Spillovers from Unconventional Monetary Policy—Lessons for Emerging Markets

Christine Lagarde

 Managing Director, International Monetary Fund

 Reserve Bank of India, March 17, 2015

As Prepared for Delivery


Good afternoon, Ladies and Gentlemen.

Governor Rajan, thank you for your generous introduction, and for inviting me to speak before this distinguished audience today.

It is indeed a privilege to share the stage with Dr. Rajan, one of the world’s most highly regarded financial economists, one whom the Fund is fortunate enough to have had as its Economic Counselor. Raghu certainly has been very busy since he took over Governor of the RBI in September 2013. He has deftly steered the Indian economy to safer waters after it was hit by the market turmoil following the “taper tantrum” episode of mid-2013—a point I will come back to shortly.

More recently, India has introduced flexible inflation targeting as the new regime for conducting monetary policy—a very welcome step.

As India’s monetary policy rests in good hands, let me talk about a topic that I know has been as important a concern for this central bank—as it has been for your colleagues in other emerging market countries. I am referring, of course, to the unconventional monetary easing in the large advanced economies following the global financial crisis.

We are perhaps approaching the point where, for the first time since 2006, the United States will raise short term interest rates later this year, as the first country to start the process of normalizing its monetary policy. Even if this process is well managed, the likely volatility in financial markets could give rise to potential stability risks.

Let us think today about the risks of such monetary policy “spillovers” – as we have called them – and what can be done to minimize their potentially adverse consequences.

1. State of the Global Economy and Challenges

It is best to begin this discussion by placing it into the context of current global developments, and the risks that the world economy is still facing.

Global growth is still fragile and uneven. Despite a boost to global growth from a decline in oil prices, we now expect the world economy to grow by about 3.5 percent this year, picking up modestly next year to 3.7 percent.

The outlook differs significantly across countries and regions. In advanced economies, growth has rebounded in the United States and the United Kingdom and is expected to remain above trend in the near term, but activity is strengthening only gradually.

By contrast, in the euro area and Japan, domestic demand, especially credit to private sector and investment, has yet to recover fully.

In emerging markets and developing countries, growth is projected to pick up from less than 4.5 percent this year to a little more next year, but it will vary widely across countries as well.

Among the emerging markets, India is shining brightly. No doubt India has seen a windfall gain from a sharp drop in oil prices – as have other oil importing countries. More importantly, however, India is reaping the benefits of good policies and policy announcements.

My meetings with Prime Minister Modi and Finance Minister Jaitley yesterday have left me strongly convinced that the new government is skillfully shifting the focus to good macroeconomic management, clean and efficient government, and inclusive development. This has raised business confidence and hopes for all levels of Indian society, and is borne out by the latest GDP statistics which suggest a strong pace of economic activity this year and next.


Yet many challenges lie ahead for the global economy, of which two are particularly relevant for India.

The first challenge is the recent strengthening of the U.S. dollar that has resulted from the relatively strong U.S. recovery combined with the divergence of monetary policy paths in advanced economies. This has put pressure on countries whose exchange rate regimes are linked to the dollar but yet conduct a substantial share of their external trade in other currencies, as well as on sovereigns who have borrowed in foreign currency heavily.

The appreciation of the U.S. dollar is also putting pressure on balance sheets of banks, firms, and households that borrow in dollars but have assets or earnings in other currencies. India’s corporate sector, which has borrowed heavily in foreign currency, is not immune to this vulnerability. Corporate sector debt has risen very rapidly, nearly doubling in the last 5 years to about US$120 billion.

The second challenge, and here we come to the main theme of my remarks, is the prospective normalization of monetary policy in the United States and its spillovers to emerging markets.

The risk of financial market and capital flow volatility, along with sudden increases in interest rate spreads, remains a real possibility as U.S. interest rates begin to rise.

Let us look at this topic in some detail.

2. Spillovers from Unconventional Monetary Policies—Lessons for Emerging Markets

Unconventional monetary policies—including large purchases of government debt—has been used to provide policy accommodation in advanced economies since the 2007 global financial crisis. These policies have had both positive and negative spillovers.

Unconventional monetary policies helped avoid a financial market meltdown in the initial stages of the crisis, and later supported a recovery in advanced economies and elsewhere. I am convinced that these policies were necessary to avert a 1930’s style global depression. To that extent, the unconventional monetary policies have had strong positive spillovers for the global economy, and by implication for India and other emerging markets.

However, it is also true that these policies led to a build-up of risks in this part of the world.

Between 2009 and the end of 2012, emerging markets received about US$ 4½ trillion of gross capital inflows, representing roughly one half of global capital flows. Such inflows were concentrated in a group of large countries, including India, which received about US$470 billion.

As a consequence, bond and equity prices rallied, and currencies strengthened. Recent work by Fund staff suggests that spillovers to asset prices and capital flows in emerging market economies from expansionary unconventional monetary policies were even greater than from earlier conventional policies.

The danger is that vulnerabilities that build up during a period of very accommodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility.

We already got a taste of it during the “taper tantrum” episode in May and June of 2013, when most emerging market economies suffered indiscriminate capital outflows. India was also affected.

I am afraid this may not be a one-off episode. This is so, because the timing of interest rate lift-off and the pace of subsequent rate increases can still surprise markets.

As economic conditions improve in at least some advanced economies, portfolio rebalancing out of emerging market economies can be expected, and some volatility cannot be ruled out. Emerging markets need to prepare in advance to deal with this uncertainty.

Lessons for the international community and emerging markets

There are many important lessons we have already learnt from the “taper tantrum” episode that I would like to share with you.

First and foremost, advanced economies can help. Clear and effective communication of policy intentions can reduce the risk of creating very large market volatility. While admittedly it is a difficult task, I would also agree that there is scope for greater international policy cooperation to minimize the negative spillovers.

Second, emerging markets need to prepare well in advance. Evidence from our research suggests that emerging markets that had already addressed their economic vulnerabilities before the taper tantrum fared better during episodes of market volatility.

In particular, higher GDP growth, stronger external current account positions, lower inflation, and more liquid financial markets helped dampen market volatility. In addition, more resilient financial sectors contained the effects of such volatility. The reforms initiated here in India are therefore going in the right direction, are very timely, but will also need to be pursued with the utmost speed.

Third, if market volatility materializes, central banks need to be ready to act.

Temporary—though aggressive—domestic liquidity support to certain sectors or markets may be necessary, along with targeted foreign exchange interventions. Moreover, cross-country foreign currency swaps lines have proven helpful in enabling necessary access to foreign exchange liquidity at times of market stress.

There are a few examples where good fundamentals, as well as decisive and swift policy responses, helped countries reduce, and cope with, market volatility. Think of Korea, which improved the resilience of its financial sector with measures that reduced banks’ short term external debt by half—to 27 percent—between 2008 and 2013. Other countries such as Brazil, Uruguay, and Indonesia used some form of capital flow management measures to discourage short term inflows and thus decrease the build-up of risks. Peru intervened directly, though temporarily, in the foreign exchange market to limit excessive volatility.

Here in India too, the RBI took decisive action during and after the taper tantrum episode. It provided foreign currency liquidity support to key sectors, allowed the rupee to depreciate, and provided judicious foreign exchange interventions to minimize disruptive movements in the rupee. The RBI also arrested the surge in gold imports, narrowed its current account deficits sharply, and started to rebuild foreign exchange reserves.

So I am very pleased to say that, in a very short time span, India successfully contained its domestic and external vulnerabilities more than in many other emerging economies.

Does this mean the work is done? Well, you would be surprised if I answered “yes” to this question.

3. Rethinking Financial Development

Indeed, there is more work to be done. Apart from short term policy responses to deal with acute economic crises, it is equally important to continue building a safe and inclusive financial system—which will serve well in good times in supporting broad based growth and provide an effective buffer in bad times in ensuring financial stability.

But there are questions about the extent and speed with which financial development should be pursued. The experience of advanced economies has shown the dangers that can arise from oversized financial systems.

IMF economists have done some work on rethinking financial development and its implications for stability and growth in emerging markets. This work is still being finalized and will be published in the next month or so. Allow me to share with you a few encouraging findings.

First, there are many benefits still to be reaped from further financial development in most emerging markets, including India. By financial development, I mean greater depth and efficiency of institutions and markets, as well as higher access of all its citizens to banks and financial instruments.

The RBI has taken several encouraging steps. By allowing for a greater role for the private sector in India’s public sector banks, there will undoubtedly be a striking increase in efficiency in the banking sector. Moreover, Prime Minister Modi’s commitment to broadening access to formal finance to all segments of the population through the ambitious Jan Dhan Yojana is impressive, and so are the results which were achieved in just a few months.

The second and related finding of the IMF study is that when it comes to financial deepening, there are speed limits! When done too fast, deepening financial institutions can lead to more instability, both economic and financial. It encourages greater risk-taking and high leverage, particularly when poorly regulated and supervised.

This puts a premium on developing good institutions and regulatory frameworks.

India’s record in promoting good practices has been positive in recent times. It is making progress toward addressing bad loans in public sector banks, and in developing a sound regulatory and supervisory regime for banks, insurance, and securities market.

Best international practices are also being adopted. For example, India is well ahead of many countries in implementing Basel III standards. The government’s recent announcement to introduce legislation on a new Indian Financial Code, which will simplify and revamp India’s financial regulatory architecture, is a revolutionary step.

The third finding of the IMF study relates to potential tradeoffs of financial regulations. One view is that tighter and more regulations to help safeguard financial stability can hamper financial development.

The IMF study provides a new angle. It finds that, among a large number of regulatory principles, there is a small subset that is truly critical for financial development as well as for financial stability.

Some examples include regulations related to capital buffers, non performing loans, financial disclosures, and compensation. And, it is essentially the same small subset that matters for both!

In other words, there is very little or no conflict between promoting financial stability and financial development if you choose the right regulations to focus on.

On this note, let me conclude.

4. Conclusión

I am fascinated by the vibrance I see wherever I go in India. I see hope in the eyes of the small sellers by the street side. I see dreams in the eyes of young people, and there are so many young people! But above all I see change, change for the better.

The world is looking to India to lead the path to higher, sustainable, and inclusive growth.

Thank you.

What Will Happen to You When the Dollar Collapses?

by Jeff Thomas

What Will Happen to You When the Dollar Collapses?                  
Historically, when a nation’s debt exceeds its ability to repay even the interest, it can be assumed that the currency will collapse. Typically, governments exacerbate the situation by printing large amounts of currency notes in an effort to inflate the problem away, or at least postpone it.

The greater the level of debt, the more dramatic the inflation must be to counter it. The more dramatic the inflation, the greater the danger that hyperinflation will take place. No government has ever been able to control hyperinflation. If it occurs, it does so quickly and always ends with a crash.

Although there are observers (myself included) who frequently discuss what a reserve-currency crash would mean to the world, there is little or no discussion as to how this would impact people on the street level, and perhaps that discussion should begin.

When currencies crash, the state often tries to float a new currency. Sometimes, it’s accepted, sometimes not. Generally, the people of the country (and those trading within the country) move immediately to “the next best thing.” In 2009, when the Zimbabwe dollar crashed, several currencies were used, but the US dollar was the clear favourite, as it was the world’s reserve currency and therefore the most “spendable” currency.

Not surprisingly, the Zimbabwean government fought the use of the dollar, as they wanted to retain control of the economy and the people. People were therefore penalised for using the US dollar and other currencies.

And that’s what most governments do, but here’s where that idea usually falls down: First, the “black-market” currency is so desired by the now-jaded citizens that they do all they can to avoid the new official currency. Soon, most transactions, although illegal, are undertaken in the black-market currency. Second, since no one really wants the new currency, even the political leaders are soon using the black-market currency.

Ultimately, the black-market currency is legalised (since it’s the only truly workable solution), and it often becomes the unofficial currency, if not actually the official one.

First, the Euro Crash

It’s safe to say that the EU, the US, and quite a few other jurisdictions are nearing currency crashes, and in all likelihood, the euro will go before the dollar. So, unless the EU has already prearranged a new euro, the US dollar might well be chosen as an immediate solution to the problem, as the US dollar is presently recognised and traded throughout Europe. Therefore, a relatively painless transfer could be made.

Then, the Dollar Crash

However, the dollar, which is presently praised as being a sound currency, is really only sound in relation to the euro (and some other lesser currencies). Once its less stable brother, the euro, collapses, the dollar will be exposed.

As the US dollar is a fiat currency and is on the ropes, the US (and any other country that is using the dollar as its primary currency when the time comes) will experience a currency emergency at the street level that will be unprecedented.

The big question that is generally not being discussed is: The day after the crash (and thereafter), what will be the currency that is used to buy a bag of groceries, a tank of petrol, a meal at a restaurant? Certainly, the need will be immediate and will be on a national level in each impacted country, affecting everyone.

And Then…

I have discussed for some time that the US will be prepared ahead of time with a new, electronic currency. This will serve three purposes:
  1. It will allow the US government to blame paper currencies for the crash, in order to distract the public from recognising that the government itself is the culprit.
  1. It will allow the US government to create a currency system that disallows the holding of tradable currency by the population—that is, a debit card would be created by banks through which all transactions must pass, assuring that all transactions are processed by (and thereby subject to the control of) a bank.
  1. It will allow the US government to have knowledge of every penny earned and spent by any individual or organization, allowing for direct-debit income taxation.
If the US does institute such a system, US citizens will then become the most economically controlled people in the world, overnight.

It’s likely that a black-market system would spontaneously be created by US citizens in order to bypass the new government system. A portion of daily trade would occur under the table. It would unquestionably be made illegal, and we can only speculate as to how prevalent it would become: 10% of all transactions? 30%? Anyone’s guess. Certainly, the government would crack down, and penalties might become severe.

Elsewhere in the world, there would be greater freedom, but what would their currencies be?

There are many countries that presently use the US dollar as one of their official currencies. After a crash, the greater the link to the US dollar, the greater the loss of economic freedom, although, in most such countries, the government is likely to be less efficient than in the US, which would work in favour of the individual.

Such countries would also have the option of switching from the dollar to another dominant currency.

With the euro and dollar gone, that currency might be the Chinese yuan. The difficulty with this possibility is that, presently, the yuan is not in common use on the street.

Adoption of a currency such as the yuan would require a sudden switch in monetary policy, complete with teething problems. However, recent developments amongst the BRICS and others indicate that many countries are already seeing the writing on the wall and are readying themselves for the use of the yuan as an alternate.

A Return to Precious Metals as Currency?

A further possibility is taking place in Mexico today. Mexico is remonetising silver. A one-ounce pure silver Libertad coin will function in parallel to (and be interchangeable with) the existing paper peso. Banks will value the Libertad daily, based upon the silver price. Thus, Mexico will create a legal way for its citizens to protect themselves against devaluation of the peso, whilst creating an internal protection against currency crashes in other countries.

If the Mexican government remains consistent in its plan, it will do more than simply help stabilise Mexico economically; it will serve as an example to other countries that when the Goliaths of the euro and US dollar fall, there is a very sound alternative.

Further, the more countries that follow this policy, the more silver (and for that matter, gold) would become an international currency. It would matter little to a petrol station owner in Canada, Australia, or Chile whether his till was filled with coins marked, “Mexico,” or whether they said “Iceland,” “New Zealand,” or “South Africa.” After all, an ounce of silver is an ounce of silver, no matter what the issuing country is.

As the Great Unravelling proceeds, we would be wise to monitor what happens with the Libertad in Mexico and watch for a similar return to precious metals in other jurisdictions. As this development progresses, we might wish to consider that, whatever jurisdictions are the most forceful in demanding the continued use of doomed paper currencies (or, worse, transferring into electronic currencies), we may choose to store our wealth, no matter how great or small, in a safer jurisdiction. Further, we may choose to reside in a jurisdiction where a currency crisis will be less likely to occur; to live under a government that does not seek to monitor and tax our every economic transaction.

Editor’s Note: Silver and gold have served as money for centuries and across many different civilizations. They have always been an inherently international asset. There is nothing at all particularly American, Chinese, Russian, or European about silver and gold. Buying precious metals is perhaps the easiest step you can take toward internationalizing your savings. The next step is to store that physical gold and silver in a safe foreign jurisdiction. 

Can Putin Survive?

By George Friedman

March 17, 2015 | 07:59 GMT

Editor's Note: This week, we revisit a Geopolitical Weekly first published in July 2014 that explored whether Russian President Vladimir Putin could hold on to power despite his miscalculations in Ukraine, a topic that returned to prominence with his recent temporary absence from public view. While Putin has since reappeared, the issues highlighted by his disappearing act persist.

There is a general view that Vladimir Putin governs the Russian Federation as a dictator, that he has defeated and intimidated his opponents and that he has marshaled a powerful threat to surrounding countries. This is a reasonable view, but perhaps it should be re-evaluated in the context of recent events.

Ukraine and the Bid to Reverse Russia's Decline

Ukraine is, of course, the place to start. The country is vital to Russia as a buffer against the West and as a route for delivering energy to Europe, which is the foundation of the Russian economy. On Jan. 1, Ukraine's president was Viktor Yanukovich, generally regarded as favorably inclined to Russia. Given the complexity of Ukrainian society and politics, it would be unreasonable to say Ukraine under him was merely a Russian puppet. But it is fair to say that under Yanukovich and his supporters, fundamental Russian interests in Ukraine were secure. 

This was extremely important to Putin. Part of the reason Putin had replaced Boris Yeltsin in 2000 was Yeltsin's performance during the Kosovo war. Russia was allied with the Serbs and had not wanted NATO to launch a war against Serbia. Russian wishes were disregarded. The Russian views simply didn't matter to the West. Still, when the air war failed to force Belgrade's capitulation, the Russians negotiated a settlement that allowed U.S. and other NATO troops to enter and administer Kosovo. As part of that settlement, Russian troops were promised a significant part in peacekeeping in Kosovo. But the Russians were never allowed to take up that role, and Yeltsin proved unable to respond to the insult.

Putin also replaced Yeltsin because of the disastrous state of the Russian economy. Though Russia had always been poor, there was a pervasive sense that it been a force to be reckoned with in international affairs. Under Yeltsin, however, Russia had become even poorer and was now held in contempt in international affairs. Putin had to deal with both issues. He took a long time before moving to recreate Russian power, though he said early on that the fall of the Soviet Union had been the greatest geopolitical disaster of the 20th century. This did not mean he wanted to resurrect the Soviet Union in its failed form, but rather that he wanted Russian power to be taken seriously again, and he wanted to protect and enhance Russian national interests. 

The breaking point came in Ukraine during the Orange Revolution of 2004. Yanukovich was elected president that year under dubious circumstances, but demonstrators forced him to submit to a second election. He lost, and a pro-Western government took office. At that time, Putin accused the CIA and other Western intelligence agencies of having organized the demonstrations. Fairly publicly, this was the point when Putin became convinced that the West intended to destroy the Russian Federation, sending it the way of the Soviet Union. For him, Ukraine's importance to Russia was self-evident. He therefore believed that the CIA organized the demonstration to put Russia in a dangerous position, and that the only reason for this was the overarching desire to cripple or destroy Russia. Following the Kosovo affair, Putin publicly moved from suspicion to hostility to the West.

The Russians worked from 2004 to 2010 to undo the Orange Revolution. They worked to rebuild the Russian military, focus their intelligence apparatus and use whatever economic influence they had to reshape their relationship with Ukraine. If they couldn't control Ukraine, they did not want it to be controlled by the United States and Europe. This was, of course, not their only international interest, but it was the pivotal one.

Russia's invasion of Georgia had more to do with Ukraine than it had to do with the Caucasus.

At the time, the United States was still bogged down in Iraq and Afghanistan. While Washington had no formal obligation to Georgia, there were close ties and implicit guarantees.

The invasion of Georgia was designed to do two things. The first was to show the region that the Russian military, which had been in shambles in 2000, was able to act decisively in 2008. The second was to demonstrate to the region, and particularly to Kiev, that American guarantees, explicit or implicit, had no value. In 2010, Yanukovich was elected president of Ukraine, reversing the Orange Revolution and limiting Western influence in the country. 

Recognizing the rift that was developing with Russia and the general trend against the United States in the region, the Obama administration tried to recreate older models of relationships when Hillary Clinton presented Putin with a "restart" button in 2009. But Washington wanted to restore the relationship in place during what Putin regarded as the "bad old days." He naturally had no interest in such a restart. Instead, he saw the United States as having adopted a defensive posture, and he intended to exploit his advantage. 

One place he did so was in Europe, using EU dependence on Russian energy to grow closer to the Continent, particularly Germany. But his high point came during the Syrian affair, when the Obama administration threatened airstrikes after Damascus used chemical weapons only to back off from its threat. The Russians aggressively opposed Obama's move, proposing a process of negotiations instead. The Russians emerged from the crisis appearing decisive and capable, the United States indecisive and feckless. Russian power accordingly appeared on the rise, and in spite of a weakening economy, this boosted Putin's standing.

The Tide Turns Against Putin

Events in Ukraine this year, by contrast, have proved devastating to Putin. In January, Russia dominated Ukraine. By February, Yanukovich had fled the country and a pro-Western government had taken power. The general uprising against Kiev that Putin had been expecting in eastern Ukraine after Yanukovich's ouster never happened. Meanwhile, the Kiev government, with Western advisers, implanted itself more firmly. By July, the Russians controlled only small parts of Ukraine.

These included Crimea, where the Russians had always held overwhelming military force by virtue of treaty, and a triangle of territory from Donetsk to Luhansk to Severodonetsk, where a small number of insurgents apparently supported by Russian special operations forces controlled a dozen or so towns.

If no Ukrainian uprising occurred, Putin's strategy was to allow the government in Kiev to unravel of its own accord and to split the United States from Europe by exploiting Russia's strong trade and energy ties with the Continent. And this is where the crash of the Malaysia Airlines jet is crucial. If it turns out — as appears to be the case — that Russia supplied air defense systems to the separatists and sent crews to man them (since operating those systems requires extensive training), Russia could be held responsible for shooting down the plane. And this means Moscow's ability to divide the Europeans from the Americans would decline. Putin then moves from being an effective, sophisticated ruler who ruthlessly uses power to being a dangerous incompetent supporting a hopeless insurrection with wholly inappropriate weapons.

And the West, no matter how opposed some countries might be to a split with Putin, must come to grips with how effective and rational he really is. 

Meanwhile, Putin must consider the fate of his predecessors. Nikita Khrushchev returned from vacation in October 1964 to find himself replaced by his protege, Leonid Brezhnev, and facing charges of, among other things, "harebrained scheming." Khrushchev had recently been humiliated in the Cuban missile crisis. This plus his failure to move the economy forward after about a decade in power saw his closest colleagues "retire" him. A massive setback in foreign affairs and economic failures had resulted in an apparently unassailable figure being deposed.

Russia's economic situation is nowhere near as catastrophic as it was under Khrushchev or Yeltsin, but it has deteriorated substantially recently, and perhaps more important, has failed to meet expectations. After recovering from the 2008 crisis, Russia has seen several years of declining gross domestic product growth rates, and its central bank is forecasting zero growth this year. Given current pressures, we would guess the Russian economy will slide into recession sometime in 2014. The debt levels of regional governments have doubled in the past four years, and several regions are close to bankruptcy. Moreover, some metals and mining firms are facing bankruptcy. The Ukrainian crisis has made things worse. Capital flight from Russia in the first six months stood at $76 billion, compared to $63 billion for all of 2013.

Foreign direct investment fell 50 percent in the first half of 2014 compared to the same period in 2013. And all this happened in spite of oil prices remaining higher than $100 per barrel.

Putin's popularity at home soared after the successful Sochi Winter Olympics and after the Western media made him look like the aggressor in Crimea. He has, after all, built his reputation on being tough and aggressive. But as the reality of the situation in Ukraine becomes more obvious, the great victory will be seen as covering a retreat coming at a time of serious economic problems. For many leaders, the events in Ukraine would not represent such an immense challenge. But Putin has built his image on a tough foreign policy, and the economy meant his ratings were not very high before Ukraine.

Imagining Russia After Putin

In the sort of regime that Putin has helped craft, the democratic process may not be the key to understanding what will happen next. Putin has restored Soviet elements to the structure of the government, even using the term "Politburo" for his inner Cabinets. These are all men of his choosing, of course, and so one might assume they would be loyal to him. But in the Soviet-style Politburo, close colleagues were frequently the most feared.

The Politburo model is designed for a leader to build coalitions among factions. Putin has been very good at doing that, but then he has been very successful at all the things he has done until now. His ability to hold things together declines as trust in his abilities declines and various factions concerned about the consequences of remaining closely tied to a failing leader start to maneuver. Like Khrushchev, who was failing in economic and foreign policy, Putin could have his colleagues remove him.

It is difficult to know how a succession crisis would play out, given that the constitutional process of succession exists alongside the informal government Putin has created. From a democratic standpoint, Defense Minister Sergei Shoigu and Moscow Mayor Sergei Sobyanin are as popular as Putin is, and I suspect they both will become more popular in time. In a Soviet-style struggle, Chief of Staff Sergei Ivanov and Security Council Chief Nicolai Patryushev would be possible contenders.

But there are others. Who, after all, expected the emergence of Mikhail Gorbachev? 

Ultimately, politicians who miscalculate and mismanage tend not to survive. Putin miscalculated in Ukraine, failing to anticipate the fall of an ally, failing to respond effectively and then stumbling badly in trying to recoup. His management of the economy has not been exemplary of late either, to say the least. He has colleagues who believe they could do a better job, and now there are important people in Europe who would be glad to see him go. He must reverse this tide rapidly, or he may be replaced.

Putin is far from finished. But he has governed for 14 years counting the time Dmitri Medvedev was officially in charge, and that is a long time. He may well regain his footing, but as things stand at the moment, I would expect quiet thoughts to be stirring in his colleagues' minds. Putin himself must be re-examining his options daily. Retreating in the face of the West and accepting the status quo in Ukraine would be difficult, given that the Kosovo issue that helped propel him to power and given what he has said about Ukraine over the years. But the current situation cannot sustain itself. The wild card in this situation is that if Putin finds himself in serious political trouble, he might become more rather than less aggressive. Whether Putin is in real trouble is not something I can be certain of, but too many things have gone wrong for him lately for me not to consider the possibility. And as in any political crisis, more and more extreme options are contemplated if the situation deteriorates.

Those who think that Putin is both the most repressive and aggressive Russian leader imaginable should bear in mind that this is far from the case. Lenin, for example, was fearsome. But Stalin was much worse. There may similarly come a time when the world looks at the Putin era as a time of liberality. For if the struggle by Putin to survive, and by his challengers to displace him, becomes more intense, the willingness of all to become more brutal might well increase.

Your Health

Scientists’ New Goal: Growing Old Without Disease

Researchers plan to test a pill to prevent or delay Alzheimer’s, heart disease and other ailments that come with age

By Sumathi Reddy                  

March 16, 2015 5:43 p.m. ET               


 Brian Harkin for The Wall Street Journal        
Some of the top researchers on aging in the country are trying to get an unusual clinical trial up and running.

They want to test a pill that could prevent or delay some of the most debilitating diseases of old age, including Alzheimer’s and cardiovascular disease. The focus of the project isn’t to prolong life, although that could occur, but to make the last years or decades of people’s lives more fulfilling by postponing the onset of many chronic diseases until closer to death.

The project aims to tap into the growing body of research targeting aging, which has revealed a half dozen or more drugs that appear to delay the aging process in laboratory experiments on animals and observational studies of people. Some of the drugs also have been found to reduce the incidence of chronic diseases associated with old age.

“Aging is the major risk factor for all these diseases—heart disease, cancer, diabetes and Alzheimer’s,” said Nir Barzilai, director of the Institute for Aging Research at Albert Einstein College of Medicine in New York City who is leading the proposed study. “If you want to make a real impact you have to modulate the risk of aging and by that the risk for all those diseases of aging.”

Dr. Barzilai expects to enroll more than 1,000 elderly participants in the randomized, controlled clinical trial to be conducted at multiple research centers and take five to seven years. The project is in the preliminary stages and permanent funding hasn’t yet been secured. Funding for the planning phase is coming from the American Federation for Aging Research, a nonprofit organization of which Dr. Barzilai is deputy scientific director.

The trial aims to test the drug metformin, a common medication often used to treat Type 2 diabetes, and see if it can delay or prevent other chronic diseases. (The project is being called Targeting/Taming Aging With Metformin, or TAME.) Metformin isn’t necessarily more promising than other drugs that have shown signs of extending life and reducing age-related chronic diseases. But metformin has been widely and safely used for more than 60 years, has very few side effects and is inexpensive.

The scientists say that if TAME is a well-designed, large-scale study, the Food and Drug Administration might be persuaded to consider aging as an indication, or preventable condition, a move that could spur drug makers to target factors that contribute to aging.

A study that helped convince the gerontologists to pursue the TAME project was done in the U.K. and published last year in the journal Diabetes, Obesity and Metabolism. Researchers used data from a national registry of more than 180,000 people, comparing the treatment of metformin with that of sulfonylurea, another drug used for diabetes. They also created two control groups of nondiabetic people.

People who took metformin lived longer than those taking sulphonylurea, the study found. In addition, the people with diabetes who were 71-to-75-years-old at baseline and took metformin outlived their nondiabetic controls with a 15% greater survival rate.

“Observational studies like this are never definitive,” said Jill Crandall, director of the Diabetes Clinical Trials Unit at Albert Einstein College of Medicine and part of the TAME planning team.

“But it is one of the observations that certainly supports our hypothesis—that certain pharmacological interventions, like metformin, may have broad effects in improving health and increasing health span.”

Dr. Crandall also participated in a federally funded study that found metformin and lifestyle changes were both effective in staving off diabetes in people at high risk for the disease for at least 10 years. Data from the study, which followed more than 3,000 adults for 15 years, are now being analyzed to see whether long-term use of metformin prevented the development of cardiovascular disease, cancer, cognitive decline and physical-function decline. The results could help in the planning of the TAME study, she said.
Research has found that metformin targets the chemicals produced by age-related senescent cells—normal cells that stop dividing and produce toxic substances damaging to the cells around them, said James Kirkland, director of the Robert and Arlene Kogod Center on Aging at the Mayo Clinic in Rochester, Minn., and part of the TAME planning team. Senescent cells usually develop as people age or at sites of age-related chronic diseases, such as the brain in Alzheimer’s patients or around the plaques that lead to heart attacks and strokes, he said. It isn’t proven if senescent cells actually cause the disease.

Metformin appears also to slow the development of age-related symptoms by increasing the enzyme AMP kinase, which normally declines with age, and decreasing the protein mTOR, which helps to regulate cell growth.

Several other drugs also have shown life-extension properties in mice and in laboratory work, Dr. Kirkland said. His research group last week published a study on mice in the journal Aging Cell which showed that a combination of two drugs—dasatinib, a cancer drug, and quercetin, a supplement that can be found in health food stores—were potentially effective.

“There’s more and more evidence that by targeting aging itself we might be able to target these age-related chronic diseases that have been so intractable for us to try to come up with a cure for,” Dr. Kirkland said.

Fighting each major disease of old age separately isn’t winnable, said S. Jay Olshansky, another TAME project planner and a professor at the school of public health at the University of Illinois at Chicago. “We lower the risk of heart disease, somebody lives long enough to get cancer. If we reduce the risk of cancer, somebody lives long enough to get Alzheimer’s disease.”

“We are suggesting that the time has arrived to attack them all by going after the biological process of aging,” Dr. Olshansky said.

Sandy Walsh, an FDA spokeswoman, said the agency’s perspective has long been that “aging” isn’t a disease. “We clearly have approved drugs that treat consequences of aging,” she said.

Although the FDA currently is inclined to treat diseases prevalent in older people as separate medical conditions, “if someone in the drug-development industry found something that treated all of these, we might revisit our thinking.”

Other experts agree with the goal of delaying chronic disease for the elderly, but question whether medication is the best way to do that. “I can certainly see how medicine can play a role if it turns out this study shows some promising findings,” said Alicia Arbaje, a geriatrician and an assistant professor of medicine at Johns Hopkins School of Medicine. “But aging is very complex and it’s probably going to take a multifaceted approach to help people delay or ensure that they age in a healthy way,” said Dr. Arbaje, who isn’t affiliated with the TAME trial planning.

Effective interventions to delay aging already exist, Dr. Arbaje noted, such as exercise, nutrition, social engagement, stress reduction and getting adequate sleep. “These are reliable and effective ways to keep people healthy as they age,” she said. “The problem is they’re not as easy as taking a medication.”