Russia, Oil, the ‘Strong Dollar’ and the Economic Conjuncture

A major feature of the current global economic conjuncture is the financial-economic crisis that has hit Russia.

On Dec. 16, 2014, the central bank of the Russian Federation raised its benchmark interest rate to 17 percent from 10.5 percent. This is a far cry from the zero to .25 percent the U.S. Federal Reserve System maintains for its key interest rate, the federal funds rate. During 2014, the Russian ruble fell 45 percent against the U.S. dollar, while the Russian central bank sold some $80 billion of its foreign reserves in an attempt to halt the fall.

By raising its benchmark interest rate to 17 percent, the Russian central bank hopes to stem the bleeding of its reserves while checking the ruble’s decline. The catch is that such a dramatic and sudden rise in interest rates is almost certain to plunge the Russian economy into recession in 2015, with rising unemployment. As demand contracts within the home market, Russian businesses will be forced to sell more of their national production on the world market and import less of the production of other countries, causing a decline in Russia’s standard of living. Eventually, the balance of trade will swing back in Russia’s favor but on the backs of the Russian working class and other Russian working people.

The current financial-economic crisis in Russia is made worse by the sanctions the U.S. and its West European satellites have imposed on Russia. These sanctions are in response to Russia’s defensive move in the Crimean Peninsula. Responding to widespread demands within Crimea in the wake of the seizure of power by far-right anti-Russian forces in Kiev in February 2014, Russia agreed to allow Crimea to rejoin the Russia Federation. (1) The crisis in Ukraine, which at times reached the level of civil war during 2014, resulted from the U.S.-supported neo-liberal/fascist coup (2) after months of right-wing demonstrations in Kiev.

The coup government has severely restricted civil liberties in Ukraine, forcing Ukrainian working-class parties underground while re-orienting the Ukrainian economy towards Western Europe. In addition, Ukraine has all but in name joined NATO, the main military wing of the U.S. imperialist world empire. Kiev hopes to make its NATO membership official at the earliest possible date.

Rising tension between the U.S. empire and Russia

The move by the U.S. empire to draw Ukraine into its military and economic domain has increased tension between Russia and the U.S. to its highest level since the restoration of capitalism in Russia a quarter of a century ago.

The imperialist media and certain people on the left have pictured present-day Russia as a virtual “second coming” of Nazi Germany. Russia, it is claimed, attacked Ukraine without provocation. As a result, a resurgent Russia is now threatening virtually all the countries of eastern and central Europe and ultimately “the West” itself. Unless something is done to check Putin’s “aggression,” it is claimed by imperialist propagandists, there is a danger of all of Europe falling under the Kremlin’s domination.

Other people on the left have drawn a quite different conclusion. They argue that far from a resurgent Russian imperialism, the U.S. and its European satellites have launched a new “cold war” against Russia.

The present Russian economic and financial crisis is now putting things into proper perspective. Instead of a resurgent aggressive imperialist Russia, we see a weak, almost neo-colonial, Russia dependent on the exchange of raw materials for consumer goods. This is the classic economic relationship of a colony to its “mother country.”

Nor do we see, in my opinion, a “new” cold war. The original Cold War was actually a global class war waged by the United States against the Communist Party-led Soviet government that based itself on the multi-national Soviet workers building a socialist society. The Cold War was also directed against former colonies and semi-colonies of Western imperialist powers fighting for national liberation with the aid of the Soviet Union.

Today’s Russian government, in contrast, is a capitalist government that has no intention of and is incapable of building a socialist society. Even if Putin privately wanted to return to a policy of socialist construction, he would be completely incapable of doing so. This is because the class basis of his government and the state power that it rests on is the new Russian capitalist ruling class. The claims occasionally found in the imperialist press that Putin’s government is “neo-Soviet” or that Putin is a “new Stalin” are therefore complete nonsense.

During the Soviet period, Russia and the other republics that formed the Union of Soviet Socialist Republics made remarkable industrial progress that has no counterpart in the history of capitalism. Indeed, between 1921 and 1988 there were no years of negative economic growth—recession—except for the World War II years.

The Soviet economy fell into recession only in 1989 as the Gorbachev government began in the name of “radical economic reform” to dismantle the Soviet planned economy. After the gigantic recession of 1989-1998, Russia experienced recession again in 2008-09 and is now, by all indications, once again entering recession. What a contrast with the years of planned economy!

Industrialization of Soviet Union required sacrifices

However, it was not possible to industrialize a Soviet Union surrounded by hostile capitalist-imperialist states without considerable material sacrifice on the part of the Soviet people. If it were otherwise, the Soviet people would never have given up their planned economy and returned to the crisis-ridden capitalist system.

The Soviet Union was reluctant to export oil and other raw materials needed to meet the needs of the rapidly expanding Soviet industrial economy. An example of the kind of sacrifices that were made to industrialize the country in the Soviet period was the decision of the Soviet Communist Party and government under the leadership of the real Stalin to export massive amounts of grain during the global capitalist super-crisis of 1929-32. This was done to raise the money—dollars and gold—needed to purchase the imported industrial equipment required for the industrialization drive.

During the super-crisis of 1929-32, grain prices had dropped far more than the prices of machinery had. Overall, the super-crisis of 1929-32 turned the balance of trade against the Soviet Union. If the Soviet Union had been capitalist like Russia is today, its economy would have been devastated by the crisis. But even with its planned economy and monopoly of foreign trade, industrialization could only be pursued under these unfavorable conditions at an enormous cost in terms of the living standards of the Soviet people.

Not all within the Soviet Union were willing to make the sacrifices that Stalin’s industrialization policies entailed. (3) The resistance to these policies was reflected in growing opposition and doubts among many members of the Soviet Communist party about the wisdom of these policies. The various oppositions, both old opposition groups and newly arisen ones, differed on many points. But they were united on the demand that the pace of industrialization be slowed down to what they saw as a more sustainable pace. (4)

Rise of ‘reform movement’

Stalin’s successors eased up on his polices that put emphasis on building up heavy industry and defense at the expense of consumer goods. In the early 1960s, the Soviet government even began to import grain in order to keep bread both abundant and cheap. Instead, they began to rely on oil exports in place of grain exports. These polices, designed to increase the standard of living of the Soviet people in the short run, led to a progressive slowdown in the rate of growth of Soviet industrial production and the Soviet economy as a whole. By the time Mikhail Gorbachev was elected general secretary of the Communist Party Central Committee in March 1985, economic growth in the Soviet Union had all but halted.

Long before the election of Gorbachev as general secretary, a so-called “reform movement” had developed. This movement echoed many of the earlier arguments of the old Right Opposition against proposals to rapidly industrialize the Soviet Union. (5) This “reform movement” (6), however, was generally much further to the right than the historical Right Opposition. That opposition was led, after all, by “old Bolsheviks” who had been among Lenin’s closest companions. The new “reform movement” advocated, for example, better relations with the West at the expense of the Soviet Union’s policy of supporting oppressed nations in their struggle against imperialism.

Instead of developing industry, the “reformers” advocated that the Soviet Union concentrate on its strengths within the imperialist-imposed international division of labor. They wanted the Soviet Union to concentrate on the production of raw materials in exchange for Western-produced consumer goods. Ironically, today the lion’s-share of these consumer goods are assembled in the People’s Republic of China. But in those days, they were mostly produced, aside from raw materials, in the United States, Western Europe and, by the 1960s, Japan.

The “reformers” opposed further development and modernization of the planned economy that would have taken full advantage of the developing computer revolution. They deemphasized central planning and instead advocated increasing reliance on “the market.” These measures included increased enterprise “autonomy” designed to encourage competition among Soviet enterprises. This competition, the “reformers” held, would make the enterprises more efficient and responsive to consumer demand. Moreover, the “reformers” urged that the Soviet economy be shifted from production for use that prevailed under the five-year plans to production for profit as in a capitalist economy.

The Gorbachev leadership, unlike its post-Stalin predecessors, who had sought a compromise somewhere between the policies that Stalin had adopted from 1928 on and those advocated by the “reformers,” completely went over to the views of the latter. Under Gorbachev and then even more “radically” under the openly anti-Communist, anti-socialist government of Boris Yeltsin in the Russian Federal Republic—and its counterparts in the now “independent” non-Russian former Soviet republics—dismantled the great socialist industry that had been built up, not without considerable sacrifice by several generations of Soviet workers. The reason given? The bulk of the industry created under the planned economy was not “profitable.” That is, the bulk of the industry created under Soviet power couldn’t enrich—and indeed was not designed to enrich—the new ruling capitalist class.

In Russia, the years of Yeltsin are now remembered as perhaps the worst period in Russia’s one thousand-year history. During those years, the price of oil, Russia’s primary export, was low relative to the price of consumer goods sold on the world market. Therefore, in the 1990s few Russians could afford to purchase the consumer commodities that many Russians had long yearned for. They simply didn’t have the money. The only Russians who really benefited from Yeltsin’s policies were those who managed to become wealthy capitalists in that period. This new capitalist ruling class emerged largely from the ranks of organized crime and corrupt former party and government officials.

However, starting around the turn of the century, prices for oil and other raw materials began to climb. Things began at last to look up for a greater number of post-Soviet Russian people compared to the dismal Yeltsin years. Russia was if not a “superpower” anymore at least a respected great power once again—or so it seemed.

Putin to the rescue?

Unlike Yeltsin and the old Soviet “reformers,” who fawned on the West, Putin, a former KGB officer, has struck a more nationalist note that has been highly popular with the great majority of the Russian people. As oil prices soared, dollars began to flow into the vaults of the Russian central bank. The central bank even used some of these dollars to purchase gold, building up a reserve of gold, much to Washington’s unease.

Does this mean that Russia under Putin has moved away from the policies of the old “Soviet reformers” who advocated that Russia orient its economy to exchanging raw materials for consumer goods in favor of a policy of capitalist industrialization? A policy of government-assisted capitalist industrialization was last followed in Russia under the last czar, Nicholas II, and his one-time prime minister, Count Witte. (7)

Under Putin, however, unlike under Nicholas II and Count Witte, there has been little growth of Russia’s manufacturing production devastated under the perestroika and post-perestroika “reforms.” Manufacturing is the foundation of any successful modern economy. Instead, under Putin, Russia continues to exchange raw materials for consumer goods, which has allowed a relatively small—but considerably larger than under Yeltsin—minority of the population to enjoy a high standard of living.

Putin’s policies, however, do depend on Russia retaining control of Russia’s vast natural energy resources, especially the energy-containing commodities coal, oil and natural gas. This, however, is quite enough to bring Russia under Putin into a growing conflict with Washington.

The Russian economy under Putin

Until recently, under Putin the Russian economy enjoyed relatively rapid rates of economic growth. To a great extent, however, this growth simply reflected a rebound from the extremely low levels to which the economy had fallen under Yeltsin.

There are actually two fundamental differences between the Russian economy under Putin and under Yeltsin. One was that the dismantling of the Soviet economy, though it began under Gorbachev, was still incomplete when Yeltsin and his counterparts in the other Soviet Republics seized power from the Gorbachev-led central government in a series of coups in 1991. Yeltsin finished the job of dismantling the Soviet economy that Gorbachev had begun. This combined with the destruction of the division of labor among the old Soviet Republics produced the greatest economic disaster that has ever been observed in modern—and maybe even all—world history, in either peace or war.

By the time Putin, who had been Yeltsin’s final prime minister, became president, the destruction of the Soviet economy was virtually complete. The only possible direction of the Russian economy was now upward.

The other key difference between the Putin and Yeltsin years was that until recently the Putin years saw a rise of the prices of primary commodities—especially oil—relative to the prices of finished goods, including consumer goods.

After falling briefly during the panic of 2008—to around $33 a barrel at the height of the panic—oil and other commodities quickly rebounded as the U.S. Federal Reserve System responded to the global crash with an unprecedented program of “quantitative easing”–printing money. The dollar price of gold promptly responded by rising to almost $2,000 an ounce in 2011, and other primary commodities largely recovered from the short-lived drop that occurred during the panic proper.

There were widespread predictions that the policy of quantitative easing would trigger a wave of 1970s-style inflation or worse, though depressed demand in the wake of the panic prevented prices at the retail level from rising much.

Responding to the very real danger of runaway inflation as the economy recovered, the Fed launched “Operation Twist,” which halted the growth in the U.S. dollar monetary base for a year. The U.S. dollar began to recover some of the value that it had lost against gold and other currencies, though world oil prices while fluctuating remained stubbornly high.

However, as the Fed starting in the third quarter of 2014 finally began to contract the monetary base—in effect canceling a still relatively small portion of the huge amount of “paper dollars” that it had created since late 2008—the immediate threat of runaway inflation began to recede. This was the first real drop in the U.S. dollar monetary base since well before the panic of 2008. In response, during the second half of 2014 the price of oil buckled and then crashed. The price dropped from over $100 per barrel in June and at times in July 2014 to under $55 by the end of 2014 and then below $50 in the first days of 2015.

Russia is now paying dearly for building an economy based on the exchange of raw materials, especially oil and natural gas, for consumer goods rather than on manufacturing.

The season of the ‘strong dollar’

Since Operation Twist in 2011, the U.S. dollar has been generally rising both against the money commodity gold—expressed as a tendency of the dollar price of gold to fall—and other currencies. At the end of 2014, gold generally was trading around or below $1,200 an ounce. This was considerably higher than anything seen before the panic of 2008 but well below its peak levels near $2,000 in 2011. Since the internationally traded primary commodities are priced in U.S. dollars, it is not surprising that the dollar prices of primary commodities have been in a strong downtrend.

For awhile, the price of oil—the most important of all primary commodities—seemed to defy this downward trend. The Federal Reserve after Operation Twist continued to increase the quantity of paper dollars under QE3 at about a 30 percent annual rate. This rate of growth was well below the rate during the panic proper but was incompatible with the long-term stability required to maintain the dollar system. Since September 2014, the dollar monetary base has been falling not rising (with a modest rebound recorded by the St. Louis Fed in its latest report as this is being written), and the oil price has responded by crashing.

The strength of the U.S. dollar has triggered a wave of gloating in the U.S. media. “A plunge in oil prices,” writes Andrew Higgins in the Dec. 25 edition of the The New York Times, “has sent tremors through the global political and economic order, setting off an abrupt shift in fortunes that has bolstered the interests of the United States and pushed several big oil-exporting nations—particularly those hostile to the West, like Russia, Iran and Venezuela—to the brink of financial crisis.”

Notice the list of countries that Higgins provides. All these countries have to varying degrees been standing up to Washington in recent years. Washington now hopes that the collapse of oil prices will force them to knuckle under to the demands of the Empire. Higgins speculates, for example, that the falling price of oil will force the government of Venezuela to end “the free-spending policies of former President Hugo Chávez.”

Washington and Higgins are hoping that the low oil prices will oblige the Venezuelan government to introduce an “austerity program” that will take back some of the reforms that President Hugo Chávez introduced in the interests of the Venezuelan working class and poor. The political result of such an austerity program—or runaway inflation if President Nicolas Maduro resists austerity—will be, the Empire’s policymakers hope, that supporters of the Bolivian revolution in Venezuela will become discouraged and turn against the Chávista government.

This, the imperialists expect, will lead to a return to power—whether through an election or coup—of the traditional pro-imperialist Venezuelan oligarchy. Likewise, Washington hopes that the economic crisis in Russia will lead to the downfall of President Putin and his replacement by a “neo-Yeltsinite” government that will drop Putin’s nationalist polices. (8) In the case of Iran, Washington is counting on the fall in the price of oil to strengthen forces that advocate greater cooperation with imperialism.

Freeing of the Cuban Five and restoration of diplomatic relations between Cuba and the U.S. tied to falling oil prices?

Higgins joins the speculation that the falling price of oil “might even have been a late factor in Cuba’s decision to seal a rapprochement with Washington.” On the face of it, these claims make little sense. Cuba has long sought normal diplomatic and trade relations with the U.S. The swapping of two U.S. agents for the last three of the Cuban Five heroes is a good deal for Cuba.

Unfortunately, however, the blockade has not been lifted, though it seems that it will be “liberalized”—though in a way that Washington hopes will strengthen Cuba’s “private sector.” Moreover, the U.S. government continues to deny U.S. citizens the right to freely travel to Cuba in a brazen denial of the democratic right to travel. (9) So at least for now, the normalization of relations between Cuba and the U.S. is far from complete.

What Washington is saying through its journalistic mouthpieces like Higgins to the Cuban people is that Venezuela is an unreliable ally, and its days of defying Washington will soon be over as low oil prices drive Venezuela back into Washington’s neo-colonial embrace. The Cuban people should instead listen to those voices who are arguing that Cuba has no choice but to fully normalize relations on Washington’s terms—which ultimately means giving up the democratic as well as socialist gains (10) of the Cuban revolution.

This means accepting a second “pseudo-republic” like the one that prevailed between Washington’s “liberation” of Cuba in its war with Spain in 1898 and the victory of the Cuban revolution in 1959, which achieved real independence. In this way, Washington is trying to drive a wedge between Cuba and the “Bolivarian countries” in order to once again subject all of them to the rule of the Empire. Washington sees the present strong dollar as an important weapon in this unfolding campaign and is determined to take full advantage of it before the “season of the strong dollar” is over.

The strong dollar and the BRICS

Brazil, Russia, India, China and South Africa are often referred to as the BRICS countries. There is a tendency to view these countries as more or less equivalent to one another, both economically and politically. However, though they all are non-imperialist, these countries are quite diverse and are impacted quite differently by plunging oil prices.

Higgins reminds his readers: “While authoritarian oil producers like Russia are clearly suffering, China is enjoying a huge windfall thanks to the price drop. It imports nearly 60 percent of the oil it needs to power its economy.”

Unlike Russia since the days of perestroika, China has developed a diversified industrial economy centered on manufacturing.

The dollar system, the end of quantitative easing, and the beginning of a ‘stabilization recession’

The Federal Reserve System, which under the dollar system acts as the world’s de facto central bank, is trying to end quantitative easing and bring down the rate of growth of the dollar monetary base without throwing the entire world capitalist economy back into deep recession. If the “stabilization recession” that has now begun in Russia and elsewhere gets out of hand, the U.S. economy will once again fall into deep recession.

Whether it can succeed in avoiding this outcome remains to be seen. Washington is quite okay with deep recession in Russia, Venezuela and Iran, countries that have governments that to varying degrees have been defying imperialism. But recession in the United States and its close “allies” is another matter.

Technically, halting the abnormally rapid growth of the U.S. dollar monetary base is not difficult. The Federal Reserve System has an absolute monopoly—counterfeiters excepted—when it comes to the issuance of “paper dollars.” “Paper dollars” actually come in two forms: One form is the green dollar bills issued in denominations of $100, $50, $20, $2 and $1. The second form is deposits by commercial banks at the Federal Reserve banks.

The second form is called by economists central bank money as opposed to bank money created by the commercial banks through making loans. Dollar-denominated central bank money consists of electronic bookkeeping entries that oblige the 12 U.S. Federal Reserve Banks to pay a commercial bank in paper dollars on demand.

Under the current system, the Federal Reserve banks can never “run out” of paper dollars. If they need more, they issue more dollars—or fractional coin. They simply call up the U.S. Mint, a branch of the U.S. Treasury, which prints up the needed paper dollars or mints the fractional coin. Indicating the world nature of the dollar system, the bulk of green paper dollars actually circulate outside the U.S.

Paper dollars—and dollar-denominated central bank money—should not be confused with the money created by commercial banks. Checkable deposits—promises by the commercial bank to pay in legal-tender paper currency that can be transferred by traditional check or electronic means such as modern smart phones—form the bulk of the world’s “money supply,” what economists call bank money. However, this checkbook/smart phone money—commercial bank-created credit money—can only function as money as long as commercial banks can redeem the bank money they create in actual paper dollars. If they cannot come up with the green dollar bills—or electronic equivalent—the commercial bank collapses.

As a rule, the commercial banks have to come up with the legal-tender paper money of the countries they are operating in. In the United States, Panama, Ecuador or Zimbabwe, it is U.S. dollars. In the Eurozone countries, it is euro paper notes issued by the European Central Bank, whose reserves are largely kept in dollar-denominated short-term U.S. Treasury bills. In other countries, it is the dollar’s other satellite currencies, the various national currencies.

While central banks of most other countries issue paper currency denominated in their respective national currencies, the bulk of the reserves that stand behind these currencies are dollar-denominated assets, generally short-term U.S. Treasury bills. Some reserves are also held in euros—the dollar’s chief satellite currency—and in gold.

Gold and the dollar system

If over time the central banks of countries other than the U.S. were to place their reserves not in dollars but, for example, in the ultimate form of money, gold, their currencies would no longer be satellites of the U.S. dollar. The role of the U.S. dollar as the chief standard of price of all internationally traded and even some local commodities and as means of payment on the world market would be effectively ended.

Since the Russian crisis erupted with full force on Dec. 16, the U.S. financial media has been full of hopeful speculation that Russia is selling—or will soon be forced to sell off—a large portion of its gold reserve. One of Washington’s biggest long-range fears is that the BRICS countries will increasingly back their currencies with gold rather than U.S. dollars, which would make them independent currencies rather than the dollar satellites they are at present.

The gold sold by Russia would presumably flow largely into the private hoards of wealthy Western money capitalists. If this happens, Russia’s—and the other BRICS nations’—attempts to build up rival institutions to the World Bank and IMF would be undermined, because they would lack the most important tool to challenge the
dollar system, an independent currency.

Instead, the dollar’s role as the primary backing of all other currencies would be consolidated, and the dollar alone would be directly backed by gold—in the form of the U.S. Treasury’s Fort Knox gold hoard—and other smaller hoards held at highly secure locations around the U.S.—and the even larger hoard in the vaults of the Federal Reserve Bank of New York. The gold in this hoard—the largest in the world—is legally owned by other countries but held for “safekeeping” in the United States.

The role of reserves under the dollar system

If a “run” against a country’s currency develops such we saw in 2014 against the Russian ruble, the country can sell a portion of its reserves in exchange for its own currency. If the run continues, it will either have to borrow additional dollars from the IMF—an option that does not appear open to Russia thanks to its bad relations with the U.S.—or continue to run down its reserves and hope that the run ceases, which is what Russia did until Dec. 16.

If the run does not cease, however, the country facing the run has to sharply raise interest rates or suffer a hyper-inflationary economic collapse. When it raises interest rates, like Russia has now been forced to do, recession with all its consequences on employment/unemployment follows. When a commercial bank experiences a “run,” it goes bankrupt; when a country’s national currency experiences a run, its prosperity vanishes.

Under the dollar system, however, it is the dollar and gold that stand at the center of the system. In a nutshell, all other currencies are satellites of the U.S. dollar, but the dollar itself is a satellite of gold, which remains at the very center of the global monetary system. Gold’s central role, unlike the dollar’s role, is not enforced by state power but by economic laws that I have examined extensively in this blog (for example, here, here and here). Therefore, it is gold, that forms the central reserve that ultimately “backs” the dollar and through the dollar its satellite currencies as well.

As long as the U.S. dollar is “strong,” those who control the dollar system—the “Open Market Committee” of the Federal Reserve System—can create more dollars without triggering runaway inflation. This enables the Federal Reserve to fight recession if the recession threatens to get out of hand—for example, by turning into a new “super-crisis” on the scale of 1929-32.

The dollars once created by the Fed can then be loaned out either by the commercial banks—actually the commercial banking arms of the huge universal banks that now dominate the global capitalist economy—or the International Monetary Fund, effectively controlled by the U.S. government.

What happens when there is run against the U.S. dollar?

Under the dollar system, when the U.S. dollar itself comes under attack, deep global recession soon follows—under pain of the hyper-inflationary collapse of the entire dollar system and its satellite currencies. Here lies a greater danger to the current “world order” than “mere” deep global recession. The danger is that such a hyper-inflationary collapse of the financial foundation of the U.S. world empire would lead to a return of the unbridled political anarchy of 1914-1945.

This period saw two World Wars and the Great Depression within a generation, and worst of all from the viewpoint of the capitalists, the October Revolution of 1917. The biggest fear of the capitalists is that a repeat of the anarchy of 1914-1945 would lead to global working-class revolution and the end of the entire capitalist system.

The “Volcker shock” of 1979-82 and the more recent decision of the Federal Reserve not to expand the dollar monetary base—so confidently expected by stock market bulls between August 2007 and September 2008, in effect “Volcker shock II”—was in no small measure motivated by the above concerns. At the price of the deep recession of the early 1980s and the much deeper recession of 2008-09, the dollar system and consequently the Empire was saved. How deep will the global recession have to be to save the dollar system when the next run on the dollar occurs?

Paper dollars in boom and crisis

During economic booms, the system operates on a tiny “base” of paper money. But when a panic erupts, such as happened in the fall of 2008, the role of money as a means of payment comes to the fore at the expense of its role as a means of circulation. Instead of loans being “rolled over,” as is normally the case, money lenders, particularly the commercial banks, demand repayment. Credit abruptly dries up. Suddenly, businesses of all kinds scramble to build up their cash reserves. Cash—paper money or extremely liquid assets such as short-term Treasury bills that can quickly be turned into cash—normally despised by capitalists during economic booms because of their low rates of return—are now built up as a reserve against demands for repayment of loans.

During a crisis, capitalists are forced to concentrate on preserving the value of their capital as opposed to expanding it as they normally do.

In the wake of a crisis, a period of stagnation sets in. In a normal recession, the panic is replaced by a mere “credit squeeze” or period of “tight money.” Such “credit-squeezes” occur about every 10 years on average. After a credit squeeze, as opposed to a full-scale panic, the period of stagnation is relatively brief.

But once in awhile, instead of the normal credit squeeze, a full-scale panic occurs—a credit squeeze on steroids. In that case, not only is the recession much deeper than normal but a longer period of “secular stagnation” sets in such as we have seen in the post-Great Recession period.

Post-crisis ‘secular stagnation’ under the dollar system

Under the particular circumstances of the dollar system, this means that as long as “secular stagnation” lasts, the Federal Reserve System can create huge amounts of dollars that it could never get away with creating during a period of more or less normal prosperity, or even after a normal credit-squeeze/recession. If the Federal Reserve System created anything like the amount of dollars it has created since September 2008 in a normal industrial cycle, the commercial banks would use the dollars—and its satellite currencies in other countries—to create a huge amount of bank money. Capitalists would then be eager to carry out the circuit M—C—M’ and quickly spend these dollars, creating a huge demand for commodities relative to the supply of commodities at existing prices.

This would cause the prices of commodities in terms of the U.S. dollar and its satellites to soar. If the dollar—and its satellites—were not immediately devalued against gold, this would mean that the profits of the gold mining sector would be severely squeezed as costs soared while the dollar price of gold remained unchanged. As the profitably of gold mining vanished, the production of gold would dry up. This would cause the demand for gold to increase sharply leading to a major run on the dollar—and unless the policy was quickly reversed, the hyper-inflationary collapse of the entire dollar system.

But during the period of global secular stagnation that has followed the 2007-2009 crisis, the Federal Reserve System has been able to create paper dollars and dollar-denominated central bank money at an extremely rapid rate without immediate inflationary consequences thanks to extraordinary demand for U.S. dollars created by the crisis as a means of hoarding. The question is, how much longer will the Federal Reserve be able to do this without setting off an inflationary storm leading to a new dollar crisis—a run on the currency that stands at the center of the current international monetary system—with all its consequences?

Even during secular stagnation, there are limits—though they are much higher—to the amount of paper dollars the Federal Reserve System can create without setting off a disastrous inflationary storm. As the most recent secular stagnation-breeding crisis recedes into the past, the natural forces of the industrial cycle tend to make the stagnation less intense. This, in turn, reduces the rate at which the Federal Reserve can create “paper dollars” without triggering a run on the dollar. The Federal Reserve is clearly concerned that they are now approaching this limit, though nobody can be sure what the limit really is under present circumstances.

Oil, gold and paper dollars

Oil, since its use value is to serve as a store of energy, plays a critical role in the world economy. Virtually every industry needs energy—defined in elementary physics as the capacity to do work—in some form. As a result, an extra demand for oil is created under the dollar system when the dollar is “weak”—that is, when it is expected to lose value against gold in the near future. Just like oil stores energy in a physical sense, gold “stores” value—abstract human labor that is directly social—in a social sense. Therefore, when the dollar price of gold is expected to rise in the near future, the dollar price of oil is expected to rise at least as much. Industrial enterprises react by buying as much oil as they can before the price rises even more. The rising dollar price of oil then becomes a self-filling prophecy.

These price movements are magnified by speculation. Capitalists buy mere titles of ownership to oil and other energy-containing commodities, not because they intend to use them to extract energy but because they expect their prices to rise. Some capitalists even prefer owning these title of ownership to oil and other energy-containing commodities in preference to gold as a means of protecting themselves against paper currency depreciation, since unlike gold, these commodities enjoy widespread industrial demand. The resulting extraordinary demand for commodities whose material use value is to store energy causes the prices and the profitability of producing these commodities to soar. The result is the increased production and then overproduction of these commodities, as capital is always on the lookout for super-profits.

Overproduction of oil

Massive overproduction of oil and other energy-storing commodities sooner or later has to end in a massive price collapse. This tends to happen when dollar weakness turns to dollar strength—that is, when the expectation that the dollar will lose value against gold is replaced by the expectation that the dollar will gain value against gold in the near future. The overproduced oil and other energy-storing commodities are then dumped on the market and their prices collapse.

This is exactly what we are seeing today. Therefore, the immediate cause of Russia’s current financial crisis can be traced back to the decision of the U.S. Federal Reserve System to end quantitative easing. The same can be said for the difficulties facing Venezuela and other oil-producing countries.

How the end of quantitative easing is breeding recession

As the expected end of quantitative easing approached, the markets, obeying basic economic laws, began pushing up the gold value of the U.S. dollar—expressed as a falling dollar price of gold. Though oil and other energy-containing commodities are affected more than other commodities, falling dollar—or other paper currency—prices encourage all industrial and commercial businesses to reduce inventories—commodity capital—and put off investments until the dollar costs of new plant and equipment bottom out.

The immediate effect of a drop in dollar prices is therefore an overall drop in monetarily effective demand and a consequent drop in the rate of profit calculated in dollar terms. Experience has shown that when currencies rise against gold as a consequence of central bank monetary measures to reverse a prior depreciation, what could be termed “currency stabilization recessions” follow.

A historical example of such a recession occurred in Britain in the mid-1920s as Britain returned to the gold standard at the higher pre-war gold value of the British pound. This recession helped trigger the British General Strike of 1926, which represents the highest point the British workers’ movement has so far achieved.

Can the U.S. escape the unfolding ‘stabilization recession’?

Despite the historical experience that a rise in the gold value of a currency after a period of depreciation is followed by recession, most of the media and professional economists are optimistic about the U.S. economic performance this year. They predict that 2015 will be a stellar year for business in the U.S.

The optimistic economists are pointing to the recent upward revision of the U.S. Commerce Department’s estimate of the rate of growth of U.S GDP in the third quarter of 2014 to an historically high 5 percent. It is important to note that the U.S. government is not actually claiming that the GDP increased 5 percent in the third quarter. Rather, the Commerce Department estimated that if the U.S. maintained its growth at the the same rate it estimated it to have experienced in the third quarter for an entire year, the GDP would increase by 5 percent.

In contrast, Russia is falling into recession—and Japan experienced negative GDP growth in 2014, apparently brought on by an increase in sales taxes. EU countries are experiencing near-zero growth in GDP, and even China’s economy has been slowing. In contrast, U.S GDP growth rates, generally unimpressive since the Great Recession ended, now appear to be accelerating. Does this mean that the U.S. can escape the effects of the unfolding stabilization recession?

First, the rise in the GDP in the third quarter of 2014 tells us nothing about what will happen to the U.S. economy in 2015. There are many instances throughout economic history of sharp rises in economic growth immediately preceding the outbreak of recession. A factor in the rise of the GDP was a sharp increase in U.S. military spending, perhaps related to the beginning of the new Mideast war against the Islamic State. Since GDP is defined as total sales minus imports plus exports, a rise in military—or other government—spending is simply added to the GDP.

Some of the rise in the GDP growth reported for the third quarter is probably simply a matter of bookkeeping. As the value of the U.S. dollar rises against other countries, one dollar bill can buy more units of foreign currencies. Until prices adjust to these changes in currency values, which doesn’t happen right away, U.S. businesses can import foreign commodities into the U.S. at lower dollar prices. But they can continue to sell them at more or less the same dollar prices within the U.S.

It therefore appears on the basis of “value”—as defined by marginalist bourgeois economists, not Marxists—that importing, distributing and warehousing businesses operating in the U.S. are creating more value. The Commerce Department reports a rise in the U.S. GDP. But what is really happening is that a portion of the wealth being created outside the United States appears as “value” created within the U.S. The way the GDP is currently defined, it cannot distinguish between the U.S. exploiting the world more than before through “unequal exchanges” and an actual rise of production within the U.S.

However, the ability of the strong dollar to protect the U.S. from recession is not confined to such bookkeeping effects. When money capital flows into the U.S., demand tends to rise within the U.S. and production and employment are stimulated. To fully understand how the dollar system works, it is important to understand this phenomena, which we last saw in the late 1990s, the period of the “Clinton boom.”

As the Fed begins to reduce the amount of dollars it is creating—or even cancels some of the dollars it created earlier, U.S. dollars grow scarcer. Whenever an asset is expected to become absolutely or even relatively more scarce for whatever reason, all other things remaining equal, its price is expected to rise. The mere expectation that the price of an asset is expected to rise causes its would-be buyers to buy more before the price rises. This movement is then magnified by speculation. The result is that as the Federal System moves to end the rapid growth of the U.S. dollar, the demand for dollars has risen. The other factor that we must keep in mind is that while most paper currencies are purely national, the U.S. dollar is international.

As a result, interest rates calculated in terms of other currencies and gold on dollar-denominated debt outside the U.S. rise, causing money capital flows into dollar-denominated securities raising their price, or what amounts to the same thing, lowers interest rates calculated in dollars within the U.S. The result is that the amount of money within the U.S. tends to rise—even if the amount of dollars is falling globally—and U.S. interest rates fall. For example, interest rates on U.S. government 10-year bonds have fallen from about 3 percent at the beginning of 2014 to around 2.225 percent at the end of 2014.

As a result of this increase in money capital in the U.S. at the expense of the rest of the world, the amount of credit available for automobile loans in the U.S. has increased throughout 2014. Not surprisingly, auto sales in the U.S. have been steadily climbing. Similarly, the real-estate market has also been stimulated, though the rise in demand for single-family individual homes has been inhibited by the memory of the wild excesses that preceded the housing meltdown.

Without this dollar-driven fall in interest rates, the U.S. economy would be presenting a very different picture than it actually is.

Let’s examine what occurred in the late 1990s when a sudden increase in demand for dollars last boosted the U.S. economy. The “Asian crisis” broke out in 1997, but it was not followed immediately by a recession in the U.S. Instead, the flow of money capital into the U.S. and the consequent fall of long-term interest rates led to a boom in residential housing—the very same boom that was destined to end so ingloriously in 2006-07—and the automobile industry. The result was the Clinton boom of the late 1990s. This occurred just as the economies of Thailand, Indonesia, South Korea, Argentina and Russia were thrown into deep crisis.

The U.S. media, not surprisingly, is predicting that the U.S. will escape recession and that 2015 will be great year for business. We know that the media and the overwhelming majority of economists the media quotes are always predicting prosperity—or during recessions, recovery—for the United States. At the beginning of 2008, the standard forecast by the economic experts was that the U.S. would either skirt or experience at worst only a “mild recession” during the first half of 2008 but that business would improve in the second half of the year. They also predicted that the U.S. “slowdown” would not spread to other countries! So as far this blog is concerned, with all due respect, they have little authority.

Of course, you can find Marxists who are the mirror images of the bourgeois economists who are always predicting fair skies for the U.S. economy. These Marxists always predict deep recession and collapse. However much this writer is in sympathy with their hopes that workers stimulated by economic disaster will at last rise up and end the capitalist system once and for all, this blog has as little faith in their constant predictions of economic collapse as it does in the capitalist prophets of eternal prosperity.

The press and economists who are predicting a “prosperous New Year” explain that the fall in oil prices and the associated fall in gasoline prices is putting money into the hands of American consumers and thus are predicting that this will stimulate the U.S. economy much like a tax cut. The economic “optimists” here ignore the tendency to postpone purchases when prices are expected to fall in the near future.

The prophets of capitalist prosperity in 2015 are counting on the rising trend in automobile purchases that are indeed sensitive to gasoline prices to continue and indeed intensify. They count on the combination of lower gasoline prices and low interest rates to keep the automobile assembly plants and auto parts factories in the U.S. busy this year. Since auto forms such an important part of what survives of the U.S. industrial economy, they expect a booming U.S. auto industry to keep not only the industrial U.S. economy but the U.S. economy as a whole moving ahead this year.

In a nutshell, that is the case for a very good year for business in 2015 in the U.S., while Russia, Venezuela, Iran and many other countries face hyperinflation or recession this year and Europe and Japan at best skirt recession. If this prediction holds we will see a repeat more or less of the Clinton boom of the late 1990s. Remember, just because this prediction is made by people who have a terrible record of predicting recessions does not mean that it is wrong; they are right in prosperity years, and there are prosperity years after all.

But how about the growing role of the U.S. itself as an energy producer? Not so long ago, the U.S. economics profession was looking forward to the U.S. becoming a net oil exporter. Now our economic optimists say the U.S. economy is expected to thrive because the U.S., for now at least, is still a net energy importer.

But how is the U.S. energy-producing sector expected to avoid recession this year? The answer is that it can’t. But the economic optimists are building their case that for the U.S. the recession will remain confined to the energy sector.

Indeed, as far as the U.S. energy economy is concerned, the recession has already begun. “The total number of oil and gas rigs in use,” according to Myles Udland writing in the Jan. 9, Business Insider, “fell by 61 last week—to 1,750 from 1,811—according to data from Baker Hughes.” Udland in an earlier report quoted one unnamed Texas business executive as observing that the oil price plunge is “going to make things ugly … quickly.”

Recession in U.S. railway industry in 2015?

It is not only the oil and gas-extracting businesses that are threatened by the oil price crash. So are companies that build equipment used by the energy extraction business. An example is the U.S. heavy equipment manufacturer Caterpillar. “As a result,” Dan Caplinger writes in the Dec. 29, 2014, edition of Investing Commentary, “the strong profitability of Caterpillar’s energy and transportation business could well be at risk, as potential customers tighten their capital-spending belts and defer purchases of expensive equipment.”

According to Caplinger, the negative effects of the oil price crash may even extend to the railroad industry despite the fact that rail locomotives use fossil fuel that in an of itself should boost profits in 2015.

Caplinger points out: “Railroads have increasingly relied on shipping crude oil out of hard-to-reach areas of the country, as well as shipping much-needed chemicals related to recovery processes like hydraulic fracturing to aid the efforts of oil and gas exploration and production companies. If oil’s price drop lasts for a while, it could easily hurt railroads, as well, removing another bastion of strength from Caterpillar’s support structure.” So the effects of a crisis of overproduction as massive as the current one in the energy-producing industry on other industries can be significant.

The effects of lower prices

If the only effect of lower prices is to increase consumer buying power, the early 1930s, when prices were falling not only in the energy industry but across the board, would be remembered as an era of great prosperity. After all, if we abstract all other effects, a fall in prices does “put more money” into the pockets of consumers. But obviously there are other effects. Indeed, it is the memory of the early 1930s—the time of the super-crisis with its sharply lower prices—that is behind the determination of the Federal Reserve System if at all possible to prevent the general price index from ever falling again. Indeed, the Fed is uneasy whenever the general price index is rising at less than 2 percent per year, as is the case now.

As oil prices plunge, the extraction of oil from tar sands and shale becomes less profitable—or not profitable at all—depending on exactly how far and for how long oil prices drop and remain low. However, oil drilling in Saudi Arabia even at radically reduced prices will almost certainly remain highly profitable. The Saudi wells will simply earn less than average differential rent until the crisis of overproduction in energy commodities runs its course.

Indeed, there is speculation in the financial press that the Saudi oil monarchy is keeping oil production high and prices low in hopes of driving out much of the new oil production based on tar sands and shale oil and the production of natural gas based on fracking that developed in the U.S. and Canada during the recent dollar depreciation-driven energy boom. The hopes of some strategists of U.S. imperialism of breathing new life into American capitalism through the development of the U.S. as a major source of fossil fuels will be dealt a blow at least until oil and natural gas prices rise again.

In my examination of crises throughout this blog, we have seen that the effect of falling prices by reducing profits and spending by capitalists, which includes laying off workers, reduces overall monetary demand. Eventually, it is true that by increasing the purchasing power of money, lower prices do play an important role in an eventual recovery. (See posts on typical industrial cycle.) So assuming a general fall in prices, the effect is to reduce not increase monetarily effective demand in the short run—which can last years—but increase it in the long run once prices stop falling.

If the downward pressure on prices were confined to oil and the U.S. was not itself a producer of oil and natural gas, the U.S. economy might benefit even in the short run through the effects of increased auto sales and consequent increased auto production. (11) But since the U.S. itself is a major oil and energy producer and the energy sector has been one of the few “bright spots” along with the high-tech sector in the U.S. economy, any beneficial effects on the automobile business and airline business will be counteracted in the short run by the negative effects of the collapse of the energy boom. It remains to be seen whether the positive or negative effects of the oil price collapse will have the predominate influence on the U.S. economy in 2015.

Deflation danger

If 2015 were to see wholesale and retail prices collapse on a broad front, the credit system, which is built on the expectations that these prices will never fall, would be shaken to its foundations. Then there would be no doubt that the negative, not the positive, effects of falling prices will dominate the U.S. economy in 2015. If retail as well as wholesale prices, as measured in U.S. dollars, drop sharply this year, it will mean a deep recession for 2015 for the U.S. economy and the world capitalist economy as a whole.

It therefore remains perfectly possible that the U.S., along with all other capitalist countries, will over the next few months descend into a deep generalized recession. The Fed is therefore playing a game of economic chicken by moving to contract the dollar monetary base. But in reality as we have seen, it has little choice but do so if the U.S. world empire is to be saved from a generalized financial collapse down the road.

What is the Federal Reserve System really aiming for?

The Fed hopes that the dollar remains strong and that primary commodity prices remain low, but it certainly doesn’t want a full-scale deflationary spiral that would cause the dollar prices of commodities including primary commodities, semi-finished and finished commodities to fall across the board. If such a deflationary spiral were to set in—and nobody can be sure it won’t—the Fed would almost certainly respond by resuming quantitative easing—printing money—in order to halt the plunge in prices as soon as possible. Ironically, this would increase the chance of a disastrous inflationary explosion a few years later.

The best the Fed can reasonably hope for is that the turn of the century Clinton boom will be repeated. Primary commodity prices remain low but do not collapse to the extent that wholesale and then retail prices collapse on a broad front. The current panic in Russia and other oil-producing countries will then be “contained,” much like the Asian crisis of the late 1990s was “contained.”

Then as the panic subsides, maybe by 2016 or 2017, money capital can be expected to flow back to these countries from the United States, where it will be able to buy assets like oil wells for a song. The dollar will then weaken somewhat and the Federal Reserve will respond by raising short-term interest rates in order to prevent a new “run on the dollar.” That combined with a sharp inflow of commodities from abroad will cause the U.S. economy to fall into a more general recession just as Russian and other oil-producing countries’ economies begin to recover. According to this scenario, the U.S. recession will be relatively “mild,” more like the 2000-03 recession than the Great Recession.

If the U.S. escapes with a delayed and relatively mild recession like it did in the wake of the late 1990s Asian crisis, the U.S. economy will have to pay a heavy price later on. First, as other countries face slower growth or outright recession in 2015, they will increase exports to the U.S. and cut imports from the U.S. Once again, the U.S. trade deficit, after being cut but not eliminated during the Great Recession of 2007-2009, will start to go grow rapidly. The more the U.S. domestic economy is shielded by the strong dollar from the “stabilization recession,” the larger the U.S. trade deficit will be and the faster U.S. indebtedness to the rest of the world will grow.

In other words, like when the world economy grew out of the Clinton boom and headed straight toward the Great Recession, we can expect to see a similar but likely even more devastating outcome in the years ahead.

In that case, the U.S. will have traded a 2015 recession for an accelerating long-term decline of the U.S. economy. In the long run, this could be even worse for the U.S. empire than a “panic of 2015” would be. In this sense, there will be no escape for the U.S from the recession that is now developing, even in the event the U.S. escapes a generalized recession for its internal economy for several more years.


1 The Crimea became part of the Russian Federated Soviet Socialist Republic after the October Revolution. In 1954, on the proposal of First Secretary of the Central Committee of the Soviet Communist Party Nikita Khrushchev, Crimea was transferred to the Ukrainian Soviet Socialist Republic. The reason often given for that move is that it was made for administrative reasons. The Crimea abuts Ukraine and is not geographically contiguous with the Russian Republic.

However, according to the memoirs of Soviet leader Dmitri Shepilov (1905-1995)—a former supporter of Khrushchev who later became a bitter opponent—Khrushchev was actually motivated by political considerations. According to Shepilov, Khrushchev believed that he was highly popular among the Ukrainian people and that adding the Crimea to the Ukrainian Soviet Socialist Republic would further strengthen his position as the central Soviet leader in succession to Stalin, who had died the previous year. Khrushchev came from Ukraine and was the long-time first secretary of the Communist Party of Ukraine, which had led the Soviet resistance in Ukraine to the German invasion. If Shepilov is to be believed, V.M. Molotov, another Soviet leader, expressed opposition to Khrushchev’s proposal but did not press the issue. (back)

2 While the government in Kiev that came to power in February 2014 consists of neo-liberal, pro-U.S. imperialist oligarchs—the president is a billionaire chocolate magnate—the U.S.-backed neo-liberals used Ukrainian fascists as shock troops to carry out the coup against the elected government. (back)

3 The success the first five-year plan in the teeth of the super-crisis stimulated the rapid growth of Communist Parties around the world, including the U.S. Communist Party. This rapid growth of the U.S. Communist Party was a crucial pre-condition for the rise of the Congress of Industrial Organizations, or CIO for short, and the reforms that the CIO made possible. However, a heavy price was paid by the Soviet people for the success of the first five-year plan under the conditions of the capitalist super-crisis that was then raging on the world market. This was especially the case within Ukraine, which was the Soviet Union’s main grain-producing region. (back)

4 Various opposition groups that had been active in the Soviet Communist Party, both to the left and right of the Stalin leadership during the 1920s, joined by some party members who had supported Stalin’s policies up to that time, began to express growing alarm over the consequences of Stalin’s policies. These oppositions feared that Stalin’s policies would destroy the workers’ and peasant alliance, the foundation of the Soviet state and lead to its downfall. The various opposition groups, however, had many differences among themselves.

Leon Trotsky, Stalin’s most famous opponent, was by then in exile but was maintaining clandestine contact with his supporters within the Soviet Union. Trotsky was actually reluctant to give full support to these new opposition currents because he feared a “right-left” bloc could bring down the Soviet regime much like the “right-left” bloc that bought down Robespierre in 1794 led to the victory of the big bourgeoisie over the French people.

Trotsky, however, did agree with the various oppositions that Stalin’s policies were wildly excessive and wrote an article entitled “The Soviet Economy in Danger“. Stalin himself moved to moderate the polices somewhat. (See speech “Dizzy with Success“.) Stalin, however, stuck to the essence of his industrialization policies until his death in March 1953, after which his successors began to moderate them. (back)

5 There were two main oppositions to the new Stalin leadership that emerged after the death of Lenin. One part of what was called the “Left Opposition,” led by Leon Trotsky, grew out of the “Moscow Opposition of 1923.” The other part, the “Leningrad Opposition” of 1926, was led by G. Zinoviev, head of the Leningrad Communists, and Lev Kamenev, who headed the Moscow Communist organization.

The other opposition, called the “Right Opposition” because it criticized Stalin from the right, emerged later, in 1928. This opposition was led by three members of the Politburo. They were veteran “old Bolsheviks” and had been close associates of Lenin: Nikolai Bukharin, leading Soviet theoretician and well-known Marxist economist; Soviet Prime Minister Alexei Rykov; and head of the Soviet trade unions Mikhail Tomsky. The “rights,” as they were called, had supported Stalin against Trotsky, Zinoviev and Kamanev but opposed Stalin’s decision to increase taxation of wealthier peasants and then launch a campaign of collectivization in order to finance a greatly accelerated pace of industrial investment.

The “left turn” by the Stalin leadership was in response to growing difficulties in collecting taxes in kind from the better-off peasants. The “rights” instead supported a policy of appeasing the better-off peasants by raising agricultural prices and easing up on tax collections. They believed that only such a policy could preserve the worker-peasant alliance and save Soviet power.

Historian Moshe Lewin (1921-2010), a “Labor Zionist” who lived at various times in Poland, the Soviet Union, Israel, France and the United States, was sympathetic to the Right Opposition. His “Political Undercurrents in Soviet Economic Debates: From Bukharin to the Modern Reformers” is a valuable study of the post-Stalin Soviet “reform” movement by a sympathetic observer. Lewin hoped the “reformers'” economic and political policies—which he saw as the continuation of the ideas of the Right Opposition—would lead to “democratic socialism” in the Soviet Union. Instead, as we now know, they led to the restoration of capitalism with all its consequences, including the current Russian economic crisis. (back)

6 When the New Economic Policy was launched in 1921, Lenin drew an analogy between the NEP, which was a series of concessions to the petty bourgeoisie and small capitalists by the Soviet workers’ state power and concessions to the workers’ movement made in capitalist states by the capitalist class holding state power. In this sense, both the NEP, which represented a retreat from socialism, made necessary by then existing circumstances in the young Soviet republic, and concessions to the working class by the ruling capitalists like allowing unions are both examples of “reforms” granted by the ruling class to the ruled class.

In contrast, as events demonstrated, many members of the reform movement that developed between the time of Stalin’s death in 1953 and Gorbachev’s election to the post of general secretary in 1985, did not represent the workers but rather a resurgent bourgeoisie that was attempting to expand capitalist tendencies in the Soviet economy. Their proposed “reforms” ultimately aimed at regaining state power for the bourgeoisie and fully restoring capitalism. The “reforms” they advocated were seen as partial steps toward this ultimate goal.

These types of “reformers” are quite different than Communist reformers such as Lenin. There were people in the Soviet Communist Party to the left of Lenin who opposed Lenin’s proposed concessions to the bourgeoisie at the beginning of the NEP. Lenin and the other Communist reformers launched the NEP with the belief that concessions to the class enemy were necessary to save the revolution but fully retained the long-term aim of building a full communist society.

Still later, inspired by the right-wing “reformers” in the Soviet Union that wanted in essence to “reform” socialism out of existence, reactionaries within the imperialist countries began to describe themselves as “reformers.” These “reformers” favor such “reforms” as weakening or eliminating trade unions, gutting social insurance, and so on. These “reformers” want to withdraw earlier concessions that the capitalist class has granted to the workers’ movement. The very concept of the word “reform” is thus turned inside out. (back)

7 Count Sergei Yulyevich Witte (1849-1915) was a Russian statesman who served as prime minister of the czarist government during the revolution of 1905. Witte advocated protective tariffs and other government policies to encourage capitalist industrialization of the Russian Empire, which he hoped would stave off revolution and thus save the empire by modernizing it. (back)

8 Washington would expect a “neo-Yeltsinite” government to among other things gag the Russian government-supported RT network—formerly known as Russia Today—which has hired many progressive journalists who expose imperialist policies of the Empire and even give a voice at times to the Empire’s revolutionary opponents. (back)

9 Formally the U.S. government does not have the authority to forbid U.S. citizens from traveling to any country they wish to visit. Instead, basing itself on legislation passed during World War I, U.S. citizens are prohibited from spending money in Cuba. It is long overdue for U.S. citizens, including those who do not support the Cuban revolution, to regain their right to travel anywhere in the world whether the government approves or not. (back)

10 For example, Washington hates Cuba’s famous socialized medical system, and the U.S. government has continued to refuse to set up a national health care system. Instead, we have the miserable Obamacare system, designed by the Republican Party and implemented by Obama Democrats, which forces U.S. citizens to purchase private insurance often at rates they can barely afford.

If U.S. citizens refuse to purchase insurance from private for-profit insurance companies, they are punished by punitive fines. The U.S. government under the so-called Cuban Medical Professional Parole Program begun under Bush and continued under Obama even has a program that allows Cuban doctors to “defect” to the United States from third countries where they are providing free medical for the poor. At the very least we should demand that President Obama end this disgraceful program! (back)

11 Not all automobiles purchased by U.S. consumers are produced in the U.S., so the U.S. economy will only be stimulated to the extent that U.S.-produced cars, or at least cars containing U.S.-produced parts, are purchased. (back)

2 thoughts on “Russia, Oil, the ‘Strong Dollar’ and the Economic Conjuncture

  1. Some things should be noted here.

    While it is true, in principle, that having a highly developed manufacturing sector is the most fundamental prerequisite for a country to develop, we should look at Russia’s particular contemporary situation.

    Since Soviet industry was largely destroyed during the Yeltsin years, the ability of Russia in competing with China in the production of consumer goods is practically non existent.

    While it is also true that colonial countries tend to export raw materials to the imperialists, Russia’s vast natural resources and her military power allow her (and will allow far more in the future) to enjoy serious benefits as well as serious leverage against the west.

    The fact of the matter is that oil and gas reserves on a global scale are dwindling. Russia is far and away the most well endowed country on earth in terms of oil and gas (forget the official estimates that place Russia number 6 in the world in terms of oil reserves, Russia is comfortably number one in both oil and gas)

    As oil and gas reserves around the world run out, their value in the global economy will tend upwards. Conventional oil and gas production in western countries has been declining markedly in recent years. This is true of USA conventional oil production, Canadian conventional oil production, North Sea oil production, Norwegian oil production etc etc.

    The recent increase in North American oil and gas production has been fully thanks to unconventional sources and methods. The US shale oil production and the Canadian tar sands production are both extremely expensive ways in which to extract energy resources. In fact, the shale producers of the US were losing money even with prices at 100 bucks per barrel. We can only imagine what is going on right now.

    And it is not only the inherent unprofitsbility of the US shale plays (as well as the Canadian tar sands) but also the fact that the shale oil reserves are fast running out. There is some more room for maneuver with shale gas, but that too is running out.

    These are problems that Russia is not facing. Quite the contrary, Russia is in possession of roughly one third of the world’s energy reserves.

    This brutal fact on its own, simply means that Russia will be in possession of extreme leverage over the west in coming years. This is precisely the reason for which the US Empire and its satellite States are choosing to attack Russia now, while there is still time. For in a few years, the west will be totally incapable of causing serious problems for Russia.

    We must also note here that current Western aggression against Russia in recent months, seems to have immensely benefited China by sending Russia right into the arms of the Chinese.

    My point is that Russia is in a far stronger position than is generally acknowledged. The North American unconventional oil boom is simply unsustainable and this will massively benefit Russia a few months or at maximum years down the line.

  2. unless oil’s halcyon days are numbered as Saudi’s are claiming, in which case Russia’s position is far weaker (and more dangerous).

    while oil may be harder to extract on average, the reliance on oil for power (auto primarily) is extremely suspect, thus lower demand is not far fetched over the next 100 years

    Again a weak Russia in the arms of the Chinese is dangerous. With China’s rise i have no idea why the West isn’t coddling Russia and building stronger ties. sigh.

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