ER Editor: Below are notes for The Duran discussion on the Russian and EU economies. It is a study in contrasts.
Russian economy stabilises. EU economy faces massive contraction
The Duran: Episode 1269
- Christoforou: Let’s talk about the economic situation re. energy, the energy crisis, inflation and food shortages. Putin is saying the Russian economy and inflation are stabilizing. The ruble is now stronger than it was before the conflict started. Mortgages and interest rates on housing are going to go down from 12% to 8%. Their central bank has a handle on the situation, and their decisions have so far worked.
- Mercouris: It was a cautiously upbeat view of the Russian economy that Putin gave. Price growth has started to subside; some prices are falling. And the ruble is at the strongest it’s been for 2 years. As we predicted some time ago, the Europeans have capitulated on gas for rubles – they buy gas in euros which is converted into rubles at Gazprom Bank. Rosneft has floated the idea of doing the same with oil! So that may be coming next. A few weeks ago, the Europeans were talking about sanctions prohibiting imports of Russian oil. But it’s been pointed out to them by the experts that it’s a very tight oil market right now; there isn’t much oil around, and Yellen has told them to avoid banning oil so as to avoid rising prices. And Russians will still get more for their oil if prices rise! So the general picture means Putin can be optimistic: the ruble is rising, inflation is under control, the banking system is operating normally. Now they’ve got to fix the real economy. Money is pouring into Russia; it has the largest budget surplus ever. And it’s got the biggest current account surplus, so this can be used for the real economy.
- Nabilena is clearly leading the economic response in Russia to the economic challenges that the sanctions have created. So the Russians are coming through and winning the economic war. The Europeans are all over the place, however. They’re now talking about price caps and tariffs on energy coming in from Russia. All that’s going to do is create shortages. If the Russians can sell their oil more cheaply in Asia, for example, they can sell it for a better price there than they can in Europe with capped prices. So it’s a terrible idea, resulting in shortages. But that’s the kind of economic illiteracy of Europe. There’s no real response in Europe to the large economic crisis. The EU has had the idea of escorting grain cargoes through the Black Sea from Odessa, an idea which Erdogan has nixed given that he doesn’t want the Black Sea to be a war zone. But these are the lame ideas they’re floating in Europe.
- Christoforou: Why is Europe reacting in this way to their OWN SANCTIONS? It’s bizarre. They imagined they would destroy the Russian economy but they haven’t. It’s like all Europe is doing is getting photo ops and sound bites in the media, such as trying to get India to change sides. Even if India were to change sides and say Russia is bad, would that change the economic conditions in Europe? Not really. It just allows von der Leyen or Biden an opportunity to be in front of the camera. They don’t care about reality, the problems they themselves created. They just want token PR victories, not real problem-solving. What a contrast to Putin’s response to the current problems.
- Mercouris: India, where von der Leyen has gone, is an energy IMPORTER. So India is not going to want oil prices to rise. So it won’t support sanctions against Russian oil. It makes no sense. You can talk about a ‘Russian default’, but the only default is that the western powers are not following through with their payment obligations. The high probability is that this will lead to a flurry of legal claims by bondholders against western banks and western governments. But the point about the default: Russian banks did default in the 1990s, but it isn’t true any more. Russian banks don’t go to western financial markets for loans anymore, they go within Russia to depositors and financial trading. In part, it’s because the EU imposed sanctions on Russian banks in 2014 which made it difficult for Russian banks to get money. So they had to develop their own system where it is resilient and self-supporting without the need for external help. So if there is a manufactured default, it is only a potential problem for western bondholders and western governments, conceivably even the western financial system. They haven’t thought this through: they want PR victories and images rather than the substance, even as conditions of life for people across the West get worse because of their actions.
- What’s the outlook for the EU, for the US? Things are looking bleak. In the US there is more talk of the recession, which seems certain. They have high inflation. It’s mostly self-sufficient, although it does import a few things. It will get by if they stop doing stupid things like releasing oil from their strategic reserves and shipping it to Europe to persuade the EU to stop taking in Russian oil. The US is shipping so much LNG to Europe right now which is not really making a dent in European demands. But it will cause LNG prices in the US to spike. If the US sorts itself out, eventually the situation there should stabilize. Europe is going to go into free fall! German industry is simply saying that embargoes on Russian oil and gas will produce a massive contraction with no recovery possible when sanctions and higher prices stubbornly remain in place. So Europe is destroying its economic future in quest for some kind of hollow PR moments. In the end it’s European consumers who will pay the price, and they already are.
- Are there any countries outside of Germany that are on the brink of collapse? It’s not just Germany – Italy is in very bad shape. Its debt levels are rising and it’s heavily dependent on Russian imports. Draghi went to Algeria to do a deal for gas, but the Algerians said no, that they couldn’t increase production to the extent that Draghi wants. Their own reserves would simply run out. So Algeria can’t comply. That leaves Italy in a very difficult position. If under pressure from other central banks, they raise interest rates in the EU and dial back on the QE program (which are the sane things to do), which (QE) has been keeping Italy afloat and southern Europe, then what would happen? It would be disastrous for southern Europe and the Eurozone.
- Is the UK insulated from this as it’s no longer in the EU? Is that why Boris is still pushing for more escalation on all fronts because it can weather the economic storm? No, it’s not insulated. Prices in the UK are rising as they are everywhere; there is a shortage of some goods such as cooking oil, etc. The energy companies are becoming increasingly worried – they can’t continue to cope with the situation indefinitely. Boris is on the ropes again to remove him. Last year, Rishi Sunak and Kwasi Kwarteng (responsible for energy policy) were opposing Johnson. And recently Kwarteng has gone completely silent instead of making reassuring noises. Why is this? Perhaps he sees massive trouble ahead. Will Boris survive? This could all bring him down. Opinion polls show that inflation and the fall in the standard of living have bypassed Ukraine as the critical issues in the public mind. People are facing the biggest drop in living standards since the 50s. So in theory that should affect Boris. But in the Conservative Party currently, there’s no clear replacement for him. If Boris goes and there’s a severe economic crisis, there could be a national government involving Keir Starmer. But he’s not popular either. That’s the only thing Boris has going for him.
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