacists and bus and taxi drivers would all be affected. Furthermore, he would like to allow shops to open on 12 Sundays per year instead of the current five and introduce €40 billion worth of tax and withholding relief to French companies over the next three years to help them on the road to increased competitiveness. A reduction of high non-wage labor costs, which play a role in the country's high rate of unemployment, is also part of the plan, at least for the low-wage sector.

All of these measures are part of the so-called "responsibility pact" introduced by Hollande at the beginning of the year, part of the president's attempt to make France more business friendly. The reforms are to be accompanied by spending cuts worth €50 billion by 2017. But in France, special interest groups remain powerful, meaning that negotiations over several elements of the pact have made little progress.

A Friday morning in November found Emmanuel Macron on his leather couch in his office, a basket of fruit from the supermarket Regis on the table in front of him. A bouquet of tulips adorned the shelf behind him. His office is in a glass and steel building on the banks of the Seine, one of the many ministries in the Paris quarter of Bercy. Together, they clearly convey the French view of the state's role in the economy.

Macron -- dapper and handsome with his perfectly parted hair and boyish face -- is relaxed as he lounges on his sofa. He possesses a perfect resume, of the kind that could lead one to suspect arrogance were he not so polite. Indeed, his CV explains much of the envy and resentment people have for him -- but also the immense hopes that have been placed on his shoulders.

"If being a politician means wanting to be re-elected at any price, then I'm not one," he says. The fact that he has never been elected to political office, he says, gives him the necessary freedom to fight for his convictions. On his desk stands a model of the Ariane 5 rocket next to stacks of colored file folders. If there is a picture of his family, it is well hidden.

Since 2007, Macron has been married to his former French teacher, Brigitte Trogneux, who is 20 years his senior. He was just 17 when they met at the Catholic school he went to in Amiens, north of Paris. The gossip magazine Closer, which has preferred in the past to focus on Hollande's liaison with the actress Julie Gayet, recently published a photo series of Macron and Trogneux. It showed the two taking a weekend stroll through Montmartre, he in jeans and white shirt and she, a peroxide blonde wearing dark sunglasses. They make for an unconventional couple, and not just in France.

'You Can't Pick the Moment'

On this November morning, Macron speaks openly about the failures of recent French governments, including his own, and their preference for blaming others for not introducing badly needed reforms. He is particularly critical of what he calls "misguided Marxism," a clear reference to the majority of his own party.

He is fully aware of the resistance he is facing. Though he often demands rhetorical clarity, the frequency with which he escapes into vocal contortions has increased. When asked, for example, about the 35-hour work week -- sacred to many Socialists -- he says: "I defend it, but I don't place it on a pedestal." He would like to see "more flexibility," he says. It makes it sound like he would like to do away with it, but doesn't have the power at present -- a realistic assessment.

When asked if he is bothered by the fact that his first ministerial post has come under a struggling President Hollande, he responds coolly: "You can't pick the moment in which you take on responsibility." It is sentences such as these that lay bare his elite school education and the rhetorical aloofness that comes along with it. He is adept at finding an appropriate reply to any query within just a few seconds.

In France's political class, Macron's elite education -- he graduated from Sciences Po and Ena -- is hardly an exception, of course. Prior to moving on to the Ècole Nationale d'Administration, attended by many top French politicians, including Hollande, Macron obtained a master's degree in philosophy, writing his thesis on Machiavelli. For two years, he also worked as the assistant to well-known philosopher Paul Ricoeur. Together, the two wrote essays on history and memory for the philosophy periodical Esprit, where Macron is still listed as a contributing author, though his last article for the publication appeared in 2011, after he had already begun working as an investment banker. His business career also included a stint as an advisor for customers such as Nestlé.

Hollande and Macron met several years ago at a dinner hosted by Jacques Attali, a former advisor to François Mitterrand, who has great respect for Macron. It is possible the two hit it off so well because Macron, like Hollande himself, is the consummate technocrat.

Before Macron became minister, he was Hollande's economic advisor, first during the campaign and then in the Elysée. His views were sought out and valued, but very few of them actually found their way into governmental policy. Macron, for example, was particularly critical of Holland's 75 percent tax on incomes over €1 million, saying it made France a "Cuba without sun." The tax was implemented anyway.

'Time Is Too Short'

In the Elysée, he was called Mozart because of his piano-playing abilities, which are advanced enough that he likely could have become a professional pianist. But he always wanted to go into politics, say long-time acquaintances. He got plenty of help along the way from well-known political personalities, most of them older men and not all of them from the leftist camp.

Alain Minc, a former advisor to President Nicolas Sarkozy, is one of them. He has known Macron for more than 10 years, calls him "my chick," and says Macron is an "extremely able minister.

Nevertheless, he doubts whether he will achieve much. "In the two-and-a-half years remaining in Hollande's presidency, it won't be possible to push through large reforms. The time is too short," he says, adding that Macron won't get the support he needs from the Socialist-controlled parliament. Minc says that Macron and Valls are alone with their desire for an economic renewal and that when the economy minister presents his plans to lawmakers in January, the battle against them will begin in earnest. Macron, Minc believes, is a "great talent" damned to be forced to wait for better times.

The wait might be long. The French economy has shown no growth in the last three years with unemployment, currently at almost 11 percent, rising during the same period. Hollande's inconsistency is partially to blame. He has taken steps forward, but they have often been followed by steps backward, a back-and-forth that has consumed much of his five-year term in a presidency that is the least popular France has seen in some time. What does he really want? Despite the appointments of Valls and Macron, it is a question that still can't be answered.

The prime minister, the economics minister and the president agree on one thing, though: They are opposed to biting austerity measures, fearing they might plunge France even deeper into recession. Indeed, Paris only plans to bring France's budget deficit in line with the EU maximum -- of 3 percent of gross domestic product -- in 2017. The European Commission has admonished the Hollande administration while German Chancellor Angela Merkel has desperately tried to get her flagging neighbor to change course. But to no avail.

A Meaningless Gesture

Indeed, France has recently found powerful allies for its dawdling in Berlin. In late November, a report called "Reform, Investment and Growth: An Agenda for France, Germany and Europe," was released by the Hertie School of Governance in Berlin. The study had been jointly commissioned by Macron and his German counterpart Sigmar Gabriel, but the two immediately rejected its core demands, a move which essentially degraded the report to a meaningless gesture.

Back in his office, Macron furrows his brow and says he is well aware that his country has a credibility problem following all of the empty promises. "Instead of talking, we have to finally act," he says.

The problem is, though, that the French government hasn't just lost credibility abroad. Many in France have lost their faith in the state and in the political classes. Indeed, the crisis of confidence may even be more damaging to the country than its economic problems, and it is the reason that right-wing populist Marine Le Pen's Front National has found such success of late. Current surveys indicate that she would beat Hollande in the first round of presidential elections were they held now, yet another indication that traditional political parties have fallen into disrepute.

It is perhaps no surprise, then, that Macron is confronted by skepticism from all sides. His approval rating of 35 percent may make him one of the most popular members of Hollande's current cabinet. But he is also one of its most unusual: a young man who is more Social Democrat than Socialist.

Still, as the product of elite schools, he also embodies a type of politician that has long dominated French politics. Many such technocrats walk the halls of French ministries and of the Elysée -- and they are part of the increasing estrangement between the French and their politicians. Indeed, one of Macron's most telling missteps came when speaking in a radio interview about female workers at a factory that was threatened with closure. He said that these women "could neither write nor read."

It was a blunder that confirmed the image many had of him as someone with no understanding of grassroots Socialist voters. One newspaper called him an "elite sweetie," a moniker clearly intended as an insult. But in France, a country which has a long tradition of developing its elite, such insults are sanctimonious at best. Macron is but one of many functionaries in the upper echelons of business or politics who can easily move from one important position to another.

When he took office, Macron said that he would resign from his post as economy minister were he unable to push through policies he was convinced of. Either way, his future is secure. more

Denying history is probably the most prominent American habit of thought.  Gore Vidal would talk about The United States of Amnesia.  I was once scolded on this very blog by a reader for discussing Marriner Eccles so casually asking, "Who except you, me, and the lamppost knows anything about Eccles?"  Guy had a good point.  When it comes to history, there are a lot of blank slates out there.

This means that anyone with a plausible story of history can go on record claiming almost anything.  Yes it is true that with the Internet, we have reached a sort of historical nirvana because for millions of issues, we can now access the original documents and read the contemporary accounts.  Satisfying historical curiosity has become the ultimate manifestation of the core Protestant mandate—find out for yourself.  But just as the Reformation did not destroy the market for professional clergy, the Internet will probably not eliminate the need for historians—if only to combat the rampant sort of fraud like in the example below.

Which leads back to the greatest con in the USA's historical description of self.  The Cold War required a really scary enemy.  USSR was first on the list—even though it became the scary enemy while struggling to recover from a calamity that destroyed over 1000 cities and killed well over 20,000,000 including whole age cohorts of young men.  It was like being threatened by a burned-out building.  So to make USSR a threat, they had to make up serious lies.  A whole professional class of "Russian experts" like Marshal Goldman and the Pipes made prosperous careers out of peddling bullshit.  Unfortunately when the Warsaw pact went out of business and the Cold War could no longer be sustained by any rational means, the professional liars didn't just go away.  They had cushy careers to maintain.  And so now we read incredible, unbelievable lies about Russia that are almost identical to the old lies about USSR.  And why would they be different?  After all, the old lies were so effective that the VAST majority in USA don't even know USSR fought Germany in WW II.

Spooky, isn't it. (ht to JL)

The Most Essential Lesson of History That No One Wants To Admit

December 7, 2014

Ron Paul wrote an eye opening article recently about some legislation that was just signed in Congress, namely H. Res. 758. In the article Dr. Paul explains the purpose of the resolution. It’s not a new law but provides a basis of facts that will be relied on for future action. So essentially the resolution purports that Russia behaved badly in various ways and by way of signing H. Res. 758 each congressman was indicating their agreement that the propositions contained therein are factual. Now just because a group of obnoxiously arrogant A-holes stand around in a tax-revenue financed chamber and say “yeah” to several assertions does not make those assertions factual, but here in the United Orwellian States of America it kinda does. Because those assertions that were voted to be fact (similar to the First Council of Nicaea) will now be written as factual history and taught to our children as having happened that way. The very same way we all attained our ideas of American superiority.

The dishonesty and ignorance it creates is reason enough not to do such things, however, the real stinker of it is, as Dr. Paul so clearly points out, the sole purpose of H. Res. 758 is simply a pouring of the legal foundation for something much more substantive. You see this is how wars begin. And the wheels for this particular war have been in motion for many years now. We’ve been told our actions heretofore are simply a necessary response to the Ukraine situation. However, those who can objectively look at the Ukraine situation will realize the US sponsored coup in Ukraine was simply a spark to light the fuse of a much larger detonation.

Now I understand many at this point are thinking “yep another conspiracy theory, why can’t it ever just be the US government thinks what they are doing is best for Americans”? And it can, it just never is anymore and perhaps ever was. Lies are told and public opinion is manipulated. For war must be every bit good theatre in the press, as good strategy on the ground. It is the theatre that makes war so ugly. Fighting a war for what one believes in is unfortunate and brutal but fighting for lies and deceit to an end that benefits only those telling the lies is a type of ugliness most of us cannot comprehend. It is only in the world ruled by sociopaths where such things can happen. Allow me to offer some facts many don’t know about how it came to be that we invaded Iraq and Syria as the truth is still very much hidden from common knowledge.

We had a tragic start within the first two years of the new millennium. That event actually seemed to bring the world together. However, very quickly it turned into a launching pad for war. One might think well that’s reasonable to expect given the tragedy that took place in New York. A mighty nation like America is going to bring retribution to those responsible. And I agree with that. I was one of the many who wanted to see retribution brought to those responsible. However, we abandoned the attack on those responsible to initiate a war that had been in the works for many years.

It is pretty common knowledge at this point we pulled out of Afghanistan to push our forces and objectives toward Iraq. Now to get the world onboard with this, as we now know, the US created incredible lies about Iraq not only having some connection to 9/11 but that they were also building enormous stockpiles of ‘Weapons of Mass Destruction’ and that they were hell bent on using those against western nations. Again, we now know that none of these assertions were true. And we know our legislators were aware that no credible evidence existed to support such views. And we know that despite knowing those assertions were false they still made the decision to lie not only to the American people but to the world. The lies were told in an effort to build support so that parents around the world would see a righteous cause that they were sending their sons and daughters to their potential deaths or to be maimed in unimaginably horrifying circumstances.

Now I want you to think about that for a moment and don’t just read over that and move on. Because this is the essence of what our government has become in America today. They knowingly lied to the world so that the world would be willing to sacrifice their children, believing it was a necessary and righteous cause to do so. And in the end the truth came to light that there was no righteous cause. That all these young men and women from around the world had been used as pawns to fulfill the ambitions of a few. It is truly one of the ugliest atrocities to ever have been carried out by an elected government against its own citizens. And yet today because of our state edited media, most will not acknowledge that such an atrocity took place.

So I want to make very clear that Iraq was not a consequence of poor intelligence or bad decisions in the wake of post 9/11 emotions. The invasions of both Iraq and Syria were being planned and discussed for many years before 9/11. It is imperative to understand such things. Because while we cannot change history, we must use history to change the future. And I will add a note here because of the complexities of discussing Israel in a public forum. The immediately following should not be misconstrued as an indictment of Israel for it is America that is responsible for America’s actions. Now please carry on.

In 1996 the Prime Minister of Israel, Netanyahu, sponsored an ad hoc think tank called The Institute for Advanced Strategic and Political Studies’ “Study Group on a New Israeli Strategy Toward 2000.” From this think tank came a report that was the beginning of a powerful lobby movement. Let’s take a close look at a few main points that come from the 1996 report.

Israel’s quest for peace emerges from, and does not replace, the pursuit of its ideals. The Jewish people’s hunger for human rights — burned into their identity by a 2000-year old dream to live free in their own land — informs the concept of peace and reflects continuity of values with Western and Jewish tradition.

Israel can shape its strategic environment, in cooperation with Turkey and Jordan, by weakening, containing, and even rolling back Syria. This effort can focus on removing Saddam Hussein from power in Iraq — an important Israeli strategic objective in its own right — as a means of foiling Syria’s regional ambitions.

Syria challenges Israel on Lebanese soil. An effective approach, and one with which American can sympathize, would be if Israel seized the strategic initiative along its northern borders by engaging Hizballah, Syria, and Iran, as the principal agents of aggression in Lebanon, including by:

• striking Syria’s drug-money and counterfeiting infrastructure in Lebanon, all of which focuses on Razi Qanan.
• paralleling Syria’s behavior by establishing the precedent that Syrian territory is not immune to attacks emanating from Lebanon by Israeli proxy forces.
• striking Syrian military targets in Lebanon, and should that prove insufficient, striking at select targets in Syria proper.

To anticipate U.S. reactions and plan ways to manage and constrain those reactions, Prime Minister Netanyahu can formulate the policies and stress themes he favors in language familiar to the Americans by tapping into themes of American administrations during the Cold War which apply well to Israel. If Israel wants to test certain propositions that require a benign American reaction, then the best time to do so is before November, 1996.

But who would have authored such a report? A report that seems to promote the idea of constraining, manipulating and achieving a benign American reaction. Well have a look at the list of authors/signatories of that report, below. They should be familiar to most of you as they are US not Israeli policymakers, which is odd because again this is an Israeli state sponsored project with objectives that are clearly focused on the well being of Israel, not the US or the American people.

• Richard Perle, American Enterprise Institute, Study Group Leader
• James Colbert, Jewish Institute for National Security Affairs
• Charles Fairbanks, Jr., Johns Hopkins University/SAIS
• Douglas Feith, Feith and Zell Associates
• Robert Loewenberg, President, Institute for Advanced Strategic and Political Studies
• Jonathan Torop, The Washington Institute for Near East Policy
• David Wurmser, Institute for Advanced Strategic and Political Studies
• Meyrav Wurmser, Johns Hopkins University

Now subsequent to that 1996 report being released there was a letter drafted and sent to President Clinton in January 1998 that provides us some additional clarity on the war policies of the new millennium. Let’s have a look at that.

Letter link

Again we see a very explicit and aggressive lobby effort to persuade the US to invade Iraq. Now I’m sure you’ll find these authors even more interesting. Many of the same authors of the 1996 recommendation are also authors of this lobby effort. Only this time they are acting as benefactors of America. Odd though that they are pushing the very same agenda that just 18 months earlier these same folks were pushing as benefactors to a foreign nation. It almost seems as though the authors are indeed attempting to manage and constrain the American people’s reaction, as discussed in the first report, to their desired recommendations that US use its military to engage various nations in war. I’ve attached the list of authors here as well.

Letter link

Let’s think about this rationally for a moment. In 1996 we had a foreign government sponsor a think tank staffed by very prominent US policymakers with the objective to strengthen that foreign sponsor nation. And then 18 months later we see a follow on letter to the President from many of the same US policymakers that authored the 1996 report and some additional prominent US policymakers. The recommendation of both the ’96 report and ’98 letter to the President were lobbying for the US to invade and overthrow Iraq and Syria. However the original recommendation was for the benefit of Israel and the latter recommendation was being sold as necessary for America. And remember, 9/11 had not happened yet but we already see these very powerful, very prominent policymakers pushing very hard to invade Iraq and Syria.

The problem is Americans didn’t want another Iraqi war. Times were good in the late 1990′s. People were happy. The cold war was over, jobs were a plenty and the world felt safer than it had for decades. And as such, there was no way Americans were going to war for the benefit of a foreign nation. The US had decided Hussein was actually a stabilizing force there in the middle east and as such we wanted him there. But then an election happened and little Bush was elected President. Along with him came all those names we just saw authoring the two dossiers recommending the US invade Iraq and Syria. The authors were given titles such as Chair of the Defense Policy Board (Richard Perle) and Secretary of Defense (Donald Rumsfeld), etc. And so all of a sudden the same group of people who were championing the invasion of Iraq and Syria back in the late 1990′s were now in a position to make it happen by way of their own authority. What luck! Shortly thereafter the worst attack on US soil took place in New York and the rest is, as they say, history.

To believe we went into Iraq because our fearless and integrity driven leaders truly and honestly believed it was the morally and justifiable thing to do based on the tragedy of 9/11 is just ignorance because it does not align with the facts. There was a small group of men, called Neocons, that had derived these military actions some 10 years prior to operations themselves and some 5 years prior to the events that were used to sell these war efforts to the American people and the world. None of that can we change. And so my ultimate point here is to learn from what happened with Syria and Iraq and to show you it is exactly what is happening with Russia today.

Let me introduce a letter written by Bill Kristol and Donald Kagan to the Heads of State and Government Of the European Union and NATO. The letter was signed by many but of particular interest are many of the same names from the 1996 report and 1998 letter to President Clinton pushing for war against Iraq and Syria. This 2004 letter does not mince its words. It is very much pushing for European support of what would obviously be a US led military stand off with Russia. The letter is sponsored by the American Enterprise Institute, which is a neoconservative think tank. In fact, one of the prestigious awards handed out by the AEI is called the Irving Kristol award. Irving Kristol (father to Bill Kristol) is known as the godfather of the neocon movement in the US. So again this is essentially the same crowd from ’96 an ’98, pushing for support of a US military operation, this time with Russia. This is back in 2004 mind you before the current events in Ukraine had even been imagined (signatories of the attached letter can be found here).

Letter link

Again we see the aggressive recommendations to back a military operation many years before the catalyst event takes place. That is the event that is being sold as the moral justification for a military operation. But this letter tells us that this military objective against Russia has been promoted for many many years now, far before Ukraine was an issue. This is again, a push from the same folks that lied to us about Iraq and then trained, equipped and funded ISIS in order to get into Syria and are now working hard to create a catalyst for an offensive with Russia.

For years before 9/11 it was determined by those warmongering policymakers that we would be invading Iraq and Syria. All we needed was a catalyst. 9/11 provided that for Iraq. ISIS provided that for Syria and now Ukraine has provided that for Russia. I’m not saying these folks had anything to do with 9/11 because I have no idea. What we do know is that 9/11 was used as a catalyst to lie to the American people about the need to invade Iraq. It has also been fully admitted by our government that we did in fact, train, equip and fund ISIS, ‘mistakenly though’. And finally we have recordings of senior US diplomats discussing our involvement in the coup in Ukraine.

And so one can only conclude here that again Americans are being manipulated to accept the recommendations from a powerful group of warmongering policymakers to go to war with a nation that has posed absolutely no threat to the American people in more than 25 years. And we are being led down this path by lies and propaganda. Quite specifically things like H. Res. 758. And if we do not make a stand against these policymakers we are most certainly headed for what could very well be the war to end all wars.

For the West is clearly looking to fortify its power hold over the world by destroying Russia economically to disable them militarily in an effort to prevent a Sino-Soviet alliance. I recently watched a presentation by former World Bank President, James Wolfensohn, to a political science class at Stanford University. The moral to his story (and I use that ironically) was to challenge them to figure out a way, in the face of a rising East soon to control a higher share of the worlds assets than the West, to retain the West’s global control. He stressed it was something his generation did not have to deal with but that today’s Western up and coming political class must consider. You see China is a powerful nation but without an alliance with Russia, China can be contained due its lack of energy. Because China is both a more difficult opponent and one that has much more trade with the US, Russia is the obvious target to prevent a fully formed Sino-Soviet alliance.

However, I cannot imagine a scenario where China does not clearly identify such a strategy being played out. And so they will come to the defense of Russian energy, as we’ve already seen with the signings of the world’s largest energy deals between those two nations. The Chinese defense will not be limited to economic if push comes to shove. And we will be put in the midst of the most powerful nations in the history of the world fighting for ultimate power. This small group of horrible people are willing to put the world on the line so their lineage can continue to rule the world while the rest of us struggle to simply stop the financial bleeding that has become a 15 year epidemic.

This all sounds like the stuff of fiction novels but unfortunately the facts tell us this is all too real. What is hard for me to believe is that we so readily ignore and deny the most essential lessons of history. Perhaps the foremost being that the political class will always be willing to sacrifice the working class in order to retain its power. And so we find ourselves again on the precipice of being asked by our political class to offer our young men and women up to be sacrificed for the ‘greater cause’. However, while the political class is trying to convince you the cause is one of morals and righteousness, in the end, it is the same cause it has been since post WWII and some will argue the same cause it has always been, which is for their interests and their victories, not ours. more

A guy by the name of Jason Bordoff was on The Colbert Report last night gloating over the economic problems facing Russia because of the crash in oil prices and the speculative run on the ruble.  He seemed overjoyed that Putin was finally in big trouble.  Colbert was mostly happy that gasoline prices were heading below the $2 per gallon mark.

Small problem.  Even though Bordoff has an impressive CV that includes a gig as one of Obama's energy advisors, he has been sucked in by the fracking BS.  He talks casually about how Peak Oil was wrong and that fracking only proves that innovation will become more effective and widespread as oil prices go up.  In other words, a typical neoliberal fool who seems to think what is obviously a speculative attack on the Russian ruble is really a sign that history is changing.  Wow!

Recently, I was working on a post dealing with the rituals of remembering Pearl Harbor (never completed) when I uncovered this photograph.  It was also taken in that first week of December, 1941.  Since the invasion in June, the German blitzkrieg had roared across USSR and were now just a few miles from Moscow.  The occupation forces were incredibly brutal, had inflicted millions of deaths, and had leveled hundreds of cities.  The people of Moscow had a really good idea what they faced.  So an army of 250,000 women went out and dug tanks traps.  They moved 3 million cubic meters of dirt by hand!  The weather was horrible.  This was not exactly people being caught by surprise while relaxing in an island paradise.  The Germans never took Moscow because those tank traps helped take the blitz out of blitzkrieg.

The people of Russia have survived crises almost infinitely worse than a run on their currency.  They have followed leaders like Stalin during these crises who were far more brutal than Putin will ever be on his worst day.  And people should never forget that Putin's mother survived the Siege of Leningrad—which means she was at least as tough as any of the women pictured below.  My guess is that Russia is in FAR less trouble than that smirking Jason Bordoff could ever imagine.



Of course, just because Russia is taking this opportunity to reenforce her economic independence does not mean she won't be making some serious mis-steps.  They just made one when they raised interest rates to 17%.  Someone in Moscow seems to believe that Paul Volcker successfully broke the back of inflation in 1981 by introducing gangster-levels of usury.  Well he night have actually killed off inflation but he did it at enormous costs including the destruction of middle-class agriculture and the massive de-industrialization of USA.  This destruction is felt to this day.  There were dozens of ways to have fought the global inflation of the early 1980s but a central banker settled on usury.  Who would have thunk?

In the very interesting piece below, Sergei Glazyev blasts the actions of Russia's Central Bank.  Glazyev is an interesting guy.  If I heard he was a friend of Michael Hudson, I would not be the least surprised.  He has also made considerable noise about running Russia's Central Bank so we can take this as his plans for what he would do.  Historically, he would probably have enjoyed the company of Marriner Eccles.

Why did the Central Bank raise the interest rate and let the ruble flow?

Sergei Glazyev

Another increase in key interest rates on loans issued by the Bank of Russia, for the purpose of refinancing commercial banks, made loans completely inaccessible for the majority of enterprises of the real sector of the economy. When the average profitability of the manufacturing industry is 7.5-8%, credit issued at rates of 10% or higher cannot be used by most businesses, either for investment or for replenishing working capital. Such decisions cut off the real economy, with the exception of some sectors of the oil, gas, and chemical-metallurgical sector, from credit issued by the State.

Prior to that, the consumer lending boom drove millions of citizens into a 10-trillion ruble debt and the real economy lost the savings of the population, becoming a net debtor. Also, the Government withdrew pension savings from the economy. Sanctions imposed by NATO countries deprive the economy of the bulk of external credit. Most businesses have only their own funds to finance working capital and investments, which is clearly not enough to provide even simple reproduction, never mind an expanded one. The amount of profit of enterprises this year (taking into account the fall in the prices of export goods) will be no more than 10% of the required rate of investment of 25-30% of GDP. It’s no surprise that as a result of such decisions amidst the economic recovery in almost all countries of the world this year, Russia is experiencing an unexpected decline in investment and production.

According to the Central Bank’s report, On the key rate of the Bank of Russia, October 31, 2014, its decision to raise interest rates was made because of external circumstances: “In September-October the external environment has changed significantly: oil prices dropped significantly while there has been a tightening of sanctions imposed by individual countries to a number of large Russian companies. The ruble has been weakening in this environment, which, against the backdrop of August’s restrictions on import of certain food products, led to a further acceleration of growth of consumer prices”. To support its previous decision to raise interest rates, the Central Bank argued that “inflationary risks had increased, including rising geopolitical tensions and their possible impact on the dynamics of the course of the national currency, as well as changes in the tax and tariff policy.” In the same policy statement, the Central Bank explained its decision to raise interest rates by “a stronger than expected effect of exchange rate dynamics on consumer prices, rising inflation expectations, as well as the unfavorable trends in the market for certain goods.”

This reasoning does not stand up to criticism.

Any entrepreneur dealing with the real economy and not with the utopian models of market equilibrium will say that the increase in the interest rate leads to a rise in the cost of credit. This leads to increased costs for the borrowing enterprises and, consequently, to higher prices for their products. Increasing percentage in excess of the rate of return on assets does not make sense for financing investments, nor does excess of profitability of manufactured products make sense for working capital. It results in reduced production, which in return causes an increase in cost per unit of production and a further increase in its prices. The inability to get investment loans deprives businesses of opportunities to reduce costs by increasing scale and technological improvements of production, which shuts off the main ways of reducing prices.

All of the above have been proven many times theoretically and confirmed in practice. An increase in interest rates and accompanying contraction of the money supply led to the same consequences in all countries - the decline in investment and production on the one hand and increased costs on the other. The result was a dramatic bankruptcy of many enterprises faced with the impossibility of refinancing their production processes. Today, just as in the 1990s, this policy drives the economy into a stagflationary trap and deprives it of development opportunities.

Apparently, the heads of the Central Bank are guided by fantasies gleaned from student textbooks on macroeconomics. In some of them, to facilitate students’ understanding, market mechanisms are simplified to primitive mathematical equilibrium models, which were brought to economic science from classical mechanics almost a century ago. The economy in these mechanistic models is presented as a set of economic agents oriented towards maximizing profits, having perfect knowledge, and working in conditions of perfect competition and instant availability of any resource. According to these models, an increase in the money supply, as with any other product, leads to lower prices, which is equivalent to higher inflation. And vice versa, an increase in the price of money (interest rates) entails reducing their supply and falling inflation. On this basis, a favorite monetarists’ Fisher identity (equation) postulates a direct proportional relationship between money growth and prices. Despite the fact that it is not statistically confirmed, the advocates of this theory continue steadfastly to profess the dogma of a direct linear relationship between money supply growth and inflation, and, accordingly, the inverse relationship between inflation and the interest rate. Amateurs, in their simplicity, seem to believe it’s obvious and impose it on public opinion. It’s an equivalent of trying to cure all diseases by bloodletting, a practice of medieval doctors on trusting patients.

In reality, none of the assumptions taken as an axiom in equilibrium models is being observed. Being guided by them in economic policy is akin to building socialism guided by the Communist Manifesto of Marx and Engels, without taking into account the diversity of the people and institutions built by them, without distinction of enterprises, industries and technologies, and without mechanisms of development. Such economic “theory” degenerates into scholasticism, unsuitable for practical use. Therefore, none of the managers in developed countries uses the equilibrium theory in practice. Instead, they are guided by extracting profits in non-equilibrium situations and developing an economy by its complexity. A mechanistic picture of the equilibrium of the economy remains for amateurs; it is used to convince them of the uselessness of government intervention in the economy. This theory is being hammered with special tenacity into the public consciousness of developing countries in order to deprive them of the ability to creatively develop their institutions, which are replaced with the “free market” forces and managed by developed capitalist countries’ monopolies. Unfortunately, our monetary authorities willingly adhere to this mythology without understanding the basic meaning of how credit functions in a modern economy. This meaning should be explained.

The birth of modern capitalism is associated with the invention of public money as an unlimited source of credit through the issue of national currency by a special institution, the Central Bank. Currency issue is essentially a mechanism to advance economic growth, and its use is in both the private and public interest. In the first case, of which the US Federal Reserve is an example, the money issue is subordinate to the interests of the owners of the Central Bank, which receive huge access to market manipulation. From the experience of financial crises, these manipulations are undertaken by them to not only receive income from the emission but also to appropriate national wealth. By lowering interest rates and expanding the money supply, the Central Bank stimulates the growth of production and investment. By increasing interest rates, it provokes bankruptcy of companies that are hooked on the cheap loans needle. The assets of these companies are transferred to the banks that are close to the Central Bank, which gives them unlimited access to the created loans.

When the Central Bank is a state monopoly, as is the case in most countries, its right to issue money can be used to ensure the development and growth of the national economy by providing the necessary amount of loans. This happens in Japan, China, India, Brazil, the Eurozone, Iran, and Turkey. In other cases the right to issue money may not be used if the country is not independent and transfers control of its Central Bank to external management. This is typical of many former colonies, the elite of which have their interests closely linked to those of their colonial masters, who still control their monetary policy.

In the postwar period, many developing countries were caught in the debt trap when trying to finance their development through external loans. Under the threat of bankruptcy, they were forced to give up control over their monetary policy to creditors, whose collective interests were represented by the International Monetary Fund. These interests mainly came down to the opening of the national economies to the free flow of foreign capital; the requirements of which the monetary policy was subordinated to. The latter include free convertibility of the national currency, removing any restrictions on foreign investment and outflow of capital, and the binding of the issue of the national currency to the growth of foreign exchange reserves, which were formed in the currencies of creditor countries. Thus the economies of the debtor countries were subordinated to the interests of capital of creditor countries, an absolute leader of which was the United States, which imposed the use of the dollar as a world currency in the capitalist world.

Russia, having taken upon herself the external responsibilities of the Soviet Union, found herself in precisely such a colonial state, caught in the debt trap. Moreover, even though the Russian state has now paid off those debts the Russian Central bank still subordinates itself to the interests of International capital. As a result the fiscal authorities refuse to implement capital controls, subordinating fiscal policy and particularly the stimulation of the money supply to the growth of foreign currency reserves and handing over the grading of credit risk to the American rating agencies. These policies are justified by the expectation that this will attract inward investment and that the chief engine of economic growth is indeed such foreign investment.

Actually, the expectation of an inflow of foreign capital yielded the opposite outcome - colossal capital flight. Russia became one the main net donors to the world financial system, giving practically free credit to the USA and the other G7 economies cash reserves of almost 100 billion USD annually. As a direct result of these policies serving international capital we see the further degradation of an economy already based on low value-add extractive industries whose production is sold again on the market denominated in USD and Euros. Under such conditions foreign capital extracts, as a result of these financial policies, enormous profits which again artificially inflate the domestic financial markets.

It is straightforward to evidence that for every dollar invested in speculation on vouchers and securities issued as a result of the privatisation carried out between 1993 and 1996 international 'investors' received up to five dollars in profit. The expansion of speculation as a result of the State issued short term bonds (GKOs) between 1996 and 1998 doubled that profit. International investors then repatriated of that capital from Russia and the resultant destabilisation of the financial markets led the state to default which, in turn led to securities being devalued to a 10th of their previous value. The International investors then returned and scooped up those securities at fire-sale prices creating a new spike in the market and, yet again doubling their capital and then, predictably, withdrawing the lot just before the 2007 global financial crisis struck.

It was in precisely this way that the subordination of national fiscal policy to international capital gave the international investors a return of two hundred dollars for ever invested dollar. The vast majority of that profit was simply taken out of the country. These profits were harvested from the state and the Russian population. The share of that money which translated into direct investment in productive industry or into tangible securities was negligible.

It follows that the Russians who collaborated with these 'investors' were not left out in the cold. Many of them became genuine pioneers of the 'offshoring' of the Russian Economy constituting themselves a new caste – The Offshore Oligarchy. The temporary commission of the Russian Federation set up to investigate the reasons, circumstances and consequences of the 1998 default were given evidence of direct collusion between the representatives of international capital and an entire pantheon of the 'great and the good' of both the Central Bank and the Russian government. Some of those individuals to the present day, regardless of the recommendations of the federal council, still occupy influential posts within the state. I quote “To ensure that persons involved in the preparation and decision-making of 17 August, could no longer hold any position or in the public service or in organizations where there is state ownership”

During the 2008 financial crisis the Russian Oligarchy, having by now mastered the methods of the earlier foreign investors began to interfere with the money supply themselves. Having now paid external debts, the Russian financial authorities no longer needed to subordinate themselves to the IMF or to their masters in the United States. Under pressure from crisis-driven capital flight they started to stimulate the money supply with no further regard to pegging it to hard currency reserves. However this was not done with the aim of stabilising industry, shrunk by the crisis by around 5 to 40% but rather to enrich a group of privileged commercial banks. They directed that expanded, tax and interest-free money supply straight to the financial markets extracting 300 Billion Rubles (12 Billion USD) of profit again, with the cost being borne by the devaluation of domestic savers' holdings.

And today the majority of the cash issued by the Russian Central Bank to refinance the commercial banks has been used for pure speculation which contradicts the policy aims of the central bank itself. It is clear that by increasing the interest rate while adopting a free floating currency rate, the central bank, on one hand is blocking the inflow of credits to the industrial sector and on the other is enabling the extraction of super-profits from speculation against the Ruble. Its precisely by doing this that a speculative vortex has been created where the savings of the population are (yet again) converted into super profits in speculators' bank accounts not to mention the equities of Russian corporations which, when unable to pay the spiralling interest rates thus created are more fodder for the hard currency speculators pillaging the market from their offshore accounts.

In this way the “holy Simplicity” of the managers of the central bank, these unquestioning believers in the inconvertible truth of the mechanical representation of the world given to them by the laws of economic equilibrium, but not innocent rather subordinated to transnational capital, of which the Russian offshore forms a part. It is entirely plausible that being true believers in the Washington Consensus, they not know not what they do. However their activities are highly regarded by the academic priesthood in the American universities. In the not-to-distant future those finance ministers and central bank representatives will again be singled out for praise as “best practice” just like their predecessors in earlier years. “Best practice” in the sense that they have created the most efficient conditions for the legal enrichment of the “oligarchic international” on the backs of the wealth of our country and its citizens.

The escalating crisis that we see today in more than one way, reminds us of the situation which prevailed in 1997. Now, as then the government decided to sharply decrease export duties which removed significant resources from the budget. International capital began to move out. Now as then, instead of instituting capital controls, interest rates were raised leading to capital contraction on the financial markets. As a result, then as now, there was no incentive to provide credit to the industrial sector and the rate of investment in industry began to fall.

The main difference is that the budget is in surplus and there is no state debt (this is made up for by similar amounts of corporate debt) and decision not to maintain a stable ruble is made in the presence of large foreign exchange reserves. In summary, default does not threaten the state but the same cannot be said of corporate borrowers.

Given that there is far more stability than in 1997, the fiscal authorities are actually themselves the greatest threat provoking a collapse in business activity and destabilising the currency. However this will not avert crisis, simply prolonging it to the delight of the offshore oligarchy who can now, without risk and at their leisure plan their speculation. It is inevitable that the consequences of these policies will be a fall in the rate of industrial activity and investment, a fall in profits and a stream of bankrupt corporations and thus the subsequent and successive devaluation of the population's savings.

This fiscal policy is taking place in the background of a sustained global trend towards stagflation which manifests as a volatile ruble and high inflation on one hand coupled with a fall in the rate of investment and economic activity on the other. The trigger for this crisis was the imposition of economic sanctions. On one hand this materialised in the refusal by western creditors to renew / rollover loans made to Russian corporations and the collapse of foreign investment. On the other side we see acceleration in already unprecedented capital flight. The volume of which, in the current year, is expected to exceed 100 billion USD. Incorporated into this is tax evasion which, comprising up to one third of this amount, represents a direct loss to the state budget of up to one trillion rubles annually.

Currently more than 50% of the fiscal base created by external credit and through offshore accounts comprises between 30% and 40% of the non-state investment. The aggregate external debt of Russia stands at 650 billion USD (74% of which is denominated in Euro or Dollars), which exceeds the currency reserves standing at 420 Billion USD. The majority of this debt at over 60% is owed by state owned corporations and banks. In fact the majority of external debts are from countries residing under the jurisdiction of the NATO member states. The sanctions imposed by them lead to a capital outflow of 11000 billion rubles to the end of 2014. The intensification of sanctions could lead to the blockade of Russian capital from offshore zones, through which flow over 50 billion USD yearly in investment.

As a result of the ruble destabilisation we shall see the 'dollarization' of the population's savings which in turn will become another form of capital flight which already amounts, through this means alone 30 billion USD.

Regardless of the US imposed war on Russia, our central bank continues to treat the US Dollar as the reserve currency, referring to it as the definition of value, the means of capital accumulation and the base rate for FX trading. The central banks current politics envision the dollar being utilised as a parallel, de-facto base currency in which the foreign currency reserves, external trade debts and credits are denominated and to which the ruble is effectively a subordinate currency. These policies clearly resemble those inflicted by the 3rd Reich on the Soviet territory occupied by them during the 2nd World War.

The Central Bank does not take any measures either to stop capital outflows, or to replace ebbing external sources of loans with internal ones. Though the U.S. has waged a financial war against Russia, the Bank is still governed by the Washington consensus, which develops macroeconomic policy in favor of foreign capital. This exacerbates the impact of sanctions in manifold ways, whereas it could be neutralized by simple measures of currency control combined with amplifying internal sources of credit.

The latter is exactly what Mr Gerashchenko [ex-chairman of the Russian Central Bank] did in order to pull the country out of the 1998 crisis. Having pegged the currency position of commercial banks and refused the IMF-initiated rise in interest rate, the Bank of Russia was able to increase the money supply. Contrary to what the Central Bank’s managers thought, this did not cause a rise but in fact a swift fall in inflation accompanied by an upsurge in production and stabilization of the value of the ruble. Today the Central Bank is doing the opposite and the results are as expected: a fall in production, the ruble’s depreciation, and the growth of inflation.

Loans allocated by the Bank of Russia to the banking system offset neither capital withdrawn by western creditors nor money transferred by the Government to stabilization funds. This causes the monetary base to shrink and consequently results in credit crunch and slumps in investment and production. So far, the Government has taken money out of productive industry, having withdrawn 7 trillion rubles into reserve funds. At the same time, the Central Bank has provided 5 trillion rubles in loans to the banks, which then use these loans for monetary and financial speculation. In this way, the monetary authorities pump money from the productive industrial sector into the financial sector, reducing its supply. By the end of the next year, if the Central Bank’s policy is not changed, the external loan freeze will lead to a monetary base squeeze of 15-10 %. This in turn will cause spasmodic contraction of the money supply, investment fall-off by more than 5 %, and production decline of 3-4 %. The reduction of money supply poses the threat of a 2007-2008-like crash of the finance market. The capital outflow may provoke defaults in many lending entities, and the number of defaults might become overwhelming.

The policy of increasing the refinancing rate set by the Central Bank results in a rise in the cost of credit, and secures a tendency to shrink the money supply and worsen the deficit in addition to the aforementioned negative consequences. For all that, inflation does not decrease, due to the ongoing influence of non-monetary factors, increased losses due to the rise in the cost of credit, production decline, and ruble devaluation. Since credit is inaccessible, currency devaluation has no net positive effect on export expansion and import substitution. Due to the worsened conditions for capital growth, money continues to be exported, despite the increase in interest rates. The economy is artificially sucked into a whirlpool of dropping supply and demand, and sagging incomes and investments. Attempting to hold onto budget gains by increasing taxes exacerbates the capital outflow and decline in business activity.

Forcing the economy into this stagnation trap happens solely due to monetary and loan policy. Meanwhile there are available production capacities that are only 30-80 % employed, part-time idleness, savings exceeding investments, and an excess of raw materials. The economy, which continues to be a donor to the world financial system, uses just 2/3 of its potential capacity.

To exit this stagnation trap it is necessary to halt the “capital outflow – money supply reduction – demand drop and credit crunch – rise in costs - inflation growth - production and investment decline” spiral. To do so, simultaneous measures to stop capital outflow, to stabilize macroeconomic situation, to de-offshore the economy, and to create mechanisms to nourish economic growth from internal sources must be taken.

In order to stop capital outflow it is critical, first, to burden cross-border transactions so that their illicit gains are offset, second, to cut speculative operations meant to destabilize the currency and finance markets, and third, to close off the channels of internal flow of capital into accounts in foreign currency.

The first task can be performed by introducing a tax on capital outflow at the rate of the VAT imposed on cashless cross-border transactions in foreign currency. In the event the legality of those transactions is confirmed (delivery of imported goods, service rendition, confirmation of interest payments and cancellation of loans, dividends and other legal returns on invested capital), the VAT is refunded. In this manner, only the illegal, tax-dodging outflow of capital will be subject to taxation. Whilst the tax is being introduced, the Central Bank can call for reservation of the potential tax money for all suspicious cross-border operations for up to a year or until their legality is confirmed.

In addition, the VAT should be reimbursed to exporters only after submission of export earnings. A penalty must be imposed for overdue debit debt under importation contracts, non-reporting of export earnings and other types of capital export in its full amount. It is essential to stop including non-residents´ distressed debts owed to Russian enterprises into non-operational expenses (and thus decrease assessable income). Claims must also be filed to indemnify an entity or state for losses against managers, if such debts are reported.

To restrain illicit capital export accompanied by tax evasion, a unified information system of currency and tax control must be created, including electronic declaration of operation IDs and insertion of these IDs into databases of currency and tax monitoring institutions. Rules must be introduced to determine the responsibility of the entities´ managers in cases where there is an accumulation of overdue debit debts related to export and import operations.

To stem cash export, a rational limit must be set, which, if hit, signals capital export operations (e.g., 1 million rubles, a sum obviously greater than gastarbeiters’ combined wages, tourism expenses, and other day-to-day operations). The export of foreign cash in an amount exceeding 1 million rubles shall then be taxed (tax on capital outflow).

Transparency of cross-border transactions for tax and currency control must be achieved. Following the example of America, agreements with foreign countries must be concluded in which tax information is exchanged and foreign banks register and share information concerning all global transactions involving Russian Banks’ money. At the same time, Russian beneficiaries must be responsible for declaration and taxation of their foreign accounts, assets, and operations in conformity with Russian laws.

To separate legal and illegal export of capital, the Central Bank should require licensing of capital export operations in foreign currency. This should include in-advance notification of capital export, increased regulation of operations in foreign currency by Russian banks, and a limit on the scaling-up of the currency positions of commercial banks.

To avoid excessive losses, restrictions should be placed on the amount of foreign off-balance sheet assets and valuables, including U.S. treasury bonds and securities having large budget deficits or high national debt.

To stop internal capital outflow, opening deposit accounts in foreign currency or depositing the money into previously-opened accounts should be banned. The system of safeguarding citizens’ bank deposits should be confined to deposits in rubles. These measures are necessary because the state cannot secure preservation of valuables denominated in foreign currency while there is a financial war against Russia. At any moment, they could be devalued or frozen due to enemy activities or for other reasons beyond Russia’s influence.

Currency control should encompass not only bank operations, but all financial operations including those involving insurance, which can be used to export capital and evade taxes. It is necessary to at least stop making insurance agreements in foreign currency. In addition, the monopoly wielded by the City of London on reinsurance operations, through which much income is exported, must be abolished. Experience shows that, if a party asserts force majeure, it is idle to expect foreign companies to meet their insurance obligations. The most efficient and sustainable solution is to establish a state monopoly on reinsurance, which could be allotted, for example, to the Export Insurance Agency of Russia.

Generally, during financial war regulators must deem transactions performed in rubles more reliable than those conducted in foreign currency. At the same time transactions in the currencies of the belligerent countries (which imposed sanctions against Russia) should be considered the most risky ones. In view of this, the Central Bank should establish higher reserve requirements and standards of evaluation of risks involved in bank operations in foreign currency vs. those made in rubles.

In order to de-dollarize the economy and to insulate the currency and financial system of the country from speculative attacks, it makes sense to levy a 5% tax on the purchase of foreign currency or bonds denominated in foreign currency.

Aforementioned measures to regulate cross-border transactions should be applied exclusively to foreign-currency transactions. Up until the 2007 financial crisis, the lack of such operations did not have a great impact on macroeconomic stability due to a more robust trade-surplus growth, which was greater than a non-trade deficit. Although the Russian financial system suffered big losses, the foreign currency reserves grew and secured the strength of the ruble. But as capital is exported and corporations’ and banks’ external debt went up, the risk of destabilization of the finance and currency system appeared. This risk was manifested in a 1.5-fold reduction in the ruble’s value and a three-fold stock market crash, along with the loss of the 2007-2008 reserves worth $200-billion dollars.

In the near future, the same thing, but on a larger scale, might take place.

Unlike the export of foreign-currency assets, the export of ruble assets does not create a direct threat of macroeconomic destabilization provided the above-mentioned measures of currency control are in place. There is, of course, the risk that an avalanche of foreign-accumulated rubles could flood the internal market causing inflation and/or strengthening of the national currency beyond the equilibrium level. However, applying the above measures to discourage speculations against the ruble creates a fairly high and essentially insurmountable barrier against speculators when there are sufficient currency reserves.

At the same time, ruble export of rubles implies that the profit accruing to the currency issuer (seigniorage) remains in Russia´s financial system where it can be used to multiply investments, to boost imports of vital commodities and services and to expand reserves. Within certain bounds, building up capacities of the financial system, decreasing foreign transaction costs and increasing competitive edges are beneficial to the national economy. Making the ruble the reserve currency is indispensable to ensuring the stability of the Eurasian integration. This is why it is necessary to withdraw from imposing restraints on cross-border ruble operations, create conditions for recognition of the ruble as a reserve currency by money authorities in other countries, and stimulate the import and export paid for in rubles.

To widen the demand for rubles and thus impart more stability to the national currency and finance system, switching to mutual payments in rubles within the CIS must be encouraged and also when arranging payments with the EU – in rubles and euros, and with China – in rubles and yuans. It is appropriate to recommend business entities to settle payments for exported and imported goods and services in rubles. Herewith it is necessary to provide for allocation of tied rouble loans meant for the countries that import Russian commodities, in order to maintain the commodity circulation, and also to use the currency-linked credit swaps.

It is of the utmost importance to expand the settlement system in national currencies between establishments of the CIS states through the CIS´ Interstatebank or through Russia-controlled international financial organizations (IBEC [International Bank of Economic Cooperation], MIB [Moscow Industrial Bank], Eurasian Bank of Development [EABD] and others). It would make sense to create a payment and settlement system in the national currencies of the EurAsEC [Eurasian Economic Community] members, develop and deploy internal independent system of international payments, having included Russian banks, those of the Customs Union and CIS member states as well as those of Chinese, Iranian, Indian, Syrian, Venezuelan and other traditional partners.

These measures will create all necessary conditions protect the value of the ruble and the financial market to external threats. Therewith, the internal threats related to migration of the money supply into the currency market persist. Although this threat became apparent in the 90s, when rubles were emitted to provide agriculture and other branches of non-financial sector of economy with loans and these rubles then migrated into speculation in the currency market. It revealed itself in 2008 as well: 2-trillion rubles emitted for anti-crisis purposes went into currency market speculation and this depreciated savings once again. The monetary authorities keep disregarding this threat and do so despite the fact that, while the Central Bank amplifies the refinancing of commercial banks, capital export grows. This leads us to assume that commercial banks use most of the loans received from the Central Bank to speculate against the ruble in the global currency market.

In order to stabilize the currency and finance market, it is necessary to stop inflating the finance and currency market by emitting rubles. It does not mean that the Bank of Russia should cease refinancing commercial banks. Quite the opposite; to overcome the recession and ensure economic growth, refinancing should be stepped up. But it should be done cleverly, imposing liabilities on banks which resort to refinancing for illegitimate ends. In particular, the receipt of a loan from the Bank of Russia might only happen on the condition that commercial banks assume responsibility to properly use the credit, excluding the possibility of banks using loans for speculation. To control the fulfillment of this liability, the currency position of commercial banks could be fixed, special accounts used, the bank margin restricted, and project financing tools applied.

The Central Bank could considerably enlarge and extend refinancing operations for banks that consent to the Central Bank’s monitoring of loan use. And the Central Bank should preferably do so on security of bills receivable of end-use borrowers, which exclusively should be manufacturing enterprises, than upon sale and repurchase agreements. The manufacturing enterprises should be monitored by lending banks in order to see whether the loans are properly used, solely to replenish the current capital or investments into core assets. Considering that either company can carry out a vast range of financial operations, including the speculative ones (among them those of capital export), there are good reasons to bring the standards of maximum allowed ratio between credit and debit debt on all legal bodies and to limit financial leverage to no greater than double value the principle.

The very mechanism of refinancing commercial banks should be varied to comply with objective needs for credit. Refinancing service for loans made to manufacturing enterprises should be rendered at interest rate of less than 4%, with bank margin reduced to 1%, so that manufacturing enterprises could take out a loan at a rate that does not exceed their profitability; for other purposes, at current rate according to financial market.

The above measures are about monitoring the offer rate of the ruble and designed to limit demand for foreign currency, purely in order to pay for imported commodities and services, pay interests on external loans and recompense other legal operations. It is obvious that measures to ensure stable offering of sufficient currency are required for stable ruble value. More specifically, it makes sense to reestablish obligatory sale of currency earning by exporters.

After taking the above measures to block rampant speculation, the ruble value could be taken under control. To stop speculation in foreign exchange, it is possible to temporarily fix the exchange rate of the ruble with a value lower than the market one, then to purposefully adjust it without warning. The market insiders will therefore have to consider the balance of payment and optimization of a balance between the need for import and the need for maintaining the competitiveness of national commodity prices. International experience convincingly shows that, when stabilizing, discrete modification of the value of a national currency is better that the floating one, because it halts speculative eddies.

Applying the specified macroeconomic stabilization measures creates conditions for resolving the issue of replacement of external loan sources with internal ones without the risk of starting the inflation.

In order to prevent bankruptcy of backbone companies, it is necessary to replace external loans taken out by Russian corporations with Russian banks’ loans. For this the Central Bank must conduct well-aimed emission of credit resources and supply them to companies on the same conditions as external creditors do. Taking into account the scale of this task (credits subject to cancelation before the end of the next year are worth $180-billion), it needs to be completed only through state-controlled lending institutions. Their managers must bear personal responsibility for appropriate use of credits allocated to specified corporations so that they could meet their obligations to external creditors.

In order to prevent commercial banks’ default on external bonds, those banks should undergo stress tests, while the Central Bank, if needed, allocates stabilization loans to them on terms equal to those of external borrowings.

A special problem is presented by the need to replace the foreign loans which Russian enterprises obtained from European development institutions in order to pay for new equipment. In particular, to prevent the termination of equipment leases financed by foreign lenders, credit facilities must be issued to fund [new] development institutions that would operate in a similar way, using the funds allocated to them for that same purpose. In each case we have to consider, in parallel, whether domestic products could be substituted for foreign imports. Even if they cost more and are inferior in quality, ultimately this approach may be more advantageous, as it reduces the risks, expands the revenue base and opens the way to modernization and growth. We should also stop using state credit resources to lease foreign technology.

The de-offshorization of the economy should begin with the selection of those business activities that are most vulnerable to the corrupt practices that tend to go hand in hand with the use of offshore tax havens. For this, it makes sense to introduce a legal definition of the term “national company” – a company registered in Russia and having no affiliation with foreign entities and jurisdictions. Only such companies should be given access to mineral resources, state subsidies, and to work that is strategically important for the state.

The ultimate owners of shares in Russia’s strategic enterprises should be required to step out of the shadows off-shore and register their ownership in the Russian registers. There has been talk, for a long time now, about the need to follow the example of developed countries by concluding agreements covering the exchange of tax information with offshore tax havens and doing away with existing agreements on avoidance of double taxation, including with Cyprus and Luxembourg, which are known to be offshore transit points. We need to define a uniform list of offshore companies, including those that are part of onshore companies. Transferring assets to offshore jurisdictions that shy away from such agreements must be prohibited.

In addition, we need to require offshore companies owned by Russian residents to abide by Russian legislative provisions on furnishing information about the members of the company, as well as on the disclosure, for tax purposes in Russia, of tax information on all income received from Russian sources, under threat of establishing a 30% tax on all transactions with those who are “un-cooperative”.

Implementing the above measures will create the conditions necessary for the extension of credit without the risk of a flood of money being issued and returned to the currency and financial markets from offshore for speculative purposes. After these measures are adopted, the non-inflationary expansion of the money supply becomes possible along with the re-monetization of the economy in order to increase investment and business activity.

The current decline in production is mainly caused by a contraction in the money supply, deteriorating credit conditions, and the destabilization of the currency and financial markets which resulted in the flight of capital and a drop in investment activity. To stop the downward trend in investment activity, we have to give businesses the opportunity to increase their working capital to allow for the optimal utilization of existing production facilities.

As explained above, we need to establish channels for the unlimited refinancing of commercial banks by the Russian Central Bank, secured by manufacturing companies with the credit already granted requirements to production companies already issued credits at a rate not higher than the average profitability of the manufacturing industry, with the mandatory condition that the credit resources be provided exclusively to manufacturing enterprises, with bank margins limited to 1%. This will result in the changing the credit market from a buyer’s market, where banks enjoy the advantage of a monopoly and business-borrowers have to take loans at usurious rates, into a seller’s market, in which banks will have to compete for customers. This will give solvent manufacturers access to credit on the same terms their competitors see in the West and in the East.

Providing a way to finance working capital will put an end to declining production and will ensure growth at existing facilities. In this way the output of the manufacturing industry, construction and agriculture will be increased by 10–15% within two years.

If we take extra steps toward import substitution, the returns will be commensurate. This would require establishing a lending mechanism earmarked for projects to expand existing production facilities and to create new ones based on the existing technological base. The relevant sectors and agencies need to work actively to prepare and evaluate the proposed import substitution projects. Projects that are selected as promising should receive guarantees from the government or federal agencies in order to attract loans from development institutions and commercial banks, which would subsequently be refinanced by the Bank of Russia at a rate of 2%, while bank margins are limited to 1%.

Productivity growth and import substitution will provide economic growth in the next 3 to 4 years. Sustainable growth in the future requires long-term investment in the modernization of existing production facilities. This means creating a means for the Bank of Russia to refinance commercial banks, through loans secured by bonds and shares in strategic enterprises, at a rate no higher than the average return on shares in the manufacturing industry, while holding the commercial banks liable for the proper use of the credit received. The principles of project financing must be applied broadly.

To achieve rapid development, we need a sharp increase in R & D and investment in the development of promising new technologies, which form the material and technological basis for a long new wave of economic growth. At present, the institutions supporting innovation are patently unable to cope with the task. In order to increase investment in the creation of new industries and the development of new technologies, channels must be established for the refinancing of development banks and state-controlled commercial banks by the Bank of Russia, with the right to claim 2% of the assets generated per annum and on the condition that the credit facilities are used in accordance with the principles of project financing with a margin of no more than 1%. In order to expand the means of financing development institutions, it is desirable that the budget line for their funding be supplemented with a mechanism for refinancing by the Bank of Russia at 2% per annum for the purpose of project financing, secured by the assets thus created.

Along with creating mechanisms for greater lending and for investment in general, special lending institutions should be designed to encourage large scale expansion of those industries that show low profitability. These include strongly seasonal industries, where the turnover cycle is not less than a year (agriculture, resorts and recreational services) and industries with a long production cycle (machine building, construction) lasting more than 3 years. For companies in these sectors, there should be mechanisms for subsidizing interest rates through specialized credit institutions, some of which are already in place. These funds could come from stabilization funds accumulated by the government out of oil and gas revenues. In this case, the Reserve Fund should be converted into a development budget, whose funds should be spent to encourage investment in promising areas of economic growth by funding development institutions. To do this, the capital accumulated in the Reserve Fund should be placed in development institutions, bonds of state-owned corporations, and in infrastructure bonds.

To start on the path of accelerated development requires a multipronged expansion of financing for innovation and investment projects. But this will make sense only if responsibility for their effective implementation is radically increased. This means we should make a transition to our own domestic way of evaluating a project’s economic worth. In particular, to reduce systemic risks, we must replace foreign credit rating agencies, and auditing and consulting companies with Russian ones for every step involved in investment decision-making by public authorities and by banks that are partly state owned. In addition, to make the investments more efficient, a system needs to be created for evaluating and selecting the priority areas for scientific-technical and economic development within the framework set by the strategic planning system.

The implementation of such a comprehensive system of measures to stop capital flight and make the transition from foreign to domestic sources of credit, with the simultaneous de-offshorization of the economy, makes it possible to pursue a policy of rapid development on the basis of a multi-faceted increase in investment and innovation, in key areas of building a new technological foundation. The re-monetization of the economy by having the state boost the lending capacity of the banking system, and the return from offshore tax havens of the capital that has been taken out, will enable us in the next 2 years to see annual GDP growth of 6–8% per year, while investment increases by 15% per year, and R & D spending by 20% per year, all while keeping inflation in the single digits.  more