Economic power is like a gas, it pervades every interstice; it is like water: it always finds a way; it competes with every domain, it bends every resistance and whoever possesses the art of using it holds unrepeatable abilities that make him a subtle strategist so courageous as to resist leaders who, although holders of popular charisma, cannot measure up to that unique and precious something. In political anarchy the main point of reference is precisely economic rationality, to which are attributed such abilities as to make concrete the great illusions by Norman Angell. One cannot help but agree with Fabio Casini when he says that the economy knows paths that politics often does not identify or pretends to ignore, to the point of generating a paradoxical formation of parallel worlds.
Lord Keynes was one of the most assiduous transatlantic travellers between Downing Street and Washington and yet managed to come into conflict and simultaneously relate with everyone; of course, it was also a question of sagacious interlocutors, now so dramatically absent; it was Janet Yellen, Secretary of the Treasury of the Biden Administration, who spoke with the great helmsman Xi and to declare herself ready to go to Beijing in order to avoid decoupling. Honor to the merit and courage of a more than intelligent woman who, like the governors of the Central Banks1, has the merit of weighing his words like Yi Gang, predecessor of governor Pan Gongsheng, who convinced Xi that the currency must be the object of alchemical attention. More than that warrior wolves; as the French historian Marc Bloch said in 1940, Money reveals itself at the same time as a barometer of profound movements and as a cause of no less formidable conversions of the masses.. Only those who understand the essence of monetary policy and financial institutions can intuit the economic trend and extent of interest rate cuts and increases.
The economist is of particular interest Elvira Sachipzadovna Nabiullina, governor of the Russian Central Bank, out of the chorus of apparatus cheering, who had the courage to speak out about the economic ruin caused by the Ukrainian war; she provided reliable, inconvenient data, she resigned, rejected, she remained in her very thorny position.
It's the value of the coin itself2 which, among others, is causing problems for the Russian economy, given that since 2019 its devaluation against the dollar has been continuous; a currency too weak that has fueled an imported and systemic inflation that would require wage cuts and more exports. The diplomacy of money in the 30s failed, General Marshall as a soldier used it in the post-war period; bankers remain in a frenzy left and right, yet indispensable because, as a popular saying goes, Without money, no masses can be sung. Yet popular love is denied to them, as happened to Einaudi or Carli.
In Russia, politics has led to overwork3 an economy that can no longer change direction; the war has led the dance of interest rates4 urged by inflation, sanctions, shortage of manpower, exorbitant spending in the defense sector for at least 6% of GDP, understandable figures for a country at war, but subject to a monetary policy that does not enjoy the benefits enjoyed by the Anglo-Americans in their time5, which have contained the cost of public debt; Moscow is not London confronting Washington, must deal with Beijing which, for free, beyond the friendship of words, does not grant anything, indeed, it economically colonizes, at least until the Russians, forced to mobilize6, will have something to offer to the red temple of Xi. The decisions taken by Nabiullina to tame inflation risk both putting state-controlled companies in crisis and legitimizing an internal takeover at the top of the Central Bank.
Although politicians believe that the Russian economy is sailing in fairly calm financial waters (an oxymoron), the long-term prospects show panoramas that do not exclude possible stagnation; in the face of questionable growth, the increase in corporate bankruptcies and the slowdown in investment plans remain etched.7; in short, growth is due almost exclusively to fiscal stimulus and public spending is the only support for the increase in GDP. Ok then for the good Keynes but only if we were in a recessionary phase and with unused capacity, not like in Russia where the economy is overheating. An apolitical John Maynard would say that in such a situation public spending should decrease, avoiding allocating tax revenues to benefit a single sector.
Ending the conflict now economically carries risks: military spending has enriched elites and stimulated domestic demand.8; if war ceased in such an unbalanced system, the fiscal stimulus would cease, causing a decrease in real incomes, which would lead to an increase in social tensions and the definitive compromise of political stability. In the calculation of GDP, military spending9, which would be reduced, now drives the engine of an economy doped and that, despite its apparent solidity, faces continuing pitfalls, given that the level of the Sovereign Welfare Fund10 is declining and that export earnings have declined due to tightening sanctions and constraints on resource extraction caused by the technology deficit.
Question to Guglielmo Giannini: Sanctions work? Macroeconomically yes, but they are certainly not as fast as one might imagine; they are tools that produce medium-long term effects in relation to specific objectives, balancing the sustainability and geopolitical costs of a war economy.11; Nabiullina12 he argued that sanctions have changed the geography of Russian import/export, requiring a structural transformation that takes into account that future generations will pay the highest price.
2024 should have been the final year of the peak of military spending, now higher than social spending with a subsequent two-year reduction; in reality the war effort is destined to increase in an unstoppable loop. Today if the GDP grows, with military spending out of control, taxes increase, which depress investments in the face of Keynes, with a progressive regime with five tax brackets and with the increase in taxes on companies. The relatively low unemployment rate is not an indicator of the use of labor but of a shortage of labor13.
The Central Bank will try to contain inflation to around 2025% in 4, a target that underestimates the increase in the cost of living14It is no coincidence that while Russia is playing down the sanctions it is simultaneously asking for their revocation, while it is trying to circumvent them by attenuating their effects, such as redirecting energy exports.15 south or importing from compliant third countries, although this leads to higher costs. Restrictions on capital transfers have kept some of the wealth in Russia while the departure of Western companies has created unexpected niches.
If the Ukrainian invasion helped lift many out of poverty, ending it would create instability, since a hungry people makes the revolution16.
As long as there is war, is there hope? It is a dilemma: either maintaining Keynesian support for military spending or entering into negotiations could cause an economic implosion, although trade avoids the complete isolation of a demographically declining nuclear power.
Even BRICS catwalks don't help; the New Development Bank17 cannot access the dollar markets given the sanctions, direct and secondary, imposed by Moscow, which makes the institute a vehicle for the strategic internationalization of the renminbi, which is still not fully convertible and which is not in favour of the entry of the rich Saudis who would break functioning balances if the hegemon is alone18. Given that most economists have fled the country and that since 2014 the three Russian currency crises have been overcome with a hike in the discount rate, the latest increase from 3 to 19% has triggered criticism of the government by the Moscow oligarchy, which has directly touched the left of the heart.
Although Nabiullina's priorities are still controlling inflation, reducing capital flight, stabilizing the ruble and supporting GDP growth, slow economic growth will not ensure further developments; after the transfer of her first deputy, Kseniya Yudayeva, to the IMF, Elvira is under the threat of being replaced by a from-man loyalist willing, à la Erdogan, to lower interest rates.
What to do? On the one hand, if inflation were to accelerate, capital would flee. stretching out definitely the currency, on the other hand keeping rates high can cause the failure of the industrial sector.
First conclusion: given that the economic crisis is linked to the Ukrainian invasion and Western sanctions, the only solution would be to end the war. A curtain now impossible, although it is part of historical recurrences: the collapse of the ruble, with the Chechen invasion on the side, led Putin to succeed Yeltsin and to cash in on Western aid that was never fully traced.
To this day, Nabiullina remains fundamental in the vertical of Russian power, not very kindly compared to Schacht, the banker who stabilized the Reich; an element so important, and not transitory like many others with stripes, that it would seem to have asked the Kremlin to evaluate the start of negotiations with the West, considering the worsening of general economic conditions to be disastrous. Elvira's is an attractive and dangerous seat like the dark side, desired but not wanted by anyone because it is at a dizzying height and because no one else enjoys the consideration reserved for her everywhere. The ambivalence of her actions is evident: raising interest rates but merciless criticism of the war economy that now more than ever must cool inflation and be protected from populist measures such as those on subsidized mortgages for some and guillotine for others. The post-2016 monetary policy has forced her to defend herself, protected by Putin, who understood how she had managed to protect fiscal stability by playing on the lowest oil prices in dollars. Perhaps, at this moment, Nabiullina is the only one who has a complete vision of the situation, net of political conditioning and faithful to the rationality that her task requires of her; the only indulgence allowed is that of wearing clothes and pins intended to transmit messages that would otherwise not be disclosed.
To try to understand the possible intentions of the Kremlin, it will be appropriate to evaluate whether there will be further extensions of her mandate, given that Nabiullina has remained to defend monetary independence from the political sphere as the only personality capable of standing up to a summit devoted to economic sovereignty.
The problem is to understand how long she, with her pins, will have the opportunity to express herself.
1 The structure of the People's Bank of China deliberately mimics the Federal Reserve system
2 Anticipating the possibility that sanctions would make foreign exchange transactions impossible on the stock exchange, Nabiullina clarified that this would not affect the ruble's rate, given that more than half of currency transactions took place outside the official market. At the beginning of 2022, dollar-ruble trades accounted for 78% of transactions on the Russian stock exchange, before dropping to 32% at the end of 2023 in favor of the renminbi. Another reason for the decline is due to currency sanctions, which prevent transactions in dollars.
3 Nabiullina compares the Russian economy to a car: If you try to force the engine beyond its capabilities, by giving gas with all your strength, the engine will overheat sooner or later, and we won't get far. It is possible to move forward, even quickly: but not for long..
4 In July Nabiullina announced that the bank's board decided to increase the benchmark rate by 200 basis points, to 18% per year. Inflation has risen above the Central Bank's April forecast. Domestic demand growth is still outpacing the ability to expand the supply of goods and servicesIn Italy, the 18% limit in the 90s led to a 30 percent devaluation of the lira and put the EMS into crisis.
5 Autocracy protects power but weakens its structures. The Americans resisted in Vietnam thanks to the dollar's dominance on international markets, an impossible feat for the ruble.
6 Considering the more than 500.000 Russians who have left the country
7 Putin places all responsibility on the government and then launches ad hoc populist investigations.
8 Stimulating demand with insufficient resources leads to accelerating inflation, slowing down the economy.
9 The Rostec Group, supported by federal funding, controls about 80% of the world's war production.
10 Fund fed by oil revenues; to cover the 2023 deficit the Ministry of Finance has withdrawn 34 billion dollars from the Fund.
11 Nabiullina: the impact of sanctions should not be downplayed, and for the Russian economy the pessimistic scenario has become more real, since Sanctions are very powerful and their influence on the Russian and global economy should not be underestimated.. Isolating yourself from their influence is not possible..
12 Thanks to his monetary policy, Nabiullina has raised about $643 billion in hard currencies and precious metals, containing the ruble to avoid excessive costs on imports and allowing earnings on exports paid in hard currency.
13 While national income is growing, the general conditions of health, education, technology and infrastructure are deteriorating. The Russian economy needs almost a million workers.
14 Wage increases affect mainly private sector workers; for public employees and pensioners the trend is not as favorable.
15 On oil, Russia has circumvented the price cap by setting up a shadow fleet
16 1st macroeconomic theorem by Giovannino Stoppani
17 According to President Rousseff, she is not an economist, the NDB would lend without conditions unlike the IMF and the World Bank. At the same time, President Lula proposed, without explaining how, a single currency with Argentina
18 According to Modi, the BRICS should not aim to overthrow the system of global multilateral institutions but to reform it. Indonesian Foreign Minister Sugiono also expressed the intention of the Trade First.
Photo: Kremlin
