Russia's economic expectations

Sergei Shishkaryov, deputy chairman of Russia's State Duma Committee
on Foreign Affairs recently said, "Something is rotten in the kingdom of
America." He spoke of "European concerns about growing problems in the
American economy."

Russian analysts are abuzz with talk of a coming U.S. economic crash.
Some have stated that the collapse of the U.S. dollar is imminent. According
to the recent testimony of Russian economist Tatyana Koryagina, the American
dollar will soon be used as “wallpaper for toilet stalls.” In anticipation
of a crash, Russia officially adopted the gold chervonet as legal tender on
July 10. This is an unusual move, apparently modeled on what Lenin did 79
years ago in order to stem the tide of ruble inflation in the early Bolshevik
economy.

This column has touched on the fact that Russia has been slowly
phasing the U.S. dollar out of various economic sectors. Now we see that a
new gold currency is being established, which the Kremlin hopes will drive
the dollar out of Russia altogether. In fact, there has been talk about
banning the use of U.S. currency. (An unwise idea, which would only make the
dollar more romantic than ever.)

With regard to the Kremlin's move toward gold, economist Tatyana
Koryagina told the Duma on June 29, "I am closely watching the measures taken
by the President [of the Russian Federation] and the Central Bank. From the
standpoint of pre-crisis measures, they are acting properly. It is possible
that after August 19, the ruble might become a rather good currency.”

What does she think will happen before Aug. 19?

Pavl Bykov, writing in the Russian financial weekly, "Ekspert," also
expressed satisfaction with Russia's move toward gold. "Withdrawing some
amount of rubles from circulation and replacing them with chervontsy minted
in the former Soviet Union ... is not a bad combination," wrote Bykov. "All
the better if the chervonet manages to crowd out the U.S. dollar and Russians
start using it as an alternative savings and currency."

Is the dollar about to crash? Are the Russians taking these measures
to insulate themselves from a Western economic implosion?

For many decades the world's anti-capitalists have awaited the crash
of the free-market system (or, what amounts to the same thing, the collapse of
the dollar). America’s strength is psychologically bound up with her economy
and currency. Should the American economy stumble, the United States could
be plagued by urban unrest, military collapse or social revolution.

It should be clear, though many will not understand, that Russia and
China have long wished for a collapse of the American economy. The resulting
power vacuum would be readily filled. At the same time, America is infested
with socialists and leftists who would cheer the failure of capitalism. This
would be their opportunity to say, "We told you so."

The embittered public would be tempted by leftist rhetoric. The words
of free-market advocates would be scorned. Freedom itself would be imperiled
by crazy socialist schemes. There is no doubt that our political heritage
would be endangered.

All of this leads me to recall the words of a high-ranking communist
bloc defector, Jan Sejna, who wrote about the arrival in Prague of Secretary
Konstantin Katushev of the Moscow Central Committee. He came to give the
Czech communist hierarchy an oral briefing.

According to Sejna, the Czech leadership was uneasy about Russia's
long range strategy. They felt the plan was "quite unrealistic." Sejna
wrote in his memoirs that, "[Katushev] countered our skepticism by telling us
that the United States was a volatile society. 'It can move to either
extreme,' he said, 'as we've seen. ... If we can impose on the U.S.A. the
external restraints proposed in our Plan, and seriously disrupt the American
economy, the working and lower middle classes will suffer the consequences
and they will turn on the society that has failed them. They will be ready
for revolution.'"

It is interesting to note that in Russia's 1998 default and crash, the
U.S. financial system was (by some reports) almost dragged down in the
undertow. In other words, an economic chain reaction begun in Russia could
affect us here. That is one consideration. Another one involves the rising
tensions in the Middle East. Then there are the Chinese and North Korean war
preparations in the Far East.

Taking all this into account, the economic expectations of Russia are
not without reason. For many months we've seen things building on a number
of fronts. At some point a crisis is inevitable. But is our nation
prepared?

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