735 The Enemy within: Russia's 'independent' Central Bank

The Enemy within: Russia's 'independent' Central Bank

Newsletter published on 27 January 2015

(1) Bankers' copnspiracy: 'independent" central Banks controlled by BIS
- Carroll Quigley
(2) Paul Krugman: Oligarchs ran up debt in foreign currency, to buy real
estate in London
(3) Key Russian mistake: allowing domestic industry to be financed by
$-denominated debt
(4) Petras: 6 million Russians died post-1991; Putin must nationalize
Banks and substitute for imports
(5) Putin lets 'independent' Central Bank create recession to stem Ruble
fall
(6) US instructs Russian Central Bank to strangle Russian economy
(7) Russia's central bankers are Western-trained
(8) Merkel offers Free Trade in return for Subservience
(9) Russia defiant after more threats from West over Ukraine

(1) Bankers' copnspiracy: 'independent" central Banks controlled by BIS
- Carroll Quigley

The Public Bank Solution: From Austerity To Prosperity

By Ellen Hodgson Brown, J.D.

Third Millennium Press, Baton Rouge, Louisiana, 2013

{p. 191} Carroll Quigley and the BIS

Dr. Quigley was a professor of history at Georgetown University, where
he was President Bill Clinton's mentor. Quigley identified himself as an
insider groomed by the powerful clique he called "the international
bankers." His credibility is heightened by the fact that

{p. 192} he actually espoused their goals. In Tragedy and Hope: A
History of the World in Our Time (1966), he wrote:

I know of the operations of this network because I have studied it for
twenty years and was permitted for two years, in the early 1960's, to
examine its papers and secret records. I have no aversion to it or to
most of its aims and have, for much of my life, been close to it and to
many of its instruments.... In general my chief difference of opinion is
that it wishes to remain unknown, and I believe its role in history is
significant enough to be known.

He wrote of this international banking network:

[T]he powers of financial capitalism had another far-reaching aim,
nothing less than to create a world system of financial control in
private hands able to dominate the political system of each country and
the economy of the world as a whole. This system was to be controlled in
a feudalist fashion by the central banks of the world acting in concert,
by secret agreements arrived at in frequent private meetings and
conferences. The apex of the system was to be the Bank for International
Settlements in Basel, Switzerland, a private bank owned and controlled
by the world's central banks which were themselves private corporations.

The key to their success, said Quigley, was that the international
bankers would control and manipulate the money system of a nation while
letting it appear to be controlled by the government. The economic and
political systems of nations would be controlled not by citizens but by
bankers, for the benefit of bankers.

The goal was to establish an "independent" central bank in every
country-meaning one that was independent of government and subject to
the control of private banking interests. Today, this goal has largely
been achieved. Central banks have the authority to issue the national
currency in their respective countries, and it is from these banks that
governments must borrow money to pay their debts and fund their
operations. The result is a global economy in which not only industry
but government itself runs on credit (or debt) created by a banking
monopoly headed by a network of central banks that are

{p. 193} independent of the dictates of government; and the top of this
network is located at the BIS, the "central bank of central banks" in Basel.

Behind the Mask of an International Clearing House

The BIS was set up in 1929 to handle German war reparations, after
Germany defaulted on its war debts under the Treaty of Versailles in
1923. The Dawes Plan was then set up to allow Germany to borrow money
from America, so that Germany could repay its war debts to England and
France. In 1929, the Young Committee restructured the Dawes loans and
created the BIS to act as trustee for the loans. Germany made
installment payments to America, giving American bankers a vested
interest in German industry so hat Germany could repay the loans.

The plan for the BIS was agreed to at a conference at the Hague in
August 1929, just two months before the Wall Street stock market crash
of that year. A charter for the bank was drafted at the International
Bankers Conference at Baden Baden in November and was adopted at a
second Hague Conference on January 20,1930.

Although the stated purpose of the BIS was to handle reparations,
Quigley said that its primary purpose was to allow central bankers to
maintain collective control over world finance without London remaining
the sole dominating financial power, Britain having ceded much of that
power to America with the economic burdens of World War 1. Quigley wrote:

The BIS is generally regarded as the apex of the structure of financial
capitalism whose remote origins go back to the creation of the Bank of
England in 1694 and the Bank of France in 1803. As a matter of fact its
establishment in 1929 was rather an indication that the centralized
financial system of 1914 was in decline. It was set up rather to remedy
the decline of London as the world's financial center by providing a
mechanism by which a world with three chief financial centers in London,
New York, and Paris could still operate as one.... It was intended to be
the.world cartel of ever-growing national financial powers by assembling
the nominal heads of these national financial centers.

(2) Paul Krugman: Oligarchs ran up debt in foreign currency, to buy real
estate in London

Comment (Peter M.): It should not be allowed. Capital controls would
stop it.

http://krugman.blogs.nytimes.com/?8dpc&_r=0

Dec 18 2:29 pm

18 2:29 pm

Notes on Russian Debt

I have to admit that the Russian crisis has me feeling young again —
it’s back to all the old issues from the Asian debt crisis of 1997-1998,
when bad things mainly happened to other countries and the discussion
here was relatively technocratic; also, I was a lot younger (did I
mention that?). And although it’s very serious stuff — I keep pulling
myself up short when I want to use standard metaphors like an economic
meltdown, because I suddenly remember that Putin has nukes — I am
getting some satisfaction in trying to puzzle out the underlying issues.

Which brings me to the interesting question of Russian debt.

Obviously plunging oil prices are bad for petroeconomies. But what is
making the Russian experience so dire is the linkage oil-> ruble->
balance sheets, because of all the dollar- and euro-denominated debt.
This, however, raises several questions.

First, how did they get that debt? Here’s the Russian current account
balance over the past couple of decades:

It has been in consistent large surplus, with a cumulative surplus of
more than $900 billion. Russia should not be a debtor country. It has
managed this nonetheless, presumably because corporations and banks have
borrowed abroad, and somehow that money has ended up invested in luxury
London real estate and other things. It would be nice to have a good
picture of how the flow of funds worked. [...]

(3) Key Russian mistake: allowing domestic industry to be financed by
$-denominated debt

From: Paul de Burgh-Day <pdeburgh@lorinna.net>
Date: Sat, 3 Jan 2015 14:35:29 +1100
Subject: Pepe Escobar: 2015 Will Be All About Iran, China and Russia

2015 Will Be All About Iran, China and Russia

By Pepe Escobar

January 02, 2015

http://www.informationclearinghouse.info/article40612.htm

BEIJING, December 31 (Sputnik) — 2015 Will Be All About Iran, China and
Russia

By Pepe Escobar

January 02, 2015 "ICH" - "Sputnik" - - BEIJING, December 31 (Sputnik) —
Fasten your seatbelts; 2015 will be a whirlwind pitting China, Russia
and Iran against what I have described as the Empire of Chaos.

So yes – it will be all about further moves towards the integration of
Eurasia as the US is progressively squeezed out of Eurasia. We will see
a complex geostrategic interplay progressively undermining the hegemony
of the US dollar as a reserve currency and, most of all, the petrodollar.

For all the immense challenges the Chinese face, all over Beijing it's
easy to detect unmistakable signs of a self-assured, self-confident,
fully emerged commercial superpower. President Xi Jinping and the
current leadership will keep investing heavily in the urbanization drive
and the fight against corruption, including at the highest levels of the
Chinese Communist Party (CCP). Internationally, the Chinese will
accelerate their overwhelming push for new 'Silk Roads' – both overland
and maritime – which will underpin the long-term Chinese master strategy
of unifying Eurasia with trade and commerce.

Global oil prices are bound to remain low. All bets are off on whether a
nuclear deal will be reached by this summer between Iran and the P5+1.
If sanctions (actually economic war) against Iran remain and continue to
seriously hurt its economy, Tehran’s reaction will be firm, and will
include even more integration with Asia, not the West.

No matter how it was engineered, the fact that stands is that the
current financial/strategic oil price collapse is a direct attack
against (who else?) Iran and Russia.

Washington is well-aware that a comprehensive deal with Iran cannot be
reached without Russia’s help. That would be the Obama administration’s
sole – and I repeat – sole foreign policy success. A return to the “Bomb
Iran” hysteria would only suit the proverbial usual (neo-con) suspects.
Still, by no accident, both Iran and Russia are now subject to Western
sanctions. No matter how it was engineered, the fact that stands is that
the current financial/strategic oil price collapse is a direct attack
against (who else?) Iran and Russia.

That derivative war Now let’s take a look at Russian fundamentals.
Russia’s government debt totals only 13.4% of its GDP. Its budget
deficit in relation to GDP is only 0.5%. If we assume a US GDP of $16.8
trillion (the figure for 2013), the US budget deficit totals 4% of GDP,
versus 0.5% for Russia. The Fed is essentially a private corporation
owned by regional US private banks, although it passes itself off as a
state institution. US publicly held debt is equal to a whopping 74% of
GDP in fiscal year 2014. Russia’s is only 13.4%.

The declaration of economic war by the US and EU on Russia – via the run
on the ruble and the oil derivative attack – was essentially a
derivatives racket. Derivatives – in theory – may be multiplied to
infinity. Derivative operators attacked both the ruble and oil prices in
order to destroy the Russian economy. The problem is, the Russian
economy is more soundly financed than America's.

Considering that this swift move was conceived as a checkmate, Moscow’s
defensive strategy was not that bad. On the key energy front, the
problem remains the West’s – not Russia’s. If the EU does not buy what
Gazprom has to offer, it will collapse.

Moscow’s key mistake was to allow Russia's domestic industry to be
financed by external, dollar-denominated debt. Talk about a monster debt
trap which can be easily manipulated by the West. The first step for
Moscow should be to closely supervise its banks. Russian companies
should borrow domestically and move to sell their assets abroad. Moscow
should also consider implementing a system of currency controls so the
basic interest rate can be brought down quickly.

And don’t forget that Russia can always deploy a moratorium on debt and
interest, affecting over $600 billion. That would shake the entire
world's banking system to the core. Talk about an undisguised “message”
forcing the US/EU economic warfare to dissolve.

Russia does not need to import any raw materials. Russia can easily
reverse-engineer virtually any imported technology if it needs to. Most
of all, Russia can generate — from the sale of raw materials – enough
credit in US dollars or euros. Russia's sale of its energy wealth — or
sophisticated military gear — may decline. However, they will bring in
the same amount of rubles — as the ruble has also declined.

Replacing imports with domestic Russian manufacturing makes total sense.
There will be an inevitable “adjustment” phase – but that won’t take
long. German car manufacturers, for instance, can no longer sell their
cars in Russia due to the ruble's decline. This means they will have to
relocate their factories to Russia. If they don’t, Asia – from South
Korea to China — will blow them out of the market.

Bear and dragon on the prowl The EU's declaration of economic war
against Russia makes no sense whatsoever. Russia controls, directly or
indirectly, most of the oil and natural gas between Russia and China:
roughly 25% of the world's supply. The Middle East is bound to remain a
mess. Africa is unstable. The EU is doing everything it can to cut
itself off from its most stable supply of hydrocarbons, prompting Moscow
to redirect energy to China and the rest of Asia. What a gift for
Beijing – as it minimizes the alarm about the US Navy playing with
"containment" across the high seas.

Still, an unspoken axiom in Beijing is that the Chinese remain extremely
worried about an Empire of Chaos losing more and more control, and
dictating the stormy terms of the relationship between the EU and
Russia. The bottom line is that Beijing would never allow itself to be
in a position where the US could interfere with China's energy imports –
as was the case with Japan in July 1941 when the US declared war by
imposing an oil embargo, cutting off 92% of Japanese oil imports.

Everyone knows a key plank of China’s spectacular surge in industrial
power was the requirement for manufacturers to produce in China. If
Russia did the same, its economy would be growing at a rate of over 5%
per year in no time. It could grow even more if bank credit was tied
only to productive investment.

Now imagine Russia and China jointly investing in a new gold, oil and
natural resource-backed monetary union as a crucial alternative to the
failed debt "democracy" model pushed by the Masters of the Universe on
Wall Street, the Western central bank cartel, and neoliberal
politicians. They would be showing the Global South that financing
prosperity and improved standards of living by saddling future
generations with debt was never meant to work in the first place.

Until then, a storm will be threatening our very lives – today and
tomorrow. The Masters of the Universe/Washington combo won’t give up
their strategy to make Russia a pariah state cut off from trade, the
transfer of funds, banking and Western credit markets and thus prone to
regime change.

Further on down the road, if all goes according to plan, their target
will be (who else) China. And Beijing knows it. Meanwhile, expect a few
bombshells to shake the EU to its foundations. Time may be running out –
but for the EU, not Russia. Still, the overall trend won’t be altered;
the Empire of Chaos is slowly but surely being squeezed out of Eurasia.

(4) Petras: 6 million Russians died post-1991; Putin must nationalize
Banks and substitute for imports

http://www.globalresearch.ca/russias-vulnerability-to-eu-us-sanctions-and-military-encroachments/5412884

Global Research, November 09, 2014

Region: Russia and FSU

The US-EU sponsored coup in the Ukraine and its conversion from a stable
Russian trading partner, to a devastated EU economic client and NATO
launch pad, as well as the subsequent economic sanctions against Russia
for supporting the Russian ethnic majority in the Donbas region and
Crimea, illustrate the dangerous vulnerability of the Russian economy
and state. The current effort to increase Russia’s national security and
economic viability in the face of these challenges requires a critical
analysis of the policies and structures emerging in the post-Soviet era.

Pillage as Privatization

Over the past quarter century, several trillion dollars worth of public
property in every sector of the Russian economy was illegally
transferred or violently seized by gangster-oligarchs acting through
armed gangs, especially during its ‘transition to capitalism’.

 From 1990 to 1999, over 6 million Russian citizens died prematurely as
a result of the catastrophic collapse of the economy; life expectancy
for males declined from 67 years during the Soviet era to 55 year during
the Yeltsin period. Russia’s GNP declined sixty percent – a historic
first for a country not at war. Following Yeltsin’s violent seizure of
power and his bombing of the Russian parliament, the regime proceeded to
‘prioritize’ the privatization of the economy, selling off the energy,
natural resources, banking, transport and communication sectors at
one-tenth or less of their real value to well-connected cronies and
foreign entities. Armed thugs, organized by emerging oligarchs
“completed” the program of privatization by assaulting, murdering and
threatening rivals. Hundreds of thousands of elderly pensioners were
tossed out of their homes and apartments in a vicious land-grab by
violent property speculators.

US and European academic financial consultants “advised” rival oligarchs
and government ministers on the most “efficient” market techniques for
pillaging the economy, while skimming off lucrative fees and commissions
–fortunes were made for the well-connected. Meanwhile, living standards
collapsed, impoverishing two thirds of Russian households, suicides
quadrupled and deaths from alcoholism, drug addiction, HIV and venereal
diseases became rampant. Syphilis and tuberculosis reached epidemic
proportions – diseases fully controlled during the Soviet era remerged
with the closure of clinics and hospitals.

Of course, the respectable western media celebrated the pillage of
Russia as the transition to “free elections and a free market economy”.
They wrote glowing articles describing the political power and dominance
of gangster oligarchs as the reflection of a rising “liberal democracy”.
The Russian state was thus converted from a global superpower into an
abject client regime penetrated by western intelligence agencies and
unable to govern and enforce its treaties and agreements with Western
powers. The US and EU rapidly displaced Russian influence in Eastern
Europe and quickly snapped up former state-owned industries, the mass
media and financial institutions. Communist and leftist and even
nationalist officials were ousted and replaced by pliant and subservient
‘free market’ pro-NATO politicians.

The US and EU violated every single agreement signed by Gorbachev and
the West: Eastern European regimes became NATO members; West Germany
annexed the East and military bases were expanded right up to Russia’s
borders. Pro-NATO “think tanks” were established and supplied
intelligence and anti-Russian propaganda. Hundreds of NGOs, funded by
the US, operated within Russia as propaganda and organizing instruments
for “subservient” neo-liberal politicians. In the former Soviet Caucuses
and Far East, the West fomented separatist sectarian movements and armed
uprisings, especially in Chechnya; the US sponsored dictators in the
Caucuses and corrupt neo-liberal puppets in Georgia. The Russian state
was colonized and its putative ruler, Boris Yeltsin, often in a drunken
stupor, was propped up and manipulated to scratch out executive fiats .
. . further disintegrating the state and society.

The Yeltsin decade is observed and remembered by the Russian people as a
disaster and by the US-EU, the Russian oligarchs and their followers as
a ‘Golden Age’… of pillage. For the immense majority of Russians it was
the Dark Ages when Russian science and culture were ravaged; world-class
scientists, artists and engineers were starved of incomes and driven to
despair, flight and poverty. For the US, the EU and the oligarchs it was
the era of ‘easy pickings’: economic, cultural and intellectual pillage,
billion dollar fortunes, political impunity, unbridled criminality and
subservience to Western dictates. Agreements with the Russian state were
violated even before the ink was dry. It was the era of the unipolar
US-centered world, the ‘New World Order’ where Washington could
influence and invade nationalist adversaries and Russian allies with
impunity.

The Golden Era of unchallenged world domination became the Western
‘standard’ for judging Russia after Yeltsin. Every domestic and foreign
policy, adopted during the Putin years 2000 – 2014, has been judged by
Washington according to whether it conformed or deviated from the
Yeltsin decade of unchallenged pillage and manipulation.

The Putin Era: State and Economic Reconstruction and EU-US Belligerence

President Putin’s first and foremost task was to end Russia’s collapse
into nothingness. Over time, the state and economy recovered some
semblance of order and legality. The economy began to recover and grow;
employment, wages and living standards, and mortality rates improved.
Trade, investment and financial transactions with the West were
normalized – unadulterated pillage was prosecuted. Russia’s recovery was
viewed by the West with ambiguity: Many legitimate business people and
MNCs welcomed the re-establishment of law and order and the end of
gangsterism; in contrast, policymakers in Washington and Brussels as
well as the vulture capitalists of Wall Street and the City of London
quickly condemned what they termed Putin’s ‘rising authoritarianism’ and
‘statism’, as Russian authorities began to investigate the oligarchs for
tax evasion, large-scale money laundering, the corruption of public
officials and even murder.

Putin’s rise to power coincided with the world-wide commodity boom. The
spectacular rise in the price of Russian oil and gas and metals
(2003-2013) allowed the Russian economy to grow at a rapid rate while
the Russian state increased its regulation of the economy and began to
restore its military. Putin’s success in ending the most egregious forms
of pillage of the Russian economy and re-establishing Russian
sovereignty made him popular with the electorate: he was repeatedly
re-elected by a robust majority.

As Russia distanced itself from the quasi-satellite policies, personnel
and practices of the Yeltsin years, the US and EU launched a multi-prong
hostile political strategy designed to undermine President Putin and
restore pliant Yeltsin-like neo-liberal clones to power. Russian NGOs
funded by US foundations and acting as CIA fronts, organized mass
protests targeting the elected officials. Western-backed ultra-liberal
political parties competed unsuccessfully for national and local
offices. The US-funded Carnegie Center, a notorious propaganda mill,
churned out virulent tracts purporting to describe Putin’s demonic
‘authoritarian’ policies, his ‘persecution’ of dissident oligarchs and
his ‘return’ to a ‘Soviet style command economy’.

While the West sought to restore the ‘Golden Age of Pillage’ via
internal political surrogates, it pursued an aggressive foreign policy
designed to eliminate Russian allies and trading partners, especially in
the Middle East. The US invaded Iraq, murdered Saddam Hussein and the
Baath Party leadership, and established a sectarian puppet regime,
eliminating Moscow’s key secular-nationalist ally in the region. The US
decreed sanctions on Iran, a major lucrative trading partner with
Russia. The US and the EU backed a large-scale armed insurgency to
overthrow President Bashaar Assad in Syria, another Russian ally, and to
deprive the Russian Navy of a friendly port on the Mediterranean. The US
and the EU bombed Libya, a major oil and trade partner of Russia (and
China) hoping to install a pro-Western client regime.

Goading Russia in the Caucasus and on the Black Sea, the US
backed-Georgian regime invaded a Russian protectorate, South Ossetia, in
2008, killing scores of Russian peace keepers and hundreds of civilians,
but was repelled by a furious Russian counter-attack.

In 2014, the Western offensive to isolate, encircle and eventually
undermine any possibility of an independent Russian state went into high
gear. The US financed a civil-military coup ousting the elected regime
of President Viktor Yanukovytch, who had opposed EU annexation and NATO
affiliation. Washington imposed a puppet regime deeply hostile to Russia
and ethnic Russian-Ukrainian citizens in the southeast and Crimea.
Russian opposition to the coup and support for pro-democracy federalists
in the south-east and Crimea served as a pretext for Western sanctions
in an effort to undermine Russia’s oil, banking and manufacturing
sectors and to cripple its economy.

Imperial strategists in Washington and Brussels broke all previous
agreements with the Putin Administration and tried to turn Putin’s
oligarch allies against the Russian president by threatening their
holdings in the West (especially laundered bank accounts and
properties). Russian state oil companies, engaged in joint ventures with
Chevron, Exxon, and Total, were suddenly cut off from Western capital
markets.

The cumulative impact of this decade-long Western offensive culminating
in the current wave of severe sanctions was to provoke a recession in
Russia, to undermine the currency (the ruble declined 23% in 2014),
drive up the cost of imports and hurt local consumers. Russian
industries, dependent on foreign equipment and parts, as well as oil
companies dependent on imported technology for exploiting the Arctic
reserves were made to feel the pain of ‘Putin’s intransigence’.

Despite the short-term successes of the US-EU war against the Russian
economy, the Putin Administration has remained extremely popular among
the Russian electorate, with approval ratings exceeding 80%. This has
relegated Putin’s pro-Western opposition to the dust bin of history.
Nevertheless the Western sanctions policy and the aggressive political –
NATO military encirclement of Russia, has exposed the vulnerabilities of
Moscow.

Russian Vulnerabilities: The Limits of Putin’s Restoration of Russian
Sovereignty

In the aftermath of the Western and Russian oligarch’s pillage of the
Russian economy and the savage degradation of Russian society, President
Putin pursued a complex strategy. [...]

Western Sanctions, Russian Weakness: Rethinking Putin’s Strategic Approach

Western aggressive militarism and the sanctions against Russia exposed
several critical vulnerabilities of Putin’s economic and political
strategy. These include (1) his dependence on Western-oriented ‘economic
oligarchs’ to promote his strategy for Russian economic growth; (2) his
acceptance of most of the privatizations of the Yeltsin era; (3) his
decision to focus on trade with the West, ignoring the China market, (4)
his embrace of a gas and oil export strategy instead of developing a
diversified economy; (5) his dependence on his allied robber-baron
oligarchs – with no real experience in developing industry, no true
financial skills, scant technological expertise and no concept of
marketing – to restore and run the peak manufacturing sector. In
contrast to the Chinese, the Russian oligarchs have been totally
dependent on Western markets, finance and technology and have done
little to develop domestic markets, implement self-financing by
re-investing their profits or upgrade productivity via Russian
technology and research.

In the face of Western sanctions Putin’s leading oligarch-allies are his
weakest link in formulating an effective response. They press Putin to
give in to Washington as they plead with Western banks to have their
properties and accounts exempt from the sanctions. They are desperate to
protect their assets in London and New York. In a word, they are
desperate for President Putin to abandon the freedom fighters in
southeast Ukraine and cut a deal with the Kiev junta. [...]

The so-called Russian “capitalist” rentiers stand in sharp contrast to
the dynamic Chinese public and private entrepreneurs – who borrowed
overseas technology from the US, Japan, Taiwan and Germany, adapted and
improved on the technology and are producing advanced highly competitive
products. When the US-EU sanctions came into force, Russian industry
found itself unprepared to substitute local production and President
Putin had to arrange trade and import agreements with China and other
sources for inputs. [...]

Though Russia is vulnerable, it is not without resources and capacity to
resist, defend its national security and advance its economy.

Conclusion: What is to be Done?

First and foremost Russia must diversify its economy; it must
industrialize its raw materials and invest heavily in substituting local
production for Western imports. While shifting its trade to China is a
positive step, it must not replicate the previous commodities (oil and
gas) for manufactured goods trading pattern of the past.

Secondly, Russia must re-nationalize its banking, foreign trade and
strategic industries, ending the dubious political and economic
loyalties and rentier behavior of the current dysfunctional private
‘capitalist’ class. The Putin Administration must shift from oligarchs
to technocrats, from rentiers to entrepreneurs, from speculators who
earn in Russia and invest in the West to workers co-participation– in a
word it must deepen the national, public, and productive character of
the economy. It is not enough to claim that oligarchs who remain in
Russia and declare loyalty to the Putin Administration are legitimate
economic agents. They have generally disinvested from Russia,
transferred their wealth abroad and have questioned legitimate state
authority under pressure from Western sanctions.

Russia needs a new economic and political revolution - in which the
government recognizes the West as an imperial threat and in which it
counts on the organized Russian working class and not on dubious
oligarchs. The Putin Administration has pulled Russia from the abyss and
has instilled dignity and self-respect among Russians at home and abroad
by standing up to Western aggression in the Ukraine. From this point on,
President Putin needs to move forward and dismantle the entire Yeltsin
klepto-state and economy and re-industrialize, diversify and develop its
own high technology for a diversified economy.

And above all Russia needs to create new democratic, popular forms of
democracy to sustain the transition to a secure, anti-imperialist and
sovereign state. President Putin has the backing of the vast majority of
Russian people; he has the scientific and professional cadre; he has
allies in China and among the BRICs; and he has the will and the power
to “do the right thing”.

The question remains whether Putin will succeed in this historical
mission or whether, out of fear and indecision, he will capitulate
before the threats of a dangerous and decaying West.

(5) Putin lets 'independent' Central Bank create recession to stem Ruble
fall

http://www.businessinsider.com.au/r-putin-stands-by-hawkish-russian-central-bank---for-now-2014-11

Putin has been Hands-Off on the Russian Central Bank's
Recession-Inducing Policies

NOV 24, 2014, 11:30 AM

LIDIA KELLY, OKSANA KOBZEVA

MOSCOW (Reuters) – With Russia’s economy battered by economic sanctions
and plunging oil prices, President Vladimir Putin has allowed the
central bank to administer strong medicine, sharply raising interest
rates even as it freed the rouble to float.

Such tough measures may well help push the country deeper into recession
next year, but have so far staved off financial panic, runaway inflation
or a currency meltdown like the one that helped catapult Putin into
power in the 1990s.

Those who follow the central bank say the hawkish moves are a result of
Putin, known for closely managing Russia’s machinery of power, giving
the bank’s technocrats free rein.

“There is ongoing criticism of the central bank and of the whole
government being Putin’s lap dog,” said a high-ranked government source.
“But all things considered, the central bank is now much more autonomous
than it is broadly perceived.”

The high interest rates will hurt. The European Bank for Reconstruction
and Development says recession is certain, predicting 0.2 per cent
contraction for the full year of 2015.

Politicians have grumbled. Economy Minister Alexei Ulyukayev sent a
letter to the Kremlin in the summer urging greater “cooperation” between
the bank and the government, viewed as a plea for looser policy.

“There is a tension between the government and the central bank as
regards growth. The effect of these stabilisation policies is going to
be to deepen the recession,” said Christopher Granville, managing
director of London-based consultancy Trusted Sources.

Putin himself has complained about high borrowing costs. But so far, he
seems to trust the hawkish instincts at the bank.

“What the central bank is doing is in line with what the leadership
wants, in a strategic way,” said Granville. “Stability is the absolute
top priority, rather than avoiding negative growth at all costs.”

Still, there is always a chance that Putin can change his approach.
Remarks he made on Tuesday hinted as much. Speaking to Finance Minister
Anton Siluanov, he called for “teamwork between the central bank and the
government”.

OBSESSION

Exchange rates are an obsession for Russians since the 1990s, when
hyperinflation after the fall of the Soviet Union wiped out the
financial system, destroyed savings and brought the economy to its knees.

A second currency collapse and default in 1998 propelled Putin into
power the following year, and a stable rouble has been one of the most
prized achievements of his rule ever since.

Putin himself makes much of the central bank’s independence.

“We – from the executive power level – do not meddle in the policy of
the central bank,” he said this month when meeting IMF head Christine
Lagarde. “The central bank, in accordance with the law, conducts an
independent policy. But of course we look carefully at what is happening.”

In an emailed comment, the bank said its independence, “one of the
fundamental principles in understanding of monetary policy”, was
enshrined in the constitution.

Some of Putin’s critics say he keeps out of monetary policy because he
feels insecure about an area outside his expertise.

“The central bank of Russia is the most independent institution in
modern Russia,” said Sergei Aleksashenko, a former deputy central bank
governor and critic of the president.

“That originates from Mr Putin’s inability to understand how monetary
authorities operate. He understands the importance and influence of the
central bank but is afraid to influence it in a strong manner.”

GEEKS IN GLASSES

Unlike at some ministries and top companies, the bank’s management does
not include any of Putin’s powerful old friends.

“It’s just a bunch of glasses-wearing geeks; you can argue more or less
competent, but geeks,” said the high-ranked government source.

Putin has put his trust in the bank’s governor Elvira Nabiullina, 51, at
the bank’s helm for 17 months after serving Putin for years as economic
advisor and cabinet minister.

“She has turned out to be stronger than expected as the central bank
governor,” said Anders Aslund, senior fellow at the Peterson Institute
for International Economics in Washington.

Nabiullina, in turn, has put monetary policy in the hands of Ksenia
Yudayeva, a U.S. trained economist regarded as one of the brightest in
the country.

The rouble stability of the Putin years has been underwritten by vast
currency reserves earned from selling oil and gas. But when oil prices
fell and sanctions were imposed over the Ukraine crisis this year, even
Russia’s $US420 billion war chest showed its limits.

After spending $US30 billion supporting the currency in a single month,
Nabiullina brought forward long-awaited plans to float the rouble,
abandoning efforts to keep the exchange rate within an official band.

On the morning of Nov. 10, when it was announced, even the heads of the
bank’s departments were taken by surprise, sources said, emphasising
Nabiullina’s ability to prevent leaks.

Before she cut the rouble loose, Nabiullina sharply hiked interest rates
to ensure that savers would hold rubles and prevent a panicked flight,
like the one that hit in 1998.

The rouble is still some 29 per cent down against the dollar, but has
rallied in recent days. Earlier this week, Nabiullina stoically defended
the decision to float the currency.

“It is absolutely impossible to control the exchange rate … in the
current economic conditions that the Russian economy is now in, by
keeping its dependency on the price of oil,” she told lawmakers in
parliament.

(Addtional reporting by Alexei Anishchuk, Elena Fabrichnaya and Jason
Bush, Writing by Lidia Kelly; Editing by Jason Bush, Timothy Heritage
and Peter Graff)

(6) US instructs Russian Central Bank to strangle Russian economy

http://english.pravda.ru/russia/economics/30-12-2014/129431-usa_russia_central_bank-0/

USA instructs Russian Central Bank how to strangle Russian economy

30.12.2014

Russia is a dollar country

The Central Bank of the Russian Federation does not have to support the
Russian economy. There is no paragraph in the Constitution of the
Russian Federation (written during the 1990s) that would tell the
Central Bank to act so. For what purpose did the Central Bank set the
Russian ruble free? Pravda.Ru asked expert opinion from State Duma
deputy Yevgeny Fyodorov.

"All countries of the world are divided into two large groups. One group
is called developed countries, and the other group - developing, or
underdeveloped countries, better to say. In the past, underdeveloped
countries were called colonies. Economies of all developed countries
have one common feature - low interest rates. This is a key point. All
underdeveloped countries - there are 90 percent of such countries in the
world - have very high interest rates. The essence of high interest
rates, including in Russia, is not to allow national currency onto
national market. In order to let the Central Bank issue rubles in
Russia, so that we could go to stores to spend them, the Central Bank
needs to buy US dollars first. This rule is common for underdeveloped
countries.

"The Russian Constitution says that the ruble should keep up rates. To
this end, the Central Bank should keep up rates too, and the Central
Bank has foreign exchange reserves for the purpose - $450 billion to
date. This amount exceeds cash ruble assets 2,5 times.

"In other words, Russia is not even a ruble country de jure. Russia is a
dollar country. The Russian ruble takes a small share in the country.
The whole segment of investment is based on dollars and euros. The
Constitution protects that, and the Central Bank of the country should
keep the rate. Now, we have the situation when the Central Bank does not
abide by the Constitution, because it raised the key rate and reduced
the ruble rate. From the point of view of the Constitution, the Central
Bank is obliged to keep the rate. The Central Bank violated the
Constitution and Putin's numerous instructions, but it was an absolutely
logical move. The charter of the Central Bank does not contain a word
about the Russian economy. It should not support the Russian economy.
The law says that the Central Bank is governed by international
agreements. The bank signs agreements that the Ministry of Justice does
not even register. The administration of the Russian Central Bank is
based outside Russia.

"There is no other central bank in the world that would not be allowed
to support the national economy. The Russian Central Bank is the only
exception. This is a specific peculiarity of the Russian Central Bank.
The law even says that the bank is a branch of foreign companies in
Russia. For example, the Russian Central Bank is a depositary of the
IMF. The law of the Central Bank does not have a word about the Russian
economy. Yet, it contains detailed instructions on how to follow and
execute instructions from abroad. The law was made during the 1990s.
Putin tried to amend it in the 2000s, but it did not work out. As a
result, the Central Bank of the Russian Federation works for a foreign
country under the Russian Constitution. This state imposes sanctions on
Russia. The Russian Central Bank is obliged to execute instructions from
the USA - the Americans set an official task to weaken the Russian economy.

"All of us - the people, the government, the Central Bank, the
government, MPs - we all work on the basis of the Constitution and laws.
Our laws say that we have no sovereignty. The Central Bank works for a
foreign country - this is an official norm of the Constitution.

"If you have low interest rates in developed countries, free rate works
for you. If you have high interest rates, as in underdeveloped
countries, free rate works against you. The free rate is good when you
have a free country. When a country is a colony with high stakes, then
the free rate, on the contrary, is pumping money out of the country.

"All our factories were built on foreign loans. If you want to build
something, you have to raise a loan in a bank. Tractors, processing,
refrigerators, logistics - everything is on loan.

"Naturally, all of this is connected to the ruble exchange rate, which
the Central Bank refused to keep. The mechanism of price growth works
through the credit system. The government, no matter how good or bad it
could be, can show five or ten percent of its influence on economy.
Ninety percent of influence on economy of any country is about the
fiscal policy that state banks determine. A government is a regulator
and a little bit a budget. The changing rate of the Central Bank stops
financial flows that move economic life."

Interview conducted by Inna Novikova

(7) Russia's central bankers are Western-trained
https://www.facebook.com/vladislav.krasnov/posts/763525553685249

Vladislav Krasnov

19 December 2014 at 11:09 ·

Russians must break ties with Dollar before the Dollar breaks Russia

by James "Russia" Analyst

A Eurasian Bretton Woods-Style Peg of the Ruble to the Yuan is Now a
Matter of Political Survival for Putin

Many Rogue Money.net readers are probably wondering what the Russia
Analyst has been doing since the ruble crisis hit the Russian Central
Bank's breaking point on Monday. Like the rest of the Rogue Money team
of contributors, we've been closely following events and looking at the
views of some very smart people on what happens next after the Russian
Central Bank radically hiked interest rates -- and apparently failed --
to stop the panic over the ruble.

When confronted with an onslaught of both negative news for friends
still living in Russia, and Orwellian, gloating propaganda designed to
make any notion of resisting King Dollar (by which the media really
means King private Federal Reserve)'s full spectrum dominance seem
absurd, it's easy to get angry. We are only human, as is everyone now
making critical decisions with the economic survival of Russia and
Europe at stake, in the growing shadow of a Third World War.

Yet what is needed now more than ever is dispassionate analysis, or
coolness under fire. As Michael Corleone said in The Godfather III,
"Never hate your enemies. It clouds your judgement". In other words,
Putin isn't getting mad, he's getting ready to get even. Or at least to
remind the West that all-out currency wars can become painful for
Western markets and currencies. Like a massive minefield or ammo dump,
all it takes is one small sapper's spark and the West's financial
"weapons of mass destruction" known as derivatives can blow sky high.

The Russian James Dean who died far too young, Sergey Bodrov Jr. said in
the 2000 crime film "Brat 2" known to every Russian over 15 and under
45, "American, what's your power? Is it really money? My brother says
it's money. You have a lot of money -- so what? Truth is real power.
Whoever is in the right is strong. You cheated a man and took his money.
Did it make you stronger? No, it didn't. Because you are not right. And
the person you cheated is. That means he's stronger."

Today our duty is to speak the truth, however unpleasant it may be for
all of us regardless of nationality who long for a just system of
weights and measures to replace the dying fiat order -- which includes
the dying fiat currencies of the former Soviet Union. In short, the
currency war just went from a conventional fight to the nuclear level --
and it will be very difficult to prevent the monetary hostilities from
becoming an actual shooting war.

- James "Russia" Analyst

In surveying the wreckage of the Russian Central Bank's weak attempts to
save the ruble from all out assault by Western governments and the
Anglo-American Atlanticist banking cartel, one is tempted to despair.
Modern monetary theories, learned during the 1980s perestroika era from
Western academics by Russia's Western-trained central bankers such as
CBRF chairwoman Elvira Nabiullina, have proven grossly inadequate for
conditions since 2008. As some 'patriot' or 'Eurasian sovereigntist'
economists like Vladimir Putin's informal advisor Sergey Glazyev says,
conventional monetarism is stupid to the point of being suicidal in an
all-out currency war with the West.

According to a trained economist source who writes anonymously for the
Vineyard of the Saker blog, the Russian Central Bank's hiking rates to
17% to stop overnight bets on the dollar continuing to appreciate
against the ruble was a textbook move straight out of Fed Chairman Paul
Volcker's early 1980s playbook to stop rampant US inflation.This was the
observation of the Guerrilla Economist's friend Michael Rosecliff who
tweeted it @ArcLightInst even before I replied with a link to the blog
post by 'Diogenes' about Russians copying American strategies for a
radically different situation, namely one of peacetime versus wartime.
Make no mistake about it, Russia is at war, just not yet in a hot one.

In the early 1980s, as many RogueMoney.net readers over 45 may recall,
oil prices were high and this along with Fed money printing to fund the
Vietnam War and the Great Society government spending had left the
dollar severely devalued. Volcker's rate hikes triggered a severe
recession that peaked in 1982, with most Americans unable to purchase
homes at 15 to 20% interest rates. The Russia Analyst's sources in
Moscow, incidentally, told him early Wednesday morning that many
Russians are suddenly facing interest rate hikes on their home
mortgages. Meaning that much like the US victims of so-called ARM's or
adjustable rate mortgages that blew up in 2007-2008, Russian borrowers
face sudden unaffordable spikes in their monthly payments even as their
purchasing power is being hurt badly or their salaries are being cut
(wage cuts have already been in effect across Russia since 2009).
Presumably the same meltdown is also occurring in auto loans, with
Russian repo men likely to be busy in Moscow and St. Petersburg's more
affluent neighborhoods in the next few months. How this can fail to
impact Europe's largest car market, principally German automobiles and
Germany's estimated 400,000 jobs linked to trade with Russia, is beyond us.

For now all that matters is waging Cold War 2.0 -- Washington can cope
with angry jobless Germans joining PEGIDA and other anti-Brussels
movements of the 'Right' and 'Left' among its Euro-vassals later. The
arrest and expulsion of an Italian politician for being 'too
pro-Russian' by Washington's vassals in Estonia is a precedent quietly
set this week that may be cited later. It also speaks volumes about
Washington's own paranoia that 'Colored Revolutions' may not remain a
one-way street for long as Moscow decides to fight back with
full-spectrum ideological and economic warfare in places like Greece or
the Balkans (more on that later).

Washington's National Endowment for Democracy, International Republican
Institute, Open Society and State Department paper pushers are about to
find out Colored Revolutions aren't a one way street... Washington's
National Endowment for Democracy, International Republican Institute,
Open Society and State Department paper pushers are about to find out
Colored Revolutions aren't a one way street...

On Wednesday Zerohedge reported that Russian food suppliers had
temporarily interrupted deliveries to some stores due to uncertainty
about currency risk, and that imported alcoholic beverage shippers were
paralyzed by the surge of currency risk. While recent Reuters and
Business Insider reports about a shortage of Russia's basic staple
buckwheat or gretchka were likely US government-produced disinformation
designed to create panic, this problem is very real. As are the layoffs
Gazprom has announced this week of up to 25% of its work force,
representing the largest single corporation in the country by
employment. Whether he wants to act or not, Putin is being forced to
institute capital controls to stop the panic. Malaysian-style capital
controls are what the smart money guys in Moscow expect Putin to
announce in today's press conference.

With ruble devaluations reaching levels as high as 10% overnight into
Tuesday, Western mainstream media editorials can scarcely contain their
schadenfreude. It seem as if several journalists, or even entire
publications such as The Washington Post (known among Russia watchers as
Pravda on the Potomac) took Russia's return of Crimea to the fold as
personal humiliation, and not just a shock to Washington, Brussels, and
their client state in Kiev.

This week they proclaim that they have their revenge -- Russia, as a
notorious May 1, 2001 Atlantic Monthly cover boldly proclaimed, is
finished. At least economically. Just in case you had any doubts that
the current economic breakdown of Russia doesn't constitute wish
fulfillment or that Western dreams about a breakup of the Russian
Federation only began as the result of Putin's 'aggressive foreign
policies' or 'anti-LGBT' posture. In 1997, if you recall, former US
National Security Advisor Zgniew Brzezinski wrote in his book The Grand
Chessboard that Russia must never again be allowed to rise as a great
power in Eurasia and that without Ukraine, Russia could never be an
empire. The Z. Big line ended up being regurgitated by numerous
politicians including then Secretary of State Hillary Clinton, showing
Council on Foreign Relations emeritus and Trilateral Commission
co-founder Brzezinski is far from just a harmless old man with a
daughter who hosts a soon to be cancelled program on MSNBC.

In the autumn of 2001, shortly after the Atlantic cover story
proclaiming Russia's demographic and geopolitical demise was published,
Putin was America's friend and the first world leader to offer President
George W. Bush overflight rights to bomb Afghanistan after 9/11. Putin
was repaid for his help against the Taliban with Colored Revolutions,
American bases popping up all over central Eurasia and a massive
expansion of US military aid to the Republic of Georgia that culminated
in the 08/08/08 war between Moscow and Tblisi. [...]

Beijing's leaders are probably thanking their lucky 'Mandate of Heaven'
stars that the yuan, unlike the ruble, is not yet a fully, freely
convertible currency. However the very nonconvertible nature of the yuan
also means that Russians cannot go obtain 'redbacks' rather than
'greenbacks' or 'bluebacks' if they wish to protect their savings. Thus
Washington gets to gloat about many Russians turning to dollars as they
or their parents did during the 1990s, when the dollar was far more
solid than it is today. [...]

What about the oil price collapse? Is it adequate to explain the rout of
the ruble? Not according to Goldman Sachs, which ZeroHedge reports said
the ruble had been oversold compared to the likely floor crude will
settle at of $45-$50 a barrel this winter. Not only did the ruble not
experience such losses in 2008-2009 when oil briefly reached $35 a
barrel (though Russia's foreign currency reserves suffered substantially
then as now), but the share of the Russian economy made up by oil and
gas, according to Finnish attorney and economic researcher Jon Hellevig,
has been highly exaggerated. Even with substantial military spending,
civil servant salaries and pension obligations, the Russian State has
almost no sovereign debt. All of the former debts dating back to the
Soviet era, were wiped out by the last major ruble crisis of 1998-99.
Russia has probably one of the lowest government debt to GDP ratios of
any industrialized nation,while her adversaries -- what V likes to call
'the insolvent Seven' of the G7 -- are drowning in government debt that
they're all desperately trying to monetize into oblivion. The kamikazes
at the Bank of Japan are leading the way as all Western fiat currencies
circle the toilet bowl together. By the way, isn't it interesting how
Russia's ruble meltdown distracts Westerners from the fact that the
currency of the world's 3rd largest economy and 2nd largest bond market
has been devalued with far greater consequences to the global economy
than trouble over the ruble? [...]

China is sitting on $1 trillion in US Treasuries and is looking for any
worthwhile way to unload them without crashing the dollar just yet. A
Chinese-led BRICS bailout of the Russian corporate debt led by Gazprom,
Gazpromneft and Rosneft with China acquiring major equity stakes and
yuan-denominated bonds Russia will repay to Beijing, thus recycling
Chinese yuan payments for energy appears to be a win-win. The only
downside for Putin is having to face Western and Russian 5th columnist
propaganda about 'Putin made us a Chinese colony' or 'Putin sold our
patrimony out to Beijing'. This propaganda is already anticipated in
Walter Russell Mead's warning to fellow Washingtonians that Putin will
turn East rather than surrender to the sanctions regime, knowing
surrender means the end of his political career if not life.

In reality, Russia will be no more enslaved to China by using yuan
Chinese pay for oil and gas to pay down debts as it is to Washington
today using dollars to settle debts and fund drilling and exploration.
Converting $50 billion of Chinese US Treasuries into payments to Russian
dollar and euro-denominated lenders also has the virtuous upshot of not
screwing over the biggest lenders to Russia in Europe, which are the
French, Austrian and Italian banks -- the very EU states Russia hopes
can sabotage further European Union sanctions against Moscow. These are
also, along with the Serbs, the European countries China is wooing with
its announcement this week of a multi-billion dollar infrastructure fund
to expand freight railways between Budapest and Athens' Piraeus, the
busiest port on the Mediterranean.

Highly recommended reading: "The Bankster International" by Mark Hackard

For Mother Russia, It's Better to Pay Tribute to the East than to Lose
Her Sovereignty and Soul to the West

Russia has faced an 'East versus West, to be or not to be' existential
choice before -- and the historical lesson cannot be lost on Vladimir
Putin or his reported Orthodox Christian priest confessor, Abbot Tikhon
Shekhunov. Under the Grand Prince Alexander Nevsky, now regarded as a
saint in the Russian Orthodox Church, the Rus confederation of cities
were faced with military invasions from both the Catholic crusader
Teutonic Knights, serving the Pope, Swedish invaders from the northwest,
and Mongols overrunning Russia from the vast Eurasian steppe. Knowing
that if Russia tried to resist all comers she would be crushed, Nevsky
prayed to God for wisdom according to the Russian Church's teaching.
Remembering Jesus Christ's commandment, "Render unto Caesar the things
that are Caesar's, and the things that are God's unto God" the Grand
Prince of Novgorod decided that he must resist the Western invaders
first, as they sought the conversion of Russian Orthodox Christians by
the sword, over the Mongols, who merely desired tribute. The result was
the famous Battle of the Ice where the Russians massacred the Teutonic
knight invaders and their Estonian allies, many of whom sank beneath the
broken ice of Lake Peipus. The medieval battle was a metaphor that the
Russian director Sergey Eisenstein used in his masterpiece film
Alexander Nevsky, commissioned by Stalin to warn the Russian people
about the looming threat of a Nazi invason in the late 1930s. Scenes
from Alexander Nevsky were included in the 1943 WWII propaganda film by
Frank Capra -- director of "Its a Wonderful Life" starring Jimmy Stewart
which is played on NBC every Christmas -- shown to millions of Americans
when the USA and USSR were allies against Hitler. What the film's
narrator said about conquerors coveting Russian natural resources is as
true today as it was then.

Why We Fight: The Battle for Russia 1943

In many respects, Putin this week faces a choice not that different from
what Alexander Nevsky faced -- submit to financial subjugation and
slavery to the globalists, or take the risks associated with heavy
dependence on Chinese financing to get Russia through this crisis.
However difficult it may prove for Putin, from where the Russia Analyst
sits here in the USA, it's a no-brainer.

Historically Russia Can Retreat a Long Way, But Russian Counterattacks
Can Destroy the Attacker [...]

(8) Merkel offers Free Trade in return for Subservience
http://www.strategic-culture.org/news/2015/01/26/merkel-as-soft-cop-in-false-flag-offensive-on-russia.html

Merkel as Soft Cop in False Flag Offensive on Russia

Finian CUNNINGHAM | 26.01.2015 | 10:12

At the World Economic Forum last week, German Chancellor Angela Merkel
let the cat out of the bag with her sly offer, or rather bribe, to
Russia. The German leader told delegates in Davos that European Union
sanctions on Russia would be lifted in exchange for a «peace deal» in
Ukraine. She promised a «free trade pact from Lisbon to Vladivostok».

That’s a bit rich coming from the bankrupt EU, but nevertheless let’s
accept the assumption that Frau Merkel is offering something very juicy.
Why would she do that, and right at this time when civilians are being
massacred in eastern Ukraine?

In other words, Merkel is saying if Moscow capitulates to Western
objectives of ceding Ukraine to its full political, economic and
military control, then Russia will be «paid off» with respite from
Western sanctions and can look forward to a tantalising free trade
«happy ending» with the EU. How generous of Frau Merkel!

The Russian-speaking population of Ukraine’s eastern Donbas regions will
then be abandoned to their fate of accepting the legitimacy of the
Western-installed Kiev regime. [...]

(9) Russia defiant after more threats from West over Ukraine

http://news.yahoo.com/russian-ruble-tumbles-violent-weekend-east-ukraine-084839752--finance.html

By VLADIMIR ISACHENKOV

January 26, 2015

MOSCOW (AP) — A defiant President Vladimir Putin on Monday called the
Ukrainian army a "NATO foreign legion," reflecting his readiness to
stand up to the West regardless of rising economic costs, as Standard &
Poor's rating agency downgraded Russia's credit rating to junk.

While the Russian ruble tumbled further on the news of the downgrade,
Putin's spokesman shrugged off the Western threat of more sanctions as
"short-sighted."

The Kremlin's uncompromising stance is rooted in its desire to prevent
Ukraine from ever joining NATO by securing a broad autonomy for the
rebellious provinces in the east. To avoid being called a party to the
conflict, as Ukraine and the West see it, Russia is pushing the
Ukrainian government to speak directly to the rebels.

The latest rebel offensive, which involved the deadly shelling of a
strategic port city of Mariupol over the weekend, appeared aimed at
pressuring Kiev into such talks.

Speaking to students in St. Petersburg, Putin said the Ukrainian
leadership was to blame for the upsurge in violence and accused it of
using civilians as "cannon fodder" in the conflict.

"(Ukraine's army) is not even an army, it's a foreign legion, in this
case a NATO foreign legion," Putin said, adding that it's serving the
goal of "the geopolitical containment of Russia, which absolutely don't
coincide with the national interests of the Ukrainian people."

NATO Secretary General Jens Stoltenberg dismissed the claim and accused
Russia of sending large numbers of heavy weapons to the rebels. "We have
seen a substantial increase in the flow of equipment from Russia to the
separatists in Ukraine," he said.

A Russian envoy at the 57-nation Organization for Security and
Cooperation in Europe rejected those claims, arguing that the rebels are
using old Soviet-era weapons they seized from the Ukrainian arsenals.

Andrey Kelin, who spoke after the OSCE called a special session on the
uptick in fighting, said the rebels are using "very old Soviet
equipment" dating back to the mid-1960s.

Ever since the separatist rebellion in eastern Ukraine flared up in
April following Moscow's annexation of Crimea, Russia has denied Western
accusations that it has backed the insurgents with troops and weapons.

But even though Ukrainian troops and the rebels use the same types of
Soviet-built arms, the sheer number of heavy weapons in the rebels'
possession has been seen in the West as a proof of Moscow's involvement
in the conflict. [...]