Putin Capitalism

February 25, 2009 Global Economy, Politics No Comments

We have truly entered into the world of “Putin Capitalism”. As we delve deeper into Premier Putin’s Davos speech, it is clear that we have entered the world of “Putin Capitalism“.

“Putin Capitalism” may be the wave of the future for capitalist societies since the the U.S. seems determined to turn back the clock and retry Soviet style Marxist Socialism. What goes around comes around. It is a pity that the country with the most freedom in the world would voluntarily vote in a Marxist Socialist president and run down the path to serfdom and slavery in the name of “change”. Stranger things have happened, but I for one don’t like the direction that we are headed in. With this in mind, I think it is time to take a closer look at what Prime Minister Putin said to the world at Davos earlier this year.

Putin’s primary theme was a proposal of a new many polar-ed world, where power is shared by many and does not present a threat to any nation. “Why can’t we all get along?” comes to mind. That would be in my mind, not in Putin’s. When systems are in turmoil, details are left to the storm troopers. The eloquent spokes people deal in generalities only, leaving the gruesome details to the more violent and angry members of the mob. In his Davos speech Prime Minister Putin laid out the blueprint for the new world order. This is not the New World Order of the conspiracy theorists, but rather the new world order which he feels will come out of the current financial debacle.

Introducing The "New World Order" Of Putin Capitalism

At Davos, Putin stood up and made his case for the end game of the financial crisis on the global economy. With incredible KGB flair, he pronounced the U.S. dollar system to be dead.

“In our opinion, the crisis was brought about by a combination of several factors.
The existing financial system has failed. Substandard regulation has contributed to the crisis, failing to duly heed tremendous risks.

Add to this colossal disproportions that have accumulated over the last few years. This primarily concerns disproportions between the scale of financial operations and the fundamental value of assets, as well as those between the increased burden on international loans and the sources of their collateral. The entire economic growth system, where one regional center prints money without respite and consumes material wealth, while another regional center manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback.

I would like to add that this system has left entire regions, including Europe, on the outskirts of global economic processes and has prevented them from adopting key economic and financial decisions. Moreover, generated prosperity was distributed extremely unevenly among various population strata. This applies to differences between social strata in certain countries, including highly developed ones. And it equally applies to gaps between countries and regions.

A considerable share of the world’s population still cannot afford comfortable housing, education and quality health care. Even a global recovery posted in the last few years has failed to radically change this situation.

And, finally, this crisis was brought about by excessive expectations. Corporate appetites with regard to constantly growing demand swelled unjustifiably. The race between stock market indices and capitalization began to overshadow rising labor productivity and real-life corporate effectiveness.

Unfortunately, excessive expectations were not only typical of the business community. They set the pace for rapidly growing personal consumption standards, primarily in the industrial world. We must openly admit that such growth was not backed by a real potential. This amounted to unearned wealth, a loan that will have to be repaid by future generations. This pyramid of expectations would have collapsed sooner or later. In fact, this is happening right before our eyes.”

The bottom line from this section represents two distinctly different political camps. Putin portrays a political philosophy that is pursuing a more equitable accounting in commerce and banking with diverse centers of power, while his counter part in the U.S. pursues greater concentrated power, and more government control. This is an odd thing to say as an American, but I can clearly see the shift. Things are changing and it does no one any good to ignore the shift in ideologies. Adapt or die!

“Excessive dependence on a single reserve currency is dangerous for the global economy. Consequently, it would be sensible to encourage the objective process of creating several strong reserve currencies in the future. It is high time we launched a detailed discussion of methods to facilitate a smooth and irreversible switchover to the new model. Most nations convert their international reserves into foreign currencies and must therefore be convinced that they are reliable. Those issuing reserve and accounting currencies are objectively interested in their use by other states. This highlights mutual interests and interdependence.

Consequently, it is important that reserve currency issuers must implement more open monetary policies. Moreover, these nations must pledge to abide by internationally recognised rules of macroeconomic and financial discipline. In our opinion, this demand is not excessive. At the same time, the global financial system is not the only element in need of reforms. We are facing a much broader range of problems.

This means that a system based on cooperation between several major centers must replace the obsolete unipolar world concept.”

In this section Putin clearly questions the U.S. dollar’s role as a global reserve currency. He stated that the dollar is no longer viable as a reserve currency and is a threat to global financial well being. Globalization is definitely a major contributor to the financial crisis with the U.S. and the U.K. on the point, but the P.I.I.G. (Portugal/Spain, Ireland, Italy and Greece) nations are soon to fall into the abyss. Germany, Russia, and China are all suffering from the collapse of the banking system.

In essence Putin is saying that huge U.S. and U.K. banking sectors are insolvent. Putin directly attacked the U. S. for printing money with out care for the consequences to the global economy. He further urged global leaders not merely to treat the symptoms of the financial crisis, but rather to work toward serious systemic reform which would solve the current problem and prevent it from reoccurring again. In this speech at Davos, Putin was demonstrating leadership and experience, something that the U.S. has little of at this time.

Putin warned the West about putting faith in the power of the government. He also warned that the reckless growth of budget deficits and debt is destructive. Where is the Putin of U.S. politics? He sounds like Reagan. The former head of the KGB of the Soviet Union is telling the U.S. to move toward free enterprise and capitalism while the U.S. is plunging head long into socialism and fascism. Beam me up Scotty, I’ve seen it all!

“Naturally, all national governments and business leaders must take resolute actions. Nevertheless, it is important to avoid making decisions, even in such force majeure circumstances, that we will regret in the future. This is why I would first like to mention specific measures which should be avoided and which will not be implemented by Russia.

We must not revert to isolationism and unrestrained economic egotism. The leaders of the worlds largest economies agreed during the November 2008 G20 summit not to create barriers hindering global trade and capital flows. Russia shares these principles. Although additional protectionism will prove inevitable during the crisis, all of us must display a sense of proportion. Excessive intervention in economic activity and blind faith in the state’s omnipotence is another possible mistake.

True, the state’s increased role in times of crisis is a natural reaction to market setbacks. Instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent. The concentration of surplus assets in the hands of the state is a negative aspect of anti-crisis measures in virtually every nation.

In the 20th century, the Soviet Union made the state’s role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.

Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.

And one more point: anti-crisis measures should not escalate into financial populism and a refusal to implement responsible macroeconomic policies. The unjustified swelling of the budgetary deficit and the accumulation of public debts are just as destructive as adventurous stock-jobbing.”

President Obama should seek counsel from Vladimir Putin. He has seen a state controlled economy and he did he did not like what he saw. The more I look at this speech, the more my head spins. Unless it is total Marxist propaganda, which I seriously doubt at this point, Putin is offering good, although self serving, advice to the U.S. Maybe it is high time that we listen to someone with experience in this arena!

Till next time, good luck and good trading!