/ world today news/ The hunger for money in the country is artificial
Once again, I repeat what I said in previous articles: Russia urgently needs economic mobilization. This means the maximum possible use and increase of all economic resources: labor (human), natural, production (fixed assets), scientific, technical and financial. By the way, I noted that the mobilization of production resources requires the full use of existing fixed assets (the degree of their use on average in the economy is below 50%), as well as their growth and improvement through large-scale investments. Capital investments in the expansion of production facilities and the technical reconstruction of the existing ones should increase at least twice and reach 40-45% of GDP.
However, such volumes of investment require gigantic financial resources. There is a shortage of money in the country (the monetization indicator of the economy is less than 50%), bank loans can only be obtained at insane interest rates (15-20% or more), the federal budget for 2023 and the period until 2025 year is composed of a large deficit (2% of GDP for the next year).
I believe that the hunger for money in the country is artificial. It was created by the monetary authorities – the Bank of Russia and the Ministry of Finance. In addition, the Bank of Russia with its statistics shows that the country has a huge unused financial potential.
The central bank has just published data on the country’s balance of payments for three quarters. It can be seen from them that the country’s net foreign exchange earnings (export earnings minus import costs) for the period from January to September of this year, inclusive, amounted to 238.0 billion dollars. By comparison, for the same period last year, this figure was $107.9 billion. If last year there was a currency shower over Russia, this year was a real currency downpour.
And how is the currency from this torrent being used?
About $40 billion (exactly $39.6 billion) are net cross-border income payments to non-residents (wages, dividends, interest and rents). Most of these net payments are based on the income that foreign investors have received in Russia. We are told that since the beginning of the SVO in Ukraine and the sanctions war against Russia, the transfer of dividends and other investment income received by non-residents in Russia is prohibited.
However, the statistics of the Bank of Russia show that the border gates are open. For a while, these “doors” were indeed closed (presidential decrees of February 28 and March 1 of this year), but then, secretly, the monetary authorities began to open these doors. And today they are even wider than a year ago, when, according to the results of three quarters, net cross-border income payments were equal to $32.7 billion.
The remaining currency of the torrent that poured into Russia did not water the thirsty Russian economy, but drained it. In Central Bank bird-speak, this is called “net lending to the rest of the world’. So. According to the results of the three quarters of this year, this “net lending to the rest of the world” amounted to $195.2 billion, according to the Russian Central Bank. For comparison: for the same period last year, this figure was $74.2 billion.
I do not rule out that by the end of the current year “net lending to the rest of the world” may reach $250 billion. The Russian Federation has not had such, so to speak, “records” for all three decades of its existence.
Behind these figures lies a frank game of dealing. A significant part of Russia’s exports was made not to ensure the economic mobilization of the country, but to satisfy the needs of the countries of the collective West, /who are at war with us!/, for Russian energy resources and raw materials.
Without going into details, I will note that part of the currency received from exports accumulates in the accounts of Russian credit institutions (in particular, Gazprombank) and can be frozen at any time on command from Washington. The other part was withdrawn outside Russia, placed on foreign bank accounts in Western countries and offshore jurisdictions. This currency is undoubtedly under the complete control of Washington and its allies. In fact, Russia works for its geopolitical opponents. And they, by the way, clearly respect the anti-Russian sanctions,
From February 24, Russia had to play by completely different rules in the field of foreign trade. Namely, to supply the West with vital goods (natural gas, uranium, titanium, oil, rare earth metals, etc.) only in exchange for investment goods. In these new rules, the ultimate goal of Russian exports should not be to earn foreign currency, but to ensure investment mobilization of the country.
Alas, neither in Neglinka (the address of the central office of the Central Bank) nor in Ilinka (the address of the Ministry of Finance) the issue of the need to develop and implement new rules for foreign economic activity is not even discussed. It is not discussed in the Ministry of Industry and Trade. The central bank and the Ministry of Finance are doing their best to continue playing by the old rules.
Among other things, they are trying to preserve the notorious budget rule, which provides for the accumulation of a significant portion of export earnings in the currency capsule called the National Welfare Fund (NFF). At the very beginning of the sanctions war, the collective West froze the international reserves of the Russian Federation in the amount of over $300 billion.
But in the composition of these reserves, according to my estimates, almost a third (about $100 billion) accounts for the currency from the FNB’s coffers. At the current exchange rate, this is roughly equivalent to 5 trillion rubles. But last year, the volume of capital investments in the Russian economy at current prices amounted to about 2.6 trillion rubles. At one point, Russia was robbed of the Treasury’s currency in an amount sufficient to finance capital investment for two years.
New foreign exchange savings with the same rules of the game are also unlikely to be used to mobilize investment. The exchange of “toxic” currencies with the currencies of friendly countries, proposed by the monetary authorities, is counterproductive. These are the depreciating currencies with low convertibility. Moreover, today they are considered “friendly” currencies, and tomorrow, as a result of some political reversals, they may turn out to be “toxic”.
My point is extremely simple: we need new rules that will allow us to accumulate not currency, but to increase the economic potential of Russia, mainly fixed assets for production purposes. This is how everything was organized in the USSR. There was directive planning of the development of the national economy and a state monopoly in the field of foreign trade and foreign exchange operations.
The five-year and annual plans include projects for the construction of new and modernization of existing enterprises. With a detailed set of natural indicators by types and quantities of investment goods (machinery and equipment). Part of the needs for investment goods are covered by imports. Five-year and one-year import plans have been drawn up.
And already under the import plans, export plans were drawn up, which was not an end in itself, but a means to ensure imports. The foreign trade of the USSR was by definition balanced. Part of it was carried out on a non-currency basis (barter) or with the help of clearing houses (the need for currency was minimal). There was also a rule according to which the accounts of the Bank for Foreign Trade (authorized in matters of the state currency monopoly) could not accumulate large amounts of currency.
The currency that came from the exporter was already at the entrance going to pay for the import contracts. The entire foreign trade system of the USSR (Ministry of Foreign Trade, about fifty specialized foreign trade associations, the Bank for Foreign Trade, foreign trade missions, Soviet overseas banks, etc.) functioned flawlessly, like a Swiss watch.
For many years, the Central Bank has engaged in an outright strangulation of the Russian economy. Since 2013, it has started doing this under the banner of “inflation targeting”. They say that it is possible and necessary to control rising prices using such means as limiting the money supply. This idea was not born to Neglinka. This is one of the principles of the Washington Consensus that guides the Central Bank. It is also surprising that the “patient” (the Russian economy) is still breathing. But with power.
When I was studying (more than half a century ago), we were told in economics lectures that inflation (or deflation) is the result of an imbalance between the money supply and the supply of goods. To overcome inflation, it is not necessary to compress the money supply at all, it is desirable to build an additional mass of goods. And this can and should be done by the Central Bank, providing the economy with money to produce goods. However, if the Central Bank provides money to financial speculators, the supply of goods will not increase and inflation will indeed accelerate. Neglinka does not give loans for the development of production, so it will never end inflation. Neglinka only accelerates inflation.
First, because it deprives commodity producers of affordable loans. The central bank has long kept the main interest rate at an unbearably high level (in March it was raised to 20%, but today it remains very high – 7.5%). For enterprises from the real sector of the economy, loans from commercial banks are not offered only for investing in technical reconstruction of fixed assets. They cannot even afford short-term loans to replenish their working capital.
Second, companies that still risk putting a credit noose around their necks sharply increase their production costs. For many of these debtors, debt service costs become a major component of costs. And the increased costs inevitably become a factor in the growth of the prices of the debtors’ products.
Third, for many years the Central Bank pursued (in accordance with the rules of the Washington Consensus) a policy of increasing foreign exchange reserves. Such a policy created an artificially low exchange rate for the Russian ruble, and the exchange rate had to be slowly but steadily lowered (this was what the exporters were interested in, as well as the Ministry of Finance). But after all, more than half of all goods circulating on the Russian market are of imported origin. The declining exchange rate of the ruble cannot help but raise the prices of the ruble in the domestic market.
Fourth, the Central Bank reorganized many banks. For this purpose, the Bank of Russia granted gigantic amounts of loans, measured in hundreds of billions of rubles. Only 1.3 trillion rubles were spent on the reorganization of Otkritie Bank. But with the help of such restructuring loans, the Central Bank only closed the “holes” in the balance sheets of dying commercial banks. We are actually dealing with an unsecured issue of money. The central bank accelerated inflation with its printing press.
My list includes fifth, sixth, etc. The conclusion is very short: the main culprit of inflation is the Central Bank, it does not “target” it, it accelerates it. With one hand it accelerates inflation, with the other hand it suffocates the Russian commodity producer.
The list of actions taken by the Bank of Russia to prevent financial mobilization in the country can be continued. So, more than two years ago, the Bank of Russia gave the go-ahead for trading on the Moscow Stock Exchange in securities of foreign issuers. Russian investors, instead of investing in securities of local companies, began to actively buy shares of foreigners.
The head of the SPB exchange Roman Goryunov at the Ural conference of NAUFOR announced the clarifications he received from the Central Bank about these securities. Neglinka explained that owning shares in Russia’s recognized extremist organization Meta is not financing a terrorist organization. And trade in “Meta” books continues.
An unbiased analysis shows that if the Bank of Russia is at all involved in financial mobilization, it is on the side of our geopolitical adversary.
Translation: ES
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