Lambert here: What a fun post! I’m not seeing a lot of sourcing on the trusting relationship between Nabiullina, the Central Bank Governor, and Putin, so it may be best to consider this post as a thought experiment; what if Putin trusted Nabiullina, as he seems to? Nevertheless, what a provocative thesis!
By Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth. Originally published at Automatic Earth
It wouldn’t be a first, but it would certainly be a – bigger – shock. That is to say, the Bank of England hijacked the head of Canada’s central bank some time ago, but, while unexpected enough, that would pale in comparison to the US hiring the present Governor of the Russian central bank, Elvira Sakhipzadovna Nabiullina. It would still seem to be a mighty fine idea, though.
Not that I think it will happen, not to worry if you think Yellen is just what it takes at the Fed. But Nabiullina is both razor sharp and fiercely independent. Yellen is obviously neither; she’s a cog in a machine that huffs and puffs and pumps and dumps to make sure her overlords in the blissful world of US finance make ever more profit no matter how bad things get in American society.
There’s no need to be particularly sharp in order to play that role, and she was picked exactly because she’s NOT independent. Or let’s just say she’s a good listener.
Nabiullina is a whole different story. Not that I have much confidence in western readers understanding that this is so, let alone why. Not after the 24/7 highly public media campaigns and sanctions and oil price wars and Ukraine war talk and chest thumping directed at Putin and Russia, and after everything else that we don’t even know that plays out behind the veils.
Enjoy your conspiracies while you can, I’d say. Because despite more than a year of intense efforts to make Russia look like the empire of unspoken evil, financial markets, yes, the same ones Yellen manipulates at her lords’ bidding, have now made the Russian ruble and the Moscow stock exchange the biggest winners so far this year.
And that is due to a substantial extent to Elvira Nabiullina. You see, if she were just a blind or scared servant of Putin, or of his economic ideas, that would mean it was he who masterminded the resurrection of the currency and the stock market.
Think about it: that should make one really scared of Vladimir Vladimirovych. If besides all his other qualities, pursuits and activities (whether you see them in a positive light or not), he could also do that: save a $2 trillion economy from intense outside attacks.
Fear not: Putin is a mere mortal human being. One quality he does possess, however (he wouldn’t last in his position for 5 minutes if he didn’t), is a keen sense of who he can trust. And he trusts Elvira Nabiullina. She’s only been central bank governor since 2013, when she wasn’t even 50 years old, but she’s been a confidant for quite a while, most importantly as Putin’s private economic advisor in the years leading up to her present job.
You can all look up her career on Google or Wikipedia, interesting, but not overly so. What’s really important in Nabiullina’s career are two defining moments. Moments that make her stand out, and that define the relationship she has with Putin.
Sure, you can claim that she’s less independent than Yellen at the Fed, but who do you think you’re kidding? Yes, she has a hot line phone on her desk, and everyone is ushered out of the room when Putin calls her on that phone. But Yellen has hot lines to the US Treasury as well as to Jamie Dimon and Lloyd Blankfein and whoever lead those other banks and primary dealers. Independence?
So, to get to those two moments that define Elvira Nabiullina. The first was described by Bloomberg last month. In mid December 2014, the ruble was under vicious attack from financial markets. Nabiullina had already spent tens of billions of dollars in foreign reserves to prop it up. Then, on December 16, she, in a move nobody had foreseen, yanked up the interest rate in one fell swoop from 10.5% to 17%.
And here it comes: after that she did nothing. Not a thing. No more foreign reserves. Bloomberg quoted her as saying: “Speculators needed a cold shower.”
Mario Draghi said in 2012 he would do “whatever it takes to preserve the euro.” Nabiullina didn’t even have to say it.
The attack on the ruble was over. In January she lowered the interest rate to 15%, it’s at 13% now. Nabiullina says she expects it to be at 9% by the end of the year. The ruble is up 19% against the US dollar in 2015. No other currency has that record.
Did Putin order her to do this? No. They talked about it, and a lot, no doubt. But he knows she knows better. And he trusts her.
The second big moment came over the past few days, when Nabiullina announced that Russia will not get on the global central bank QE treadmill. Her reasoning, as Bloomberg reports, is that she sees problems with using debt to spur growth (eat your heart out, Krugman):
Russian central bank Governor Elvira Nabiullina raised questions about the use of debt financing to fund economic growth, underscoring the need to harness long-term capital as investment slumps. “We need to think about some other ways to finance growth, because financing economic growth with debt, in my opinion, has its limits,” Nabiullina said at a conference in Moscow on Thursday. “There won’t be long-term investment growth in Russia” without such sources of financing as pension savings and life insurance, she said.
“An excessive debt burden may be not only a catalyst for development and investment but also a hindrance,” Nabiullina said. Regardless of the high level of interest rates, the ratio of debt to Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortization) “is already a considerable burden for companies, entire industries,” she said. Banking loans account for 57.6% of the Russian economy, according to Nabiullina. “Mandatory pension savings are of critical importance for sources of long-term financing and Russia’s capital markets,” the governor said.
Let me add some more from Reuters, so you get the full picture:
“The acceleration of inflation… has in our view a temporary character. We expect quite a rapid fall in inflation if there are no new unforeseen circumstances..” Nabiullina said the central bank would continue cutting interest rates insofar as inflation risks receded. The bank has already cut rates twice this year. “On the whole we judge the situation in the banking sector as stable,” she said. “The banking sector maintains a substantial capital buffer and the banking sector is able to counter serious shocks even if crisis phenomena deepen.”
She said central bank stress tests showed that even if the oil price were to fall to $40 per barrel the sector would maintain capital levels above the regulatory minimum. Nabiullina also said the factors which had been weighing on the rouble had now passed, saying that repayments of foreign debts could be financed without this having a significant effect on the rouble’s value. “Thus the influence of those factors which were influencing the exchange rate and inflation last year are gradually receding to nothing..”
The entire financial markets attack ‘gradually receding to nothing’. The girl got style. Here’s thinking Nabiullina is right on this one too. Crippling sanctions? Crippling oil prices? Russia has survived it all so far.
There may well be negative growth in the country this year. But even if that were so, who would you choose to deal with that where you live? Yellen, Bernanke, Mario Draghi? Or would you go with a woman who’s shown she can not only think outside the box, but act outside of it too?! Who has both the guts and and the brains for it?!
She may well be one of Putin’s biggest weapons if the west elects to continue pestering Russia. It seems obvious: we need to hire her. But, caveat, to serve the American people, not Wall Street. Then again, I don’t think she’d want to do either.