Putin On Capitalism and the Financial Crisis

February 18, 2009 Global Economy, Physical Gold, Politics No Comments

Prime Minister Vladimir Putin on Capitalism and the Financial Crisis. Putin sounds like anything but and ex KGB head as he speaks at Davos on Capitalism and the Financial Crisis.

The DOW is up slightly today as we digest the great mortgage bailout package. President Obama spoke correctly yesterday when he said that the signing of the “stimulus” bill was “the beginning of the end”. I bet that he wishes he could have taken that phrasing back, but then who’s listening anyway.

The Dow is up 2.63 at 7,555, the NAS is up 5.44 at 1,476, the lighter than air dollar is up .192 (.25%) at 87.99 (I guess the laws of economics have been reversed, the more money you print, the more valuable it gets) and gold continues up, gaining $7.10 at $976.70. Gold is maintaining it’s position as the canary in the mine shaft. While the markets are enveloped in the smoke and mirrors, gold continues to gain as it is points towards more financial turmoil ahead.

Putin on Capitalism and the Financial Crisis!

Today I would like to spend a little time looking at Vladimir Putin’s take on the financial crisis. These quotes are from the latest Davos Summit meeting and they are pretty amazing when you consider who is making them.

In the last few months, virtually every speech on this subject started with criticism of the United States. But I will do nothing of the kind.

I just want to remind you that, just a year ago, American delegates speaking from this rostrum emphasized the US economy’s fundamental stability and its cloudless prospects. Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism.

The existing financial system has failed. Substandard regulation has contributed to the crisis, failing to duly heed tremendous risks.

Barney Frank and Chris Dodd among others should listen to these words because Putin is speaking to them. Their manipulation of the lending practices of Fannie Mae and Freddie Mac are directly responsible for the housing bubble that was a central cause of the current financial crisis that we are in. Government force changed the lending practices, the mission, of those two mortgage giants and artificially changed the entire landscape in which the housing industry existed. It was only a matter of time before the house of cards, no pun intended, imploded. We have entered a new era where we need new terminology. In the past these sanctimonious idiots in Washington have accused banks of “predatory lending”, but I think that is totally misleading. The U.S. suffers from “predatory legislation”. Until we remove and hold accountable these “predatory legislators”, things can only get worse.

Prime Minister Putin continued:

“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 capitalisation began to overshadow rising labour productivity and real-life corporate effectiveness.”

Redistribution of wealth is a key part of correcting the problem. On that note both, Prime Minister Putin and President Obama agree. This is disconcerting in and of itself. The next quote is utterly amazing to me. Putin is warning President Obama not to kill the golden goose! Putin sounds like an American hero. We really do live in bizzaro land.

“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.”

No one but the House, Senate majority and the President! “Beam me up Scotty, she’s gonna blow!” How often is it that you can agree with the ex head of the KGB, than you can with the majority of the Congress and the President of the United States!

Keep in mind that Prime Minister Putin is no dummy and is using this situation to his advantage. He does not want to see the U.S. reduced to third world status. He needs us to keep the Muslim terrorist threat in check. Without the U.S. lead on that front, Russia and all of Europe would be in big trouble and right quick. Prime Minister Putin continued with four points that should be noted.

“This means we must assess the real situation and write off all hopeless debts and bad assets. True, this will be an extremely painful and unpleasant process. Far from everyone can accept such measures, fearing for their capitalization, bonuses or reputation. However, we would conserve and prolong the crisis, unless we clean up our balance sheets. I believe financial authorities must work out the required mechanism for writing off debts that corresponds to today’s needs.”

Here Putin pretty much backs the free enterprise system. Let the troubled banks go under and let the market place correct the problem.

“Second. Apart from cleaning up our balance sheets, it is high time we got rid of virtual money, exaggerated reports and dubious ratings. We must not harbor any illusions while assessing the state of the global economy and the real corporate standing, even if such assessments are made by major auditors and analysts.”

“In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values. How to achieve this is not so clear-cut. Let us think about it together.”

Spoken like a true capitalist, not a KGB head. We must keep in mind that in order to get into the center of the flock, sometimes the wolf may have to act like a sheep. With that thought in mind, I would rather negotiate with Putin before I would give the Ahmadinejad the time of day!

“Third. 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.”

This is going to happen at some point or another. It may be a new currency that will be used for settlements in the oil markets that brings this about. After all of the printing press money filters through the U.S. economy very few will consider it a store of value.

“Fourth. 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.”

We are beginning to see foreign governments reducing their holdings in U.S. dollars. That trend will continue and accelerate. I would urge you to read this speech in it’s entirety. When the Prime Minister of Russia sounds more like a proponent of the capitalist system then the President of the United States, something is very wrong. “Beam me up Scotty, she’s gonna blow.” It is time to buy gold and buy gold now! We are headed into dark days and gold may be the only shining light out there in the near future.

Till next time, good luck and good trading! You’re gonna need it!