Quote:Michael Hudson: Russia obviously needs to free itself entirely from Western banks. More important, it doesn’t need their credit. (Look at how China built up its economy without foreign bank credit!) Russia needs a real central bank to finance government deficits, and a public bank to extend credit on concessionary terms. The government can create credit on its computer keyboards in the same way that commercial banks do on their keyboards. That is how the Soviet Union functioned for many decades, after all.

There is no need whatever for Western or Russian banks to finance public budget deficits. There are plenty of Modern Monetary Theorists (MMT) who can explain how Russia might do this. It is the only way to minimize the cost of doing business.

If private-sector (Western, BRICS or even domestic Russian) financial charges are built into the cost of living (housing) and doing business, it will be difficult for Russia to be competitive. It needs to do what the U.S., Germany and China have done. Every successful economy in history has been a mixed economy. Instead, Russia swung from one extreme to an even worse one – from a statist economy to an extreme Ayn Rand/Hayek/Chicago School economy in 1991, with disastrous consequences – as if there were no knowledge of Western financial history or, for that matter, Volume III of Marx’s Capital and Theories of Surplus Value. The most effective response would be proactive credit creation to subsidize reindustrialization and agricultural modernization.

Quote:The Saker: Amongst the various proposals circulated in Russia two have been particularly strongly supported: the nationalization of “independent” Central Bank and its subordination to the Russian government and the creation of a fully convertible Ruble backed by the Russian gold (some suggest backing the Ruble by “energy”, i,e, oil and gas). What do you think of these proposals?

Michael Hudson: An “independent” central bank (such as the European Central Bank) means one that is controlled by private bankers, preventing governments from financing their own spending and obliging them – and the economy at large – to rely on private interest-bearing commercial bank credit.

Russia needs a real central bank serving government objectives – to re-industrialize the economy, and to rebuild it without the heavy financial overhead that has inflated housing costs, infrastructure costs, education costs and the cost of living in the West.

Gold can indeed be a part of this system – to settle international payments imbalances, not to back domestic currency. It became clear by the 1960s that no country can participate in a gold exchange standard and wage war. The gold drain is what forced the U.S. dollar off gold in 1971 – as a direct result of U.S. military spending, which was responsible for the entire U.S. balance-of-payments deficit.

Without gold, the world’s central banks shifted to U.S. Treasury bills – government IOUs issued to finance the budget deficit that was largely military in nature. This meant that global monetary reserves monetized U.S. military spending to surround these countries and destabilize them if they tried to withdraw from the system. (That is what my book Super Imperialism is all about.)