Natylie Baldwin's Blog, page 111

Patrick Armstrong: “LISTEN TO WHAT HE’S SAYING”

By Patrick Armstrong, Website, 12/30/23

I’m fond of quoting the Duke of Wellington on intelligence:

All the business of war, and indeed all the business of life, is to endeavour to find out what you don’t know by what you do; that’s what I called ‘guessing what was at the other side of the hill.’

“Find out what you don’t know by what you do“. It’s not easy, it’s not necessarily pleasant but it’s what you have to do in order to minimise your surprise when whatever it is actually comes over the hill at you.

Here’s former British Ambassador to Russia Laurie Bristow saying the same thing:

My advice to all young diplomats and analysts [is that] if you want to understand Mr Putin’s foreign policy, listen to what he’s saying. You won’t like it, but you need to understand it, you need to listen to it. The place to start is the Munich speech in 2007.

“Listen to what he says”. It’s quite easy to. Putin has said a lot and most of it appears on the Presidential website in English as well as the original Russian. Never read what the Western reporters say he says – they almost always distort it – read the original. I’m sure that both Wellington and Bristow would agree.

And that’s what intelligence is all about. Try and understand how the other guy sees things. I have spent the last four decades trying to figure out what’s going on in Russia. I do that by reading what they say and watching what they do and trying to connect the two. Of course you should listen carefully to Putin and other officials, but there’s lot’s more you have to do. A country with a space program like Russia’s probably doesn’t need to steal washing machines for their chips. The West outsourced its manufacturing, Russia didn’t; so Russia can probably make lots of weapons if it has to. Putin has very high levels of support; outsiders probably can’t weaken it. The Russian economy is very self sufficient; sanctions might not have much effect. Russia’s making lots of new infrastructure; it’s not some poor country struggling along. Check these videos out: they’re Google street views of Russian towns ten years apart; the Western media certainly gives you a different impression about life in the Russian boondocks, doesn’t it? Look, listen, think. I’m sure that both Wellington and Bristow would agree.

If you don’t bother, if you blither on about “your values”, the “Rules-Based International Order” and your power and excellence, all you’re doing is looking in the mirror and seeing a slim muscled figure in place of your flabby overweight body. And, sooner or later, you’ll be very sorry because reality will bite you.

I have written many times on this site about bad Western intelligence and the unending stream of nonsense spewed in the West about Putin. Indeed, if there is one big theme of my website it’s that the Western view of Russia and Putin is almost completely false. In a word, Russia is much much stronger, in every way, than the Western establishments thought it was.

This is all being revealed in Ukraine right now: the Western “experts” were all wrong. March’s A total Russian collapse is surprisingly close puffs itself up to May’s Putin is terrified of Ukraine’s counteroffensive; then the bubble bursts and the very same “expert” declares Ukraine is losing, but the UK must stand by it. Their false expertise has cost thousands and thousands of lives. More and more witnesses have appeared to say that Kiev and Moscow had almost reached an agreement that would have stopped the fighting when the West encouraged Kiev to keep fighting. The reflection in their mirror told them that Western “game changer” weapons would terrify Putin’s unmotivated, poorly trained conscripts and their junk weapons. Here’s RAND, a year ago, solemnly pronouncing Russia’s failure:

Also, over the longer term, Russia does not have the capacity for a long war in the face of economic sanctions. Although Russia can continue to generate revenue from oil and gas exports, it does not have the ability to manufacture advanced weapons or even sufficient materiel to keep the Russian army fielded.

Then reality bit. The Western spinmeisters now redefine success, decide that victory doesn’t involve keeping territory and strengthen resiliance.

The bargaining stage of Kubler-Ross’ five stages.

Andrew Korybko: The Five Messages Sent By Russia’s Largest Aerial Barrage Of The Special Operation Thus Far

By Andrew Korybko, Substack, 12/29/23

Some are surprised that Russia would escalate matters at this sensitive moment in the conflict when everything is finally beginning to wind down.

The Russian Defense Ministry confirmed on Friday that it launched 50 group strikes and a massive aerial barrage against a wide array of military targets in Ukraine over the past week, including defense industry sites and depots, in what Kiev claimed was the largest such attack during the special operation thus far. This came as the front lines have largely frozen, Western support has dwindled, and leading media like the New York Times are actively debating whether peace talks should finally resume sometime soon.

Some are therefore surprised that Russia would escalate matters at this sensitive moment in the conflict when everything is finally beginning to wind down since its largest aerial barrage thus far could lend credence to those who claim that the West must support Ukraine “for as long as it takes”. The supplementary context within which this unprecedentedly large-scale attack took place helps observers better understand why Russia carried it out and what messages it sought to send by doing so.

For starters, Russia acknowledged that Ukraine damaged one of its landing ships in eastern Crimea earlier this week, which some suspect was caused by Kiev being in control of British Storm Shadow air-to-surface cruise missiles with a longer distance than previously reported. It was therefore important for Russia to respond to this escalation by its rivals in an overwhelming way in an attempt to deter them from other forthcoming ones whether with those same missiles or through whatever other means.

Second, Zelensky had recently ordered his forces to fortify the entire front after the failure of this summer’s counteroffensive, so Russia likely wanted to signal that no amount of trenches and other obstacles can impede the pace of its special operation as the Kremlin prepares for a possible offensive. Any slowdown on Russia’s side could be misinterpreted by its rivals as weakness and a willingness to freeze the conflict along the Line of Contact in spite of its three primary goals having yet to be achieved.

These are demilitarizing Ukraine, denazifying it, and restoring that country’s constitutional neutrality, which President Putin recently reaffirmed that he’d like to achieve via diplomatic means but that he won’t shy away from continuing to pursue them via military ones if that isn’t possible. He also candidly admitted during the same event that he used to be naïve about the West. Taken together, these statements form the third message that he wanted to send, namely that he isn’t a pushover.

If the front lines remained largely frozen and Russia didn’t step up its aerial assaults even if its landing ship hadn’t just been damaged, then his aforesaid admission wouldn’t have been believed by the public, who might suspect that he was lying to cover up for speculatively impending concessions for peace. These latest strikes therefore served to bolster his credibility at home in parallel with showing the West that he’s indeed serious about achieving his three primary goals one way or another no matter what.

The fourth message is that Russia wants Ukrainians to further doubt the wisdom of Zelensky’s new conscription drive and messianic delusions of maximum victory, the latter of which were disclosed in Time Magazine’s cover story last fall citing an unnamed senior aide, and thus divide society. He’s desperately trying to eschew responsibility for the counteroffensive’s failure that led to this unpopular drive, which is exacerbating preexisting tensions between him and his rivals, especially Zaluzhny. 

So serious are these tensions that an expert from powerful the Atlantic Council think tank recently called on Zelensky to form a “government of national unity” in order to mitigate “justifiable public anger toward the authorities” that risks undermining his rule even more than it already has been. By showing Ukrainians that it can still strike wherever it wants at will and at an unprecedented scale in spite of their side digging in, Russia wants to encourage them and their elite to rise up against him to stop the conflict.

Finally, the last message that Russia sent through its largest aerial barrage so far is that it’s winning the “race of logistics”/“war of attrition” by such a wide margin that nothing that the West could realistically send Ukraine in the coming future will change these dynamics. Japan’s export of Patriot air defense systems to the US, which will allow the US to replace its own that it plans to then send to Ukraine, won’t make a difference, nor will whatever else the West and its vassals end up giving that country next year.

The very fact that Russia could launch such an attack 22 months into the conflict after all the air defenses that its rivals have already given Ukraine is the most compelling proof yet of its victory over NATO in the abovementioned “race”. If their aid was really as effective as their perception managers spun it as being, then this would never have happened since Russia wouldn’t waste valuable missiles and drones. Instead, it shocked and awed Ukraine and the West, which left a deep impression among both of their societies.

What just happened is a sign of what’s possibly to come if those two don’t comply with Russia’s requests for demilitarizing Ukraine, denazifying it, and restoring that country’s constitutional neutrality in exchange for it freezing the conflict the Line of Contact. As President Putin said in mid-December, “our troops have the initiative…we are doing what we consider necessary, what we want”, and this will continue from here on out until Russia’s three primary goals are achieved one way or another.

RT: Moscow’s anti-sanctions tsarina: What a woman leading Russia’s Central Bank says about economic war with the West

RT, 12/28/23

The head of the Bank of Russia, Elvira Nabiullina, has held the position for more than ten years. When she was just starting the job, the world media highlighted that Nabiullina had become the first woman to run a central bank in a G8 country. Now, however, Western media talk about her in a completely different context. Not long ago, Politico magazine named her “disruptor of the year” because she “has managed to stave off the effects of unprecedented Western sanctions designed to drain the Kremlin’s coffers.”

In her first interview since Russia’s military engagement with Ukraine began, Nabiullinatold RBK about the toughest sanctions and the delayed key-rate increase, and specified whether subsidized mortgages will become rare in the future.

This is a complete translation of this interview, made by RT especially for our readers.

“This is a highly negative signal for all the central banks”

— The financial sector was the first one to get hit by the sanctions. The largest banks fell under blocking sanctions, their reserves were frozen, currency restrictions were imposed, and the banks were disconnected from SWIFT. What was the most unexpected and difficult challenge for you?

— We have been living under sanctions since 2014 and, therefore, have always considered the risk that the sanctions may increase. We did a lot of work in this respect and conducted stress tests with many financial institutions. Therefore, when the major banks fell under sanctions, they were largely prepared for it. Disconnection from SWIFT has been a threat since 2014, so we created our own national payment system. We diversified our reserves and increased the share of yuan and gold reserves. International payments were actually the biggest issue, and we are still working on it. Blocked and frozen individual assets are also a painful subject since millions of people who were not sanctioned ended up with frozen assets. We are still trying to solve this problem together with the government.

As for the frozen reserves, I think this is a highly negative signal for all the central banks, because it violates the basic principles of security. But in this regard, we were aided by the floating exchange rate and the currency restrictions, which we adopted last spring and which were quite severe. Later, as you remember, these restrictions were weakened. This helped us mitigate financial stability risks.

As you rightly mentioned, the financial sector was the first one to get hit by the sanctions – and there were a lot of sanctions, not just the ones you mentioned. But in general, we managed to maintain financial stability.

— Do you think that the sanctions pressure will increase, particularly in regard to the financial sector?

— It is impossible to predict the sanctions policy. But we calculate a scenario with increased sanctions pressure, and every year we present it in [the report called] ‘The Main Directions of Monetary Policy.’ There is definitely a certain risk. The main thing we can do to counter this risk is to ensure macroeconomic stability and financial stability. For example, we offered banks a wide range of easing measures but [now] began to roll these back. We believe that banks should again increase their capital buffers in case of possible shocks. These include not only sanctions but shocks related to financial conditions, and so on, which [the banks] must be able to withstand. Therefore, first of all, we need to understand the risks and be prepared.

— Politico magazine called you the “disruptor of the year” – among other things – for helping Russia adapt to the sanctions. Do you agree with this? And in your opinion, have we overcome all challenges? Are there any new shocks ahead?

— It’s hard for me to answer the first part of the question. I believe that the central bank has long pursued a policy aimed at protecting incomes from devaluation as a result of high inflation, and we will continue doing so. [We have also worked on] ensuring the stability of the financial sector, which would allow people and businesses to preserve their savings and provide financial resources for economic restructuring. We see that economic restructuring is happening quite quickly. This is primarily due to the market-based nature of our economy and the business [sector], which has adapted very quickly.

Of course, we may be tempted to think that we did so well in 2022, and now, as they say, we have weathered the storm. But we must be prepared for increased sanctions and pressure. We were able to respond to the main challenges, particularly in the financial sector, but even in that sector, there are still unresolved problems, including cross-border payments. Yes, [payment] chains are being constructed, and they are constantly changing, but [cross-border payments] remain a problem for many businesses. However, according to our surveys, this problem has become slightly less severe.

Trust in the financial market is still a challenge due to blocked assets, and because many issuers have closed [access to] information due to sanctions, and so on. For us, the challenge is long-term money in the economy, and not only long-term loans but the capital market as well.

The goal of developing the capital market is very serious. We will need to overcome a certain loss of confidence in the financial market due to the sanctions.

Another challenge is to maintain the same pace of development in the fields of innovation and technology. Our financial sector is quite advanced – many people now understand this, comparing [our system with that of] other countries in terms of payment methods and so on. To continue on this course of development, we need to develop innovations. Moreover, some solutions – not all, but some – used to rely on foreign [technological] developments. Now, we’re doing it on our own. And, by the way, we see how this affects the availability of IT specialists, programmers, and other experts in all fields.

Therefore, there will be certain issues, we cannot say that we have solved all the challenges. However, I have a rather positive outlook on the development of the financial sector and its stability. I believe it will remain technologically driven, innovative, and will be able to meet the needs of both individuals and businesses.

“Looking back, we see that the policy was soft”

— This year, around mid-summer, the central bank began raising rates. Looking back, would you say this measure should have been implemented earlier?

— There’s been a rise in inflationary pressure in the second half of the year. Currently, the price growth rate is really quite high, well above our inflation target. Yes, looking back, we see that the monetary policy was soft, and we should have raised the rate earlier.

— When?

— In the spring, for example.

— You said that the key rate will remain high until the Bank of Russia sees a fairly stable trend towards slower price growth and lower inflation expectations. What parameters will you rely on? Will a slowdown in inflation over a period of two to three months be enough to make a decision on easing the monetary policy?

— We will indeed have to make sure that inflation is on a stable decline and that these are not one-off factors that affect the rate of price growth in a particular month. That’s why we analyze a wide range of indicators – not only the general price growth index but particularly the indicators that characterize the stability of inflation. These include core inflation and the price growth rate without the consideration of volatile elements. [Also, we look at] the price growth rate on the goods and services that are less dependent on the ruble exchange rate. We will need to make sure that the decline in the stable [rather than one-off] price growth factors is in itself a stable trend.

This will take at least two or three months – it will depend on a wide range of indicators that characterize stable inflation. And, of course, inflation expectations are very important. These remain high and, according to recent polls, have further increased. High inflation expectations demonstrate inert inflationary processes. The higher the inflation expectations, the more difficult it is to reduce inflation. Therefore, we will consider all these factors.

— Just when things started slowing down and inflation expectations were about to decrease, egg [prices] had to surge and ruin everything.

— This is one of the parameters. When the price growth rate is high, something unexpected constantly happens. I remember in 2021, prices suddenly increased first on this product, then on that one. We may be tempted to associate high inflation with a specific product. But, unfortunately, there are general reasons [for the inflation]. First of all, this happens when a high growth in demand exceeds the supply.

— How long will the factors that boost inflation – such as high demand, record-high fiscal stimulus, and low unemployment – last?

— Some of these are long-term factors. This includes the situation in the labor market and low unemployment. But I believe this factor will actually determine supply [by influencing] the pace at which supply adjusts to the demand.

As for the fiscal stimulus, we indeed have a stimulating fiscal policy, but we expect that in 2024, it will decrease compared to 2023.

Consumer demand is indeed high, but it is directly influenced by our monetary policy and the key interest rate. There is a certain time lag between our decisions and their implementation in the economy. This is a long chain – after the key rate increases, the market rates on deposits and loans increase. This, in turn, affects the number of bank deposits and loans and influences people’s behavior – whether they will spend money, save it, and so on. And only after all of that does it affect prices. According to our estimates, the response lag is three to six [fiscal] quarters.

— It is still three to six quarters, so it isn’t getting longer?

— It’s still the same. We do not extend this period, but, of course, certain solutions may be implemented faster than others. It depends on other factors as well – inflation expectations, the dynamics of the exchange rate, and many other things. Therefore, in general, we assume that the decisions regarding the key rate are effective, we see that they are effective. They work, taking into account the response lags. We will assess how the effects of the previous decisions are being implemented in the economy.

— In September, you said that high interest rates in Russia will last for a long time. It seems that this has only fueled the demand for bank loans. Do you think that such a clear signal has, in a sense, played against the central bank?

— No, I don’t think so. Of course, there may be certain consequences, but they would have been indeed serious if inflation continued to rise and we increased the key rate very slowly. Then people would have realized that inflation is not about to slow down, that it would continue to increase, and the interest rate would continue to rise. But we tried to act decisively. Just to remind you, in six months, we have increased the interest rate from 7.5% to 16%. And each time, we assess whether the monetary policy is sufficiently rigid to achieve our inflation target of around 4% by next year.

The effects are already evident when it comes to market loans – for example, the demand for market-based mortgages is slowing down. Of course, certain demand is increasing – for example, the demand for subsidized mortgages: People try to quickly apply for such mortgages since when interest rates rise, the difference between a standard-rate mortgage and a fixed-rate subsidized mortgage makes it more attractive. But this actually relates to the scale of government subsidies more than to monetary policy.

“If oil prices reach $88-$90 per barrel, we can switch to buying foreign currency”

—In January, the central bank will resume the mirroring of fiscal rule-based regular operations by the Russian National Wealth Fund. The Bank of Russia remains a net seller of foreign currency, but will it also be a net buyer?

— Whether we will be a net seller or a net buyer largely depends on oil prices. If oil prices remain at their current level, we will be a net seller of foreign currency. If oil prices reach $88-$90 per barrel of Brent oil, then we can switch to buying foreign currency. In January, we will sell foreign currency. We will soon announce the operations that will happen in January.

— Do you consider it necessary to extend the presidential decree on the repatriation of foreign currency earnings, which expires in April 2024? You have always said that such measures should be temporary.

— I believe it should be a temporary measure. We indeed see that the amounts of foreign currency sold by exporters have been increasing. As of November, net sales of foreign currency by exporters came close to 100% of the revenue. But there are several factors [that we must take into account]. First of all, the currency is mainly sold by exporters, and this is driven by the high oil prices that we’ve seen in the past months.

Response lags exist here as well – between high oil prices, the arrival of export revenue, and the sale of currency. Mostly, the currency was sold due to high oil prices. There were [also] one-off factors related to foreign currency conversion for dividend payments. Plus, we’ve seen that some exporters, due to the high interest rate on ruble loans – which is also a result of our monetary policy — began taking foreign currency loans and then selling the currency to pay for their expenses in rubles. And, of course, the presidential decree also played a part. But it is probably impossible to isolate the effect of each particular factor now.

We believe the decree should be temporary because, over time, companies learn to circumvent the imposed restrictions. Plus, such restrictions make it difficult to make international payments, including payments for imports – such as the necessary equipment imports and so on. Therefore, we believe that [the decree] should be temporary. However, we will soon discuss this matter with the government.

— Is the sale of foreign currency revenue still a decisive factor for the ruble exchange rate?

I don’t believe so. The decisive, fundamental factors that affect the exchange rate include the state of the balance of payments, our exports, and the demand for imports in ruble terms. This demand has been fueled by the availability and rapid growth of ruble loans, among other things. So presently, the monetary policy clearly affects the stabilization of the exchange rate.

— So, in March, when the decree expires, we will not see any drastic changes in the situation on the foreign exchange market? 

— We don’t expect that to happen.

— You mentioned the challenges for businesses [that may arise because of the decree]. There is something called “ruble circulation” – i.e. exporters who receive revenue in rubles under the terms of their contract need to convert it into foreign currency, return it, and convert it once again. Do you see the risks of such a double conversion?

— There is a certain problem related to the fact that many companies have switched to receiving export revenue in rubles. Though generally, this is a positive [trend]. When they are forced to convert a part of their revenue into foreign currency in order to sell it later, this increases the turnover of the foreign exchange market, but for companies, it simply implies additional commission fees for converting the currency. This has no major impact on the exchange rate.

— It has a greater impact on business.

— On business, yes. In terms of certain additional fees.

— Will there be any adjustments to the decree in this regard?

— This will be decided by the government.

“Banks will continue to make a profit”

— This year, we expect a record net profit for the banking sector. This has partly been a result of the currency revaluation, but that was a one-off factor. Are there any fundamental reasons why this year was so successful for the banks, or was it just luck, and next year could be much worse?

— Most of the reasons behind the profit growth are fundamental ones, although there were also certain one-off factors, such as the currency revaluation. In 11 months, banks earned a profit of 3.2 trillion rubles, including about 500 billion rubles, as a result of the currency revaluation. I’ll remind you that last year, they lost one trillion rubles due to the currency revaluation. But of course, the fundamental factors have been more important.

One of them – and it came as a surprise to many people – was how quickly the economy adapted to the sanctions and how quickly it has grown. Of course, this means better business for banks. Look at the figures for yourself: As of the beginning of December, corporate lending increased by 21% year-on-year, mortgages increased by 35%, consumer lending grew by 16%, and the commission incomes of banks increased by 38%. All this shows the development of the economy and the development of business.

But when we estimate the profits of the banking system, it is very important to look at the total two-year profit. Last year, bank profits amounted to just 200 billion rubles, they decreased almost ten times. In the economy as a whole, profits decreased by about 10%. Why did this happen? Because the banks acted in a conservative manner – and they were right to do so. They created reserves, expecting that some of the loans they provided would cease to be serviced since many businesses could get into financial trouble. But since the economy has been growing and loans are being serviced, the banks judge borrowers to be solvent, and they have dissolved these reserves this year.

But when we consider two-year profits, the average profits will probably be 1.7–1.8 trillion rubles. This is about a quarter less than in the ‘normal year’ of 2021.

Profits will remain positive next year, even without taking one-off factors into account. And this will allow banks to increase their capital. The banks have practically no other sources [of capital] – there is no access to external sources, so profits are their main source of capital. And capital is necessary in order to provide loans to economic sectors – without it, it is impossible to increase [the number of] loans. Therefore, banks will remain profitable and will continue to provide loans.

— Even at the current interest rates?

— Yes, even at the current rates. We’ve seen that lending has slightly slowed down as a result of high interest rates. I have already mentioned [the decrease in] mortgages and unsecured consumer lending. The first signs of this appeared in corporate lending. However, due to high inflation expectations, people and businesses took more loans because they believed that inflation would remain high. Therefore, inflation expectations are very important to us, and we are monitoring them. We expect that next year, lending growth won’t be as high as this year, but it will remain positive. In general, it will be about 5-10%.

— Large banks are planning to provide a fewer number of unsecured loans and mortgages in 2024. How will this affect their profits in 2024? Will the average profits that you mentioned – 1.7-1.8 trillion rubles – be exceeded?

— So far, we expect that the profit of the banking sector next year will be slightly over two trillion rubles. Due to high rates, the margin may slightly decrease, particularly since high interest rates are passed through to deposits more quickly than to borrowers and lenders. But nevertheless, economic activity is developing, there are positive growth rates, and [the banks] will earn profit.

“Subsidized mortgages will not be a rarity”

— The conditions for providing subsidized mortgages have already been made more strict. Could such mortgages become a rarity next year? Or perhaps all mortgages will become rare, considering the current interest rates?

— No, of course, mortgages will continue to be in demand. According to our estimates, this will not be a 35% growth, as this year, but around 7-12%. On the positive side, as a result of the decrease in the number of loans, real estate prices won’t grow as much. Because housing prices have also significantly increased.

Subsidized mortgages will not become a rarity. We assume that the large-scale subsidized mortgage program will end in July, but, for example, the Family Mortgage program will remain effective. This is a very popular type of mortgage. Family mortgages are now about the same in size as general subsidized mortgages. Therefore, subsidized mortgages will remain and, of course, will not be as “exotic” as they were before 2020. Moreover, market-based mortgage [programs] will develop. This process has slowed down a bit, but market-based mortgages continue to develop.

— The government has already agreed to increase the size of down payments and reduce the loan amounts on subsidized mortgages for the residents of the country’s main regions. Is the idea of differentiating mortgage rates by region, which was proposed a while ago, still relevant? If so, how much can we expect mortgage rates in Moscow and St. Petersburg to rise?

— Yes, we are discussing regional mortgage programs. A special working group has been set up in the State Duma, and we are a part of it. The Family Mortgage program is likely to remain. We will soon talk about extending it and the possible requirements. Family Mortgages are part of targeted mortgage programs.

There are indeed challenges since, in a number of regions, the housing market is stagnating. We see that the construction of new housing and affordable mortgages are mostly available in large cities. But we must give people a chance to solve their housing problems regardless of where they live. We will discuss how this may be done.

And, of course, we will also need to leave room for market-based mortgages. After all, people who do not fall under any preferential category or targeted social support program should be able to solve their housing problems with the help of market-based instruments.

— Could you list any regions that may take part in the subsidized regional mortgage program? What mortgage rates could be acceptable for them?

— It’s too early to answer both questions. Probably, it would not even be correct to consider a certain region as such. Because often, in the region’s major cities, the situation is acceptable, while in medium-sized cities or small towns, there are major problems.

I believe that we need to consider this subject in more detail, but all this requires discussion. The management of these programs and the criteria are very difficult issues. We have a working group – I think it will discuss all these possibilities. But, once again, the Family Mortgage program will most likely remain the basic [subsidized mortgage program], while the regional mortgage program requires additional discussions.

— The Bank of Russia pointed out the current imbalance in the mortgage market – prices on new housing (first-sale units) are a lot higher than on existing housing (resale). This fall, the gap exceeded 40%.

 – Yes, it was 42%.

— What are your expectations after the forthcoming changes in the terms of the subsidized programs next year? Will this gap shrink, and if so, to what extent and how fast?

— I believe the gap should shrink. Because it carries risks for people and for banks. Before the introduction of large-scale subsidized programs, the gap was about 10%.

In the next few years, we should go back to the normal pricing gap between the new housing market and the existing housing market. How quickly this will happen will depend, among other things, on the subsidized programs – whether they will cover only first-sale housing or resale housing too. In my opinion, these programs should solve the challenges of people, providing them with affordable housing, rather than just supporting developers. If people improve their living conditions, it doesn’t matter whether they buy a new or resale property. But this also must be discussed with the government since the government is responsible for the subsidies. But I believe the gap should at least stop growing, because it kept growing last year as well, so it should begin to slowly shrink. But now, it is probably too early to talk about the pace at which [this gap] will shrink.

“Are there any issues that haven’t come to light yet? Probably, there are.”

— For the first time in many years, the central bank has not revoked a single banking license in the course of the year. For anyone who follows the financial market, this is a very unusual situation. How did it happen? Are our banks so resilient or…

— They are resilient.

— Or maybe some of the challenges haven’t come to light yet, after the shocks of last year? What do you think?

— The sanctions crisis that we experienced last year and this year was a test that demonstrated the effectiveness of our policy. And I can confidently say that the banks are indeed resilient – they coped with so many problems and survived this period well.

Are there any issues that haven’t come to light yet? Yes, probably there are, but these are not major problems. They include the blocked assets of banks. We have implemented easing measures so that [the banks] can create reserves within a period of ten years. When it comes to other regulatory concessions, we are gradually rolling them back. We are returning to normal regulation and to creating additional buffers.

— So 2024 may also pass without any revoked licenses?

—I hope so.

— Unexpectedly for the market, Vladimir Komlev – the head of the Russian National Card Payment System (NSPK) – recently announced that he would be leaving his post on January 1, after ten years in office. Could these changes indicate that the central bank intends to change the NSPK’s course of development?

— No, the course of development will remain the same: The creation of a national payment infrastructure. This has always been the goal of the NSPK and will remain so. The development of this infrastructure, which can be used by all the players in the financial market, ensures [healthy] competition. Both the central bank and NSPK will continue to pursue the same path.

And, of course, I would like to thank Vladimir Valeryevich [Komlev] – he has done a lot to provide Russia with its own national payment system – the Mir bank card and the Faster Payments System. Because when we started these projects in 2014, I remember how much skepticism there was. [People said], “Who needs this? We have Visa, we have Mastercard, we have other payment systems.” But we see that it turned out to be profitable. And these services, including the Faster Payments System, allow different banks to compete in the payments market.

“There are risks of investing in foreign securities even through friendly countries”

— The St. Petersburg (SPB) Stock Exchange was included in the Specially Designated Nationals (SDN) list. The regulator was reproached for allowing private investors to buy foreign securities, although unqualified investors were restricted from doing so. Where can we draw the line between protecting the interests of individual investors and offering a wide range of tools on the [financial] market?

— Finding balance is really difficult. We should give people an opportunity to diversify investments, but at the same time, protect them from risks that they may not be able to understand. We focus on protecting the unqualified investor. Indeed, our people had the opportunity to invest in foreign securities so that they could diversify their investment portfolios. And if they hadn’t had a chance to do this through Russian infrastructure, many would have done it directly through Western infrastructure.

After the sanctions were imposed, we warned about the [infrastructure-related] risks and restricted unqualified investors from buying foreign securities.

By February of last year, our investors owned almost $7 billion worth of foreign securities. As of November of this year, that number decreased to just over $3 billion. So, over this time, people have significantly reduced investments in foreign securities. And now, over 80% of holders of foreign securities are qualified investors.

Of course, there are risks of investing in foreign securities even through the infrastructure of friendly countries. We warned about these risks and obliged brokers to inform their clients. It’s one thing to work in a Russian jurisdiction, but it’s another thing to be responsible for the risks of a foreign jurisdiction. We see that our concerns were not in vain because many investors who owned foreign securities through the infrastructure of friendly countries met with challenges. Due to the risk of secondary sanctions, these organizations are now conducting lengthy compliance procedures.

— What does the central bank think about the fate and future prospects of the St. Petersburg Stock Exchange?

— Many of our large financial institutions are under sanctions. You can see for yourself that almost all of them have adapted, changed their business models, and continue to develop. I am sure that the St. Petersburg Stock Exchange will not be an exception. It is already considering new services and new products, and it possesses a high-tech infrastructure and is professionally competent. Therefore, I don’t feel worried about it.

— You mentioned that the Bank of Russia is considering scenarios of more severe sanctions. Do you consider it probable that sanctions will be imposed against the Moscow Stock Exchange? And in such a case, which currency trading scenarios will be implemented to determine the exchange rate?

— We consider different scenarios and different options of how to act [in such a case]. And so does the Moscow Stock Exchange. As for the functioning of the foreign exchange market, we also have an off-exchange market that offers currency trading. By the way, it already accounts for more than half (53%) of currency trading. As for the exchange rate mechanism, assessing various sanctions risks, last year, we issued an instruction explaining how the exchange rate would be determined. It will be established on the basis of off-exchange trading data, including bank reporting.

— In the absence of exchange trading, can off-exchange trading rates spin out of control?

— No, I don’t believe there will be [such risks]. It depends on the supply and demand [of the currency]. We have a fairly large off-exchange trading volume, and there are many players. However, we will need to obtain information about off-exchange transactions, so we will make use of different sources. But I don’t think that this in itself can seriously affect the exchange rate.

“There is interest, but it is weighed against the fears of sanctions”

— How do you assess the possibilities of an exchange of blocked assets between private investors? Are you aware of cases when non-residents asked national regulators for permission to carry out such operations?

— We have created the legal conditions that are necessary for such an exchange to take place. We believe this can be mutually beneficial for investors. But then, everything depends on the investors themselves, and primarily the non-residents. Currently, I have no information on whether they requested such [permission] or not.

— If everything works out and this stage of the exchange process takes place, will there be other steps? And will you increase the maximum amount that may be exchanged?

— Let’s first see if it happens, and then we will talk about it further. Because this stage is very important. It is aimed at helping a large number of investors, those with small investment amounts.

— The central bank discussed plans to build new chains with friendly depositories in order to gain access to foreign markets – but clearly, only friendly foreign markets. How are these plans going? And what kind of depositories are these?

— Indeed, building depository bridges is very important. We see that there is a need for this. We are holding talks with regulators of friendly countries to ensure that such projects are implemented. By the way, in September, we adopted a decision made by the board of directors and removed some regulatory barriers to constructing such bridges. If necessary, we are ready to make further adjustments. We see that the market players are also strengthening their cooperation. But so far, it’s too early to talk about final decisions. [The matter] is currently at the stage of discussions and [of seeking different] approaches.

— Can you specify what kind of friendly depositories these are? Are they in neighboring or far-away friendly countries?

— [We’re talking about] all friendly depositories.

— Do you feel that the other side is interested in this?

— There is interest, but it is weighed against the fears of secondary sanctions.

“There is always a chance that some people will engage in unfair practices”

— The president recently proposed extending the insurance of funds so that it would cover investment accounts up to 1.4 million rubles. However, this insurance will cover only the risks associated with the broker’s bankruptcy, not market risks. Do you have any concerns that unfair practices may arise since market players may tell clients that everything is insured, so they should “invest boldly”?

— Yes, we have such concerns. Because there is always a chance that some people will engage in unfair practices. We have already seen this. Particularly in cases when investment products were sold under the guise of insurance or capital guarantees. This happened even before this type of insurance existed. But we will fight against it. We will clarify [the situation] and put an end to these practices.

— Speaking of new tools for attracting long-term money, long-term investment tools, individual investment accounts of the third type (IIA-3), and long-term savings programs – how relevant are these tools for the investor, and will they be in demand?

— We believe they will be in demand. We see this based on the experience with IIA-1 and IIA-2 [brokerage accounts]– although a major motivation [for getting] IIS-1 was related to obtaining tax benefits. But we believe that people will also show interest in these [new tools]. We need to talk about these tools more. But we see people’s interest in investment diversification and even extending the investment [period]. Moreover, we also provide a number of benefits.

This interview was first published by RBK, translated and edited by the RT team:

https://www.rbc.ru/interview/finances/25/12/2023/658588589a79477f58d30b61?from=column_2

Aaron Mate: Putin did ‘everything possible’ to make peace, veteran Ukrainian diplomat says (Excerpt)

By Aaron Mate, Substack, 12/30/23

This article is behind a paywall so I will just include a few paragraphs to get across the main point. I highly recommend subscribing to Mate’s Substack for $5.00 a month. He consistently does great work on both Ukraine/Russia and Gaza/Israel. – Natylie

…Now more evidence has emerged that the Biden administration undermined the Turkey peace deal in April 2022, as well as additional diplomatic opportunities in the period since.

A veteran Ukrainian diplomat who was part of Kyiv’s delegation in Istanbul, Amb. Oleksandr Chalyi, has become the latest insider to confirm that an agreement was reached there. At a public event in Geneva, Chalyi recalled that “we were very close” to ending “our war with some peaceful settlement.” Putin, he stressed, “tried to do everything possible to conclude [an] agreement with Ukraine” and “really wanted to reach some peaceful settlement.” And in Istanbul, the two sides “managed to find a very real compromise.”

Yet “for some reasons,” Chalyi added, that compromise “was postponed.” Although he did not elaborate, those reasons are not obscure. As Ukrainian government sources initially revealed and multiple people have confirmed, the US and UK opposed the deal and refused to give Ukraine the security guarantees that it required. According to Davyd Arakhamia, the head of Ukraine’s delegation in Turkey, UK Prime Minister Boris Johnson informed Kyiv that “we would not sign anything with them at all, and let’s just fight.” Johnson’s missive was a joint US-UK order for Ukraine to abandon the peace deal and “fight” Russia on their behalf. For bowing to this demand, Kyiv received a massive new infusion of NATO weaponry – and untold numbers of lost lives.

Despite the significance of the sabotaged Istanbul peace deal, and the high-level corroboration for it, no establishment US media outlet has reported it. The motive is not hard to discern: to justify continuing the Ukraine proxy war, the Biden administration and its media allies must sustain a narrative that portrays Russia as a recalcitrant, belligerent actor that rejects any reasonable accommodation. Accordingly, the most concrete, meaningful diplomatic opportunity to date must be concealed from the public footing the bill….

A Visit to Russia by Lila Kim

(Old) Arbat Street, Moscow; photo by Natylie Baldwin, May 2017

By Don Harder with Marina Aydova, Facebook, 12/24/23

Very eye-opening impressions from a westernized, Russian liberal who recently visited Russia due to a family emergency- (the part about how she found no hatred towards Ukraine or Ukrainians is absolutely my own experience living here too. It simply does not exist)

Translated from Russian. Thanks for the post Marina:

Lila Kim, a Hollywood screenwriter, found herself abruptly flying from Dubai to Russia due to a family emergency. She hadn’t been back to her homeland in two years. Here are some of her observations:

Amidst the chaos of Dubai, I received news that compelled me to immediately board the next direct flight to my hometown, a place I hadn’t visited in two years. The suddenness of it all left me without warm clothing, a laptop, or necessary documents. Family bureaucratic issues piled up, and medical matters arose.

Over five weeks, I interacted extensively with various government agencies, medical institutions, and my relatives, who are just ordinary people. I also met hundreds of individuals from diverse fields such as high-tech, media, cinema, TV, real estate, retail, medicine, and government. I overheard many conversations, some intentionally. Taxi drivers were, of course, a source of information. In these five weeks, I learned about more Chinese car brands than I had in my entire life. Considering that St. Petersburg experienced a severe snowstorm and frost for two of those five weeks, the cars proved to be surprisingly reliable.

Before I share more of my impressions, here are the top five things that struck me (aside from the volume and quality of free medical treatment my family members received):

The massive film cluster near Moscow! I didn’t personally visit due to time constraints, but the videos on witnesses’ phones were astounding. The size is larger than any LA movie studio’s lots. The diversity is impressive too, with replicas of old Moscow, European cities, and even futuristic settings.

The number of launches everywhere. There were disputes over props at Lenfilm. The number of premieres, platforms, and collaborations with other countries was impressive.

The food culture in St. Petersburg! From deer sous-vide, duck dishes, boar carpaccio, Hassan mustaches, Murman scallops and halibut, to Argentinian, Brazilian, and Japanese steaks. The assortment of my favorite Malbec at the St. Petersburg steakhouse “Mitcoin” rivals that of an Argentinian restaurant near my home in Orange County. Even my relatives started dining out more often due to the availability of affordable Georgian and other Eastern restaurants.

My family, simple folks who enjoy home, cottage, and fishing, had never traveled before. To my surprise, they had started traveling within Russia, where they felt comfortable and could revisit places from their youth. They had no interest in going abroad, despite my offers. They genuinely cared about their old haunts in Russia, and my stepfather, a fishing enthusiast, loved the fishing spots.

Needing everything from underwear to warm shoes, I experienced escorted shopping for the first time in my life. Stylist Tanya saved me a lot of time and money with various discount cards, dressing me head-to-toe in Russian attire within a couple of hours.

I was astounded at how rapidly everything had transformed. These companies, all 10-15 years old, previously didn’t have showrooms, or if they did, they were obscure. They sold everything through marketplaces. Now, they’ve taken over the vacant brand squares, where people continue to shop out of habit, because most people dislike waiting and prefer to try things on.

In general, the resilience of small and medium-sized businesses that not only weathered the odds but also flourished is remarkable. More broadly, the adaptability of people who had no choice but to carry on, making do with what they had – even the 90s didn’t shock me as much as what I witnessed now.

“I’ve already shared an update, and I’m not going to say much more. During my time in St. Petersburg, no one confronted me about living in the USA or being against the war, even though many there believe the US is to blame for the current situation. I didn’t receive any personal animosity for my stories about the United States.

Not a single person, including public servants and taxi drivers, expressed hatred towards Ukrainians. I didn’t encounter the intense hatred I had anticipated. Most people expressed regret, lamenting that all Ukrainians had been deceived and abandoned by the Americans.

Again, I experienced no personal hatred, despite being there with my blue passport. I arrived and left St. Petersburg safely.

I didn’t encounter the wild hysteria and endless hate speech from patriots that I had expected. Nor did I receive death wishes from the ‘bright men’ for me, my family, or anyone in St. Petersburg and beyond, just because I wrote about what I saw.

The image I’m left with is one of expectations, dreams, and wishes. This, too, is part of the strong impressions from my trip.”

Fred Weir: Political travelogue

Church on Spilt Blood, Built at site of reformist Czar Alexandaer II’s 1881 assassination. St. Petersburg, Russia; Photo by Natylie S. Baldwin, 2015

By Fred Weir, Facebook, 12/23/23

I quite enjoyed this political travelogue, by an Italian journalist who spent a month or so last summer visiting places along Russia’s vast Volga River route, basically from St. Peterburg to Astrakhan. It’s not chronological, or the least bit touristy, but focuses on a variety of individuals who make up a pretty fair spectrum of Russians, both current and eternal. A lot can be gleaned about the state of life from his descriptions, which seem quite fair and matter-of-fact, even if they are sort of laser-focused. I haven’t been that far afield in awhile, basically since before Covid and the war, so read this with intense interest. Though it’s obviously impressionistic and selective, as these things necessarily are, I think it mostly rings true. The anti-Western moods he detects in even the most eccentric Russians, people who in the not-too-distant past might have been ardent Westernizers, is certainly what I’ve noticed and written quite a bit about, increasingly over the past decade or so. The spirit of resilience, of making do in the face of war and sanctions and turning crisis into opportunity, isn’t just Putin rhetoric, this observer finds it all around him. It’s just good on-the-ground reporting; I observe much the same in my corner. The only thing here that surprises me a bit is his impression that there is a burgeoning cult of Stalin. I don’t see that, and certainly don’t think Putin’s politics or historical forays are an effort to revive Stalinism. But I live in Moscow, and haven’t been to these kinds of places in awhile. It’s worth watching trends affecting more far-flung Russians, especially youth. Anyway, this is a fun, informative read [If you’re Canadian, and can’t click the link, go to the Harpers website, Harpers.org, where this story leads]:

https://harpers.org/archive/2024/01/behind-the-new-iron-curtain/

Shelling kills 21 in Russia’s city of Belgorod, including 3 children, following Moscow’s aerial attacks across Ukraine – CBS News

CBS News, 12/30/23

Shelling in the center of the Russian border city of Belgorod Saturday killed 21 people, including three children, local officials reported.

A further 110 people were wounded in the strike, said regional governor Vyacheslav Gladkov, making it one of the deadliest attacks on Russian soil since the start of Moscow’s invasion of Ukraine 22 months ago.

Russian authorities accused Kyiv of carrying out the attack, which took place the day after an 18-hour aerial bombardment across Ukraine killed at least 41 civilians.

Images of Belgorod on social media showed burning cars and plumes of black smoke rising among damaged buildings as air raid sirens sounded. One strike hit close to a public ice rink in the very heart of the city, which lies 25 miles north of the Ukrainian border and 415 miles south of Moscow. While previous attacks have hit the city, they have rarely taken place in daylight and have claimed fewer lives.

Russia’s Defense Ministry said it identified the ammunition used in the strike as Czech-made Vampire rockets and Olkha missiles fitted with cluster-munition warheads. It provided no additional information, and The Associated Press was unable to verify its claims.

“This crime will not go unpunished,” the ministry said in a statement on social media.

The Kremlin said Russian President Vladimir Putin had been briefed on the situation, and that the country’s health minister, Mikhail Murashko, was ordered to join a delegation of medical personnel and rescue workers traveling to Belgorod from Moscow.

Russian diplomats also called for a meeting of the U.N. Security Council in connection with the strike. Speaking to Russia’s state news agency, Foreign Ministry spokeswoman Maria Zakharova said that Britain and the United States were guilty of encouraging Kyiv to carry out what she described as a “terrorist attack.” She also placed blame on EU countries who had supplied Ukraine with weapons.

“Silence in response to the unbridled barbarity of Ukraine’s Nazis and their puppeteers and accomplices from ‘civilized democracies’ will be akin to complicity in their bloody deeds,” the ministry said in a statement.

Earlier Saturday, Moscow officials reported shooting down 32 Ukrainian drones over the country’s Moscow, Bryansk, Oryol, and Kursk regions.

They also reported that cross-border shelling had killed two other people in Russia. A man died and four other people were wounded when a missile struck a private home in the Belgorod region late Friday evening and a 9-year-old was killed in a separate incident in the Bryansk region.

Cities across western Russia have come under regular attack from drones since May, with Russian officials blaming Kyiv. Ukrainian officials never acknowledge responsibility for attacks on Russian territory or the Crimean Peninsula. However, larger aerial strikes against Russia have previously followed heavy assaults on Ukrainian cities.

Russian drone strikes against Ukraine continued Saturday, with the General Staff of the Ukrainian Armed Forces reporting that 10 Iranian-made Shahed drones had been shot down across the Kherson, Khmelnytskyi, and Mykolaiv regions.

Local officials reported that three people had been killed by Russian missiles: a 55-year-old man in the Kherson region, a 43-year-old man in Stepnohirsk, a town in Ukraine’s Zaporizhzhia region, and a 32-year-old in the Chernihiv region.

On Friday, Moscow’s forces launched 122 missiles and dozens of drones across Ukraine, an onslaught described by one air force official as the biggest aerial barrage of the war.

As well as the 39 deaths, at least 160 people were wounded and an unknown number were buried under rubble in the assault, which damaged a maternity hospital, apartment blocks, and schools.

Western officials and analysts recently warned that Russia limited its cruise missile strikes for months in an apparent effort to build up stockpiles for massive strikes during the winter, hoping to break the Ukrainians’ spirit.

Fighting along the front line is largely bogged down by winter weather after Ukraine’s summer counteroffensive failed to make a significant breakthrough along the roughly 1,000-kilometer line of contact.

Russia’s ongoing aerial attacks have also sparked concern for Ukraine’s neighbors.

Poland’s defense forces said Friday that an unknown object had entered the country’s airspace before vanishing off radars, and that all indications pointed to it being a Russian missile.

Speaking to Russian state news agency RIA Novosti, Russia’s charge d’affaires in Poland, Andrei Ordash, said Saturday that Moscow would not comment on the event until Warsaw had given the Kremlin evidence of an airspace violation.

“We will not give any explanations until we are presented with concrete evidence because these accusations are unsubstantiated,” he said.

Gilbert Doctorow: Deputy Russian Foreign Minister Sergei Ryabkov makes news

By Gilbert Doctorow, Website, 12/23/23

This past week was quite dull for observers of Russian state television news and talk shows who are looking for dispatches bearing on international events. There was almost nothing about the Houthi (Yemen) attacks on vessels in the Red Sea, about Defense Secretary Austin’s ‘Operation Prosperity’ naval force to secure shipping in the region, about the latest developments of the Israel-Hamas war. The 14.00 and 20.00 Vesti news hours almost exclusively dealt with domestic issues and in particular with the step-by-step validation of Vladimir Putin’s candidacy for the presidential election of March 2024.

You would hardly suspect that there may be other candidates, although online Russian news tickers did mention that the Communist Party, the country’s largest after United Russia, seems to have selected a candidate of its own. Per news.ru, this is Nikolai Kharitonov, a member of the Party’s Central Committee and the chairman of the Committee on the Development of the Far East and Arctic in the State Duma. The seventy-five year old comes from the Novosibirsk region. He holds a doctorate in economics and for several years worked as an agronomist, but then moved to politics. He is one of the longest serving members of the State Duma, to which he was elected from several different constituencies over time, most recently from Krasnodar, center of Russian agriculture in the South. This will be Kharitonov’s second run for the presidency. The first time, in 2004, he garnered 14% of the electorate. It would be safe to say that Kharitonov has no chance whatsoever of being elected president, but he will be a creditable standard bearer who may increase the party’s share of Duma seats.

The second most important bit of local news after Putin’s electoral registration to have received extensive coverage on Russian state television this past week was the official opening of the M12 express highway connecting Moscow and Kazan, some 800 kilometers away. Kazan is the capital of the oil-rich and predominantly Muslim RF region of Tatarstan. It is a showcase for Russia’s outreach to the Arab world and will be the host city for the 2024 BRICS summit in the year of Russia’s presidency of the organization when five Middle Eastern nations take up full membership. Needless to say, the ribbon cutting ceremony, which Putin supervised on a video link, was yet another occasion for him to make a televised speech, one of too many speeches in the past seven days.

The new, ultra-modern highway cuts the travel time by car between the cities in half, from 12 hours down to 6. In the coming year the M12 will be extended to Yekaterinburg and then onward to Tyumen in 2025. The newly opened stretch of the M12 was completed nearly a year ahead of schedule and is another landmark in the infrastructure investment program of the Putin presidency. Given the scale and economic importance of the highways that have been completed in recent years or are under construction, Russia is experiencing something akin to the federal interstate highway project initiated in the United States by then President Eisenhower in 1956.

Otherwise, the biggest component in the daily news has been from the front lines in the Ukraine war. The extensive reporting on the news hours by Russia’s war correspondents details the daily ‘kill’ count of Ukrainian soldiers and destruction of tanks, armored personnel carriers and other heavy equipment at each major point along the 1200 km line of contact where they saw action on that day. Just in the past 24 hours more than 500 Ukrainians were said to be killed or incapacitated. We are told that Russian forces are advancing but that this is to improve their overall position, to even up the line, and should not be confused with some massive offensive which is yet ahead.

Then there were overviews of the fighting provided by Chief of the General Staff Valery Gerasimov and Minister of Defense Shoigu. Gerasimov spoke at his annual briefing to all accredited military attaches of embassies in the Russian capital, including all NATO countries. These attaches were shown on television furiously taking notes or photographing Gerasimov’s slide show. Shoigu spoke to Ministry personnel and made one point worthy of mention: that Russia expects to complete the objectives set out at the start of the Special Military Operation during 2024. Put in simple English, the Ministry officially predicts that the coming year will see the end of the war on Russian terms.

However, as host of the news analysis program Sixty Minutes Yevgeni Popov and as Vladimir Solovyov, presenter of the best known talk show both commented with respect to the optimism coming from the war correspondents and from the top Ministry officials, there is no reason to be cocky and there is still a long road ahead to victory.

Indeed, the Kremlin takes nothing for granted, given its low estimation of the rationality of behavior of the Biden administration. And this brings us to the man I cite in the title of this essay, Deputy Foreign Minister Sergei Ryabkov, who made news yesterday when his interview with Interfax was published. The print version in Russian comes to seven pages and is well worth a close read.

https://www.interfax.ru/interview/937457

Ryabkov is not a name likely to be familiar to readers of these pages. The last time we heard from him was back in December 2021 when he delivered the hard line on Russia’s demand that a new security architecture for Europe be negotiated which would foresee the withdrawal of NATO troops and installations from the countries brought into the alliance after 1996. He was the one who said that if NATO would not pull back then Russia would push it back. It was Ryabkov’s words, not the more diplomatically couched words of Lavrov that hinted at what was to come in February 2022.

Ryabkov has spent most of his 41 years in the Ministry at home in Moscow in various positions as coordinator of foreign relations. From 2002-2005, he was based in Washington, attached to the Russian embassy, where his calling card read ‘emissary counselor.’ His present responsibilities include issues of bilateral relations with the countries of North and South America, nonproliferation and arms control, regulating the Iran nuclear program and the participation of the Russian Federation in BRICS.

The interview covered a variety of subjects that fall within Ryabkov’s mandate, including arms control under present conditions when most of the fundamental treaties on the subject have been cancelled by American initiative and when the single most important document, START II, governing the strategic nuclear arsenals of the signatories, expires in 2026.

However, the single most striking exchange in the interview was picked out by the Interfax editors for use in their title – “Sergei Rybkov: Diplomatic relations with the USA are not a totem to which one has to bow down.”

Quote

Q: With respect to the 90th anniversary of restoration of diplomatic relations between Russia and the USA, the Ministry of Foreign Affairs said that relations between the countries ‘risk being severed at any moment.’ You said earlier that one of the possible red lines can be confiscation of frozen Russian assets. Is this now a line beyond which it will be impossible to maintain the relationship? Are there still other triggers which would be incompatible from our standpoint with continuing the development of relations between the RF and the USA?

A: Essentially Russian-American relations have really fallen into a comatose state, and for this the responsibility lies with Washington, which not only formulated but even doctrinally and conceptually enshrined the erroneous and dangerous attitude of inflicting a strategic defeat on Russia. I cannot exclude the possibility that at some future date, if there is no enlightenment in terms of assessments of what is happening in the world and specifically in Russia and Ukraine, I cannot rule out that in this case Washington will not go beyond the “near-zero” level at which relations are now. That is to say, there can really be an official reduction in the level of diplomatic presence, in Washington and Moscow respectively, or even a complete rupture of relations. This would not be something unexpected for us.

So far, the Americans are wary of destroying everything to the foundation, but they are not ready to negotiate in a fair manner on the basis of mutual respect and consideration of each other’s interests, even in theory. The existing precarious balance in the Russian-American dialog and the fragmentary work on certain extremely narrow subjects, this balance can be broken at any moment due to the recklessness of Washington and specifically of the administration that is currently in power there.

Of course, diplomatic relations in themselves are not a totem to be worshipped or a sacred cow to be cherished by everyone. But we will not take the initiative to break them, to tear them up. It is not in our rules to act in such a way, including based on our understanding that Russia and the United States have a central role in maintaining international security and strategic stability. As for the trigger for a possible round of confrontation with the potential for breaking off relations, the trigger could be asset confiscation, further military escalation, and many other things. I would not go into negative forecasts here. I am just saying all this to make it clear that we are prepared for any scenario, and the United States should not have the illusion, if they have one, that Russia, as they say, is holding on to diplomatic relations with this country for dear life.

Unquote

Severing diplomatic relations is not yet a declaration of war, but in the circumstances in which such a rupture might occur, as sketched by Ryabkov, it could well be the antechamber to a direct, kinetic war between Russia and the USA.

Discussion of the possible confiscation of the frozen Russian assets was a taboo in Washington and Brussels until very recently, not for fear of Russian reaction but for fear of the damage it might do to the dollar as a reliable international store of value. But greater concerns have now arisen that outweigh the  taboo, namely the inability of Washington and Brussels to deliver further financial aid to Kiev due to opposition in the U.S. Congress and within the European Institutions. The frozen assets are valued at more than 300 billion dollars and could be made available to Ukraine without legislative approval. From the Russian perspective, Washington is playing with fire.

William Schryver: Empty Quiver

By William Schryver, Substack, 12/21/23

As the sun sets here at the Winter Solstice of 2023, I would like to draw attention yet again to what, in my estimation, is one of the most strategically significant battlefield humiliations inflicted upon NATO over the course of the Ukraine War: the progressively comprehensive defeat of their precision-guided strike missile inventory — ATACMS, HARMS, JDAMS, GMLRS fired from HIMARS, cruise missiles (Storm Shadow and SCALP).

The Russians have demonstrated that they can routinely shoot down ANY species of strike missile the US/NATO can field against them — not all of them all of the time, but most of them most of the time.

And they get better and better at it as time goes on.

Indeed, over the past few months it is increasingly becoming “all of them most of the time”.

As Russian Defense Minister Sergei Shoigu reported earlier this week:

“We are using air defence systems in a comprehensive manner during the special military operation. This significantly improved their responsiveness and strike range. Over the last six months, we have shot down 1,062 of NATO’s HIMARS rockets, short-range and cruise missiles, and guided bombs.”

No other military on the planet has previously attested this level of capability. The US does not have it, and is at least a decade away from developing it.

And, it is important to bear in mind that the precision-guided systems the US and its NATO allies have provided for Ukraine are representative of the best their own militaries could deploy in a conflict with Russia.

The current front-line inventory of US tactical ballistic missiles and sea- and air-launched cruise missiles would present no greater technical challenge for Russian air defenses than what they have already seen and defeated in the Ukraine War.

The significance of this battlefield development defies exaggeration. It alters the war-fighting calculus that has been assumed for many decades.

Against Russia at least, the Pentagon must know that the success of a large conventional strike missile package is far from assured. There is no doubt some damaging hits would be inflicted, but Russian retaliatory capacity would not be appreciably affected, and the subsequent Russian counterstrike against NATO targets would be devastating — for the simple reason that US/NATO air defenses are not even remotely as effective as their Russian counterparts. In fact, they are rookie league in comparison. They would be as utterly befuddled as was the Patriot system in Kiev the night the Russians launched a very modest attack against it.

It would also be logical to assume that China, if not as fully proficient as Russia in every respect, is very likely not far behind.

It is also increasingly apparent that Iran has made great strides in the same direction.

As I have noted repeatedly in recent months: for the declining empire and its decrepit vassals, there are no easy wars left to fight.

Stephen Bryen: NATO is a mess and the Russians are winning

By Stephen Bryen, Asia Times, 12/20/23

Stephen Bryen, who served as staff director of the Near East Subcommittee of the US Senate Foreign Relations Committee and as a deputy undersecretary of defense for policy, currently is a senior fellow at the Center for Security Policy and the Yorktown Institute.

The British are about to sign a Naval Security Pact with Ukraine, doubling down on their support for the sinking Volodymyr Zelensky-led country.

Meanwhile, Germany is upping its arms commitment to Ukraine, even though its arms stockpile is practically empty. Both the UK and Germany are emptying their wallets and their arsenals while the US is trying to do the same thing.

At the same time, the Washington Times, in an article by Bill Gertz, reports that Representative Mike Gallagher (R-Wi), who is the chairman of the House Select Committee on the Chinese Communist Party, has come up with some novel ideas to help Taiwan make use of otherwise obsolete weapons in the US arsenal, mostly because getting new weapons right now is nearly impossible.

Gallagher says “Recent war games simulating conflict with China over Taiwan revealed that the US would run out of long-range precision-guided bombs and missiles less than a week into the conflict.”

Bill Gertz reports that the Pentagon has a backlog of more than US$2 billion worth of weapons that Taipei purchased, held up by defense industry delays.

Taiwan is currently waiting on 400 Harpoon missiles and 100 Harpoon launchers that the Pentagon announced in a sale over three years ago and which may not reach the island until 2029.

The key point is that it will take five more years (eight years total) to deliver Harpoon missiles to Taiwan. It is even worse for other war stocks such as 155mm and 120mm ammunition.

The weakness and problems of the American defense industrial base pale in insignificance to the manpower shortages affecting most NATO members as well as the US.

Germany’s small army is lacking new recruits. Like the US, Germany has a volunteer force, but things are getting so bad the German government is thinking about some kind of conscription system.

With the current German government already rapidly losing political support, trying to get the Bundestag, Germany’s parliament, to vote in any conscription system would be political suicide. Boris Pistorius, Germany’s defense minister, understands the problem but has no solution likely to gain popular support.

Politics in Germany is sliding to the right, with the AfD, Germany’s right-wing party, securing growing voter support. The AfD has not yet taken any position on conscription, but it is a nationalist party that would like to see the sanctions on Russia lifted and does not support any European-wide defense initiative.

The total number of armed forces personnel in Germany had dropped to 181,383 as of the end of October, with thousands of vacancies unfilled.

The German tabloid Bild says that the German army has neither the strength nor the equipment required to effectively defend the nation. Yet, at the same time Bild was pointing out the military crisis, Germany announced it is sending a 5,000-strong brigade to Lithuania.

It will be stationed less than 20 kilometers (12 miles) from the border with Belarus. The brigade relocation will start in the second quarter of 2024, with it scheduled to reach full combat readiness by 2027, according to the German Defense Ministry.

But, says German Defense Minister Pistorius, “We do not have an army which is capable of defending the country against a military offensive, a brutal war of aggression.” The contradiction is self-evident.

Britain’s army is also a big problem. Defense and Security Monitor reports that “Long considered a world-class military, the British armed forces are now stuck in a recruitment rut, with planned personnel cuts still to be implemented under the Defense Command Paper unveiled in 2021. There are significant and persistent issues involving dilapidated military housing, depleted ammunition and poorly executed procurement programs.”

Sky News, as reported by The Defense Post, “outlined the scale of the problem being faced by the UK armed forces. It said that the military would run out of ammunition just after a few days in case of an armed conflict. The country also reportedly lacks the ability to defend its airspace given the increasing power and capabilities of today’s missiles and drones.

Additionally, full replacements for aging British tanks and armored vehicles are not due for years, thereby affecting its modernization drive. Sources claim it would take five to ten years for the British Army to be able to field a warfighting division with more than 30,000 troops and backed by high-powered tanks, artillery systems, and helicopters.”

Today, the British Army is smaller than it was at the time of the American Revolution in April 1775. The entire British military is made up of 142,560 members. The British army currently has 77,540 soldiers in all its ranks. This means that the fighting force itself is much smaller, likely around 30,000.

Britain has been Europe’s biggest booster of Ukraine in its war with Russia, emptying its high-tech arsenal to support the Ukrainian army. Britain also is providing field support to Ukraine and battlefield intelligence, along with planning special secret operations such as trying to destroy the $3 billion Kerch Strait bridge connecting Russia to Crimea.

Not much is written about the French army. We do know that French equipment has not fared well against the Russians in the Ukraine war. Its CAESAR (Camion Équipé d’un Système d’Artillerie ) has been a big disappointment on the battlefield, is subject to breakdowns and has been targeted by Russian Lancet drones.

France sent 18 of them to Ukraine, 25% of the entire fleet of these mobile 155mm gun systems. According to reports, producing new ones takes years.

Likewise, France’s AMX-10C RC Infantry fighting vehicle has proven to be a death trap for Ukrainian operators who regard its “thin armor” as inadequate for front-line use. Billed as a “tank destroyer”, it is often the one that is destroyed. In respect to tanks, after the bad experience with the AMX and the German Leopard tanks, France decided against sending its Leclerc Main Battle tanks to Ukraine.

In fairness, the US Bradley Infantry Fighting Vehicle and the German Marder tracked combat vehicle, not to mention the ill-fated Leopard tank, have all been destroyed in Ukraine. A US study by Rand Corporation, an important Pentagon contractor, says that France’s army is a fragile ally against Russia.

The US Army is also facing a recruitment crisis. Not only are there problems filling the ranks, but the Army is having trouble graduating capable non-commissioned officers (NCOs). NCOs are the heart and soul of the American army, they are what makes the army function.

Less than half the slots are being filled. Military.com says “The eight-week Army Recruiter Course at Fort Knox, Kentucky, can train a maximum of 2,866 students across a total of 53 classes. However, data shows that it graduated only 1,336 in fiscal 2023, which concluded at the end of September.”

The Army itself is facing problems recruiting soldiers, this year and last. The Army was 10,000 soldiers short of its goal of 65,000 new troops over the past fiscal year. Last year, it missed a goal of 60,000 soldiers by 15,000.

The Army is trying to fix the problem but a lot of it is based on the strange WOKE approach of the Army’s leadership and myriad complicating issues, particularly since the Covid epidemic when the Pentagon ordered troops to get vaccinations or get booted out of the military. Now there are plenty of lawsuits over the Pentagon’s failed policy.

Beyond deficits in manpower and supplies, NATO armies lack combat experience, although plenty of “advisors” are in Ukraine supporting the Ukrainian military. Advisors never replicate what front-line troops experience so the learning curve may be worthwhile in boosting tactical and operational knowledge but not in warfighting itself.

Ukraine is also facing a huge shortfall in manpower and its use of draconian recruitment efforts is unpopular and could force Zelensky to resign. Impressed and dragooned soldiers don’t fight effectively and are only canon fodder at best.

Worse still, many of those who resisted the Ukrainian draft (some of them paid off draft administrators in amounts typically of $1,000) come from the Ukrainian nomenklatura, namely the upper classes or those with high-level skills or those from politically connected and privileged families.

The Biden administration argues that defeating Russia in Ukraine will protect Europe from a future Russian attack.

The counter-argument is that continuing to support Ukraine could lead to an expansion of the war into Europe. For a long time, the US and its allies have been playing chicken with European security by gorging Ukraine with weapons, advisors, military and intelligence support and lots of cash.

So far at least the Russians have not responded by attacking supply lines outside of Ukraine, nor have they stopped the flow of gas or other commodities (including uranium) to Europe and the United States as a response to Western support for Ukraine.

Most reports show that Russia has gained the upper hand in Ukraine and has started what appears to be a limited offensive that seems to be aimed, so far at least, in securing Donbas. However, armies often collapse quickly once military leaders and soldiers alike think they are about to be rolled over.

In Vietnam in 1975, US military leaders thought the Army of South Vietnam would be able to hold I-Corps, the northern part of South Vietnam, against attacks launched by the regular North Vietnamese army (NVA). It was a pipe dream. I-Corps folded in a few days and the NVA moved quickly southwards, heading for Saigon. The rout was on.

Fixing NATO is a very difficult problem because it has been pretending to be an offensive alliance and not a defense system. With its mission corrupted and its border with Russia vastly expanded (almost all of Eastern Europe and Finland), NATO’s ambition to add Ukraine is a country too-far because this time the Russians did not accept NATO’s expansionism goal.

If Ukraine capitulates, which is now what Russia says it wants, NATO will suffer a major defeat, the first defeat since the alliance was set up in April 1949.