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I recently spent a few days in Moscow meeting with a variety of economic and financial officials and analysts, both in the public and private sector.

Until July of this year, Russia was rosy: It was growing at an annual rate close to 8%; oil prices were peaking at $140 a barrel; the country was running a large fiscal and current account surplus; it had a war chest of $600 billion-plus of foreign reserves; and its stock market, bond markets and currency values were strong. Policy makers were thinking of turning the ruble into a major reserve currency, at least for the CIS bloc.

This economic and financial success led Russia to flex its geopolitical muscle, challenging the U.S. on a number of political and military issues and using its energy power as an instrument of foreign policy in its relations with the Eurozone and its former Soviet neighbors. The peak of this resurgence of the Russian bear came during the August war with Georgia, when Russia flaunted its military power as the U.S. looked impotent in its inability to defend an ally.

But what a difference a short time makes. Six months later, Russia is in deep economic and financial trouble.

The S&P has just announced that it has lowered Russia's foreign-currency credit rating by one notch from BBB+ to BBB. In less than six months, oil prices have fallen to under $50 a barrel (from the $140-plus peak of July). The stock market has fallen by over 60%, and on some days it has been shut down to prevent a free-fall. The current account surplus has turned into a near deficit and a sure deficit by 2009. The country has experienced a capital flight of over $100 billion and has lost about $150 billion of foreign reserves (now down to about a $450 billion level). It is facing massive external debt-financing problems as its banks financed their lending with foreign currency borrowings and its corporate firms financed massive expansion with foreign currency debt. It is now desperately trying to prevent a sharp depreciation of its currency by aggressive foreign exchange intervention. It may face a large fiscal deficit (2% of GDP) next year, and its GDP growth rate is sharply slowing down, leading the World Bank to predict a rate of only 3% in 2009--with leading local analysts predicting an actual recession (negative growth of as much as -2%) in 2009. (See the recent analysis by RGE's Rachel Ziemba for more on the risks of a hard landing in Russia.)

Given this sudden change in Russian fortunes, there are several key policy issues that the authorities need to deal with. Of course, given the external shocks (terms of trade worsening and a sudden stop of capital and credit), it was important to use the buffer of foreign reserves to avoid a bank run by providing liquidity and capital to banks--and by providing a fiscal stimulus to a country that is sharply slowing down.

But the key unresolved policy issue is what to do with the exchange rate. Until recently, Russia was on an effective basket peg (with 55% for the dollar and a 45% weight for the euro). But with oil prices now down over 60% from the peak of the summer, and with incipient current account and fiscal deficits and a likely recession in 2009, the currency is obviously overvalued. A reasonable estimate of the needed exchange-rate depreciation--with oil at about $50 a barrel in 2009--is 25%. But until recently, the authorities resisted the needed depreciation through aggressive foreign exchange intervention.

Samantha Power, who resigned as senior foreign policy adviser to Barack Obama, is back on his team

Samantha Power, the Harvard professor who was forced to resign from Barack Obama's presidential campaign last spring after calling Sen. Hillary Rodham Clinton "a monster," is now advising the president-elect on transition matters relating to the State Department -- which Clinton is slated to head.

Power is listed on Obama's transition Web site as part of the team reviewing national security agencies. Her duties, according to the site, will be to "ensure that senior appointees have the information necessary to complete the confirmation process, lead their departments, and begin implementing signature policy initiatives immediately after they are sworn in."

In short, she is part of a team that is likely to work directly with Clinton, a potentially awkward situation for the two women. Obama is expected to officially announce Clinton as his choice for secretary of state after the Thanksgiving holiday.

Transition officials declined to comment. A spokesman for Clinton did not respond to an e-mail sent yesterday evening. Power has been on the list of review team officials since mid-November; the Associated Press first called attention to her presence on the list yesterday.

But people close to the transition suggested too much was made of Power's comment at the time, and said that she has made moves to bury the hatchet with Clinton and that the senator accepted those efforts.

If so, that could pave the way for Power to reemerge as a key adviser for the new president after being barred for months from appearing on television as a foreign policy surrogate for Obama.

Power, who is close to Obama, resigned March 7 after being quoted in the Scotsman newspaper saying that Clinton "is a monster" and that "she is stooping to anything. . . . The amount of deceit she has put forward is really unattractive."

The same day the comments were published, Power was forced to resign. In a statement at the time, she said she made "inexcusable remarks that are at marked variance from my oft-stated admiration for Senator Clinton and from the spirit, tenor, and purpose of the Obama campaign."

Then locked in a tight battle with Obama for the Democratic nomination, Clinton responded with a statement urging donors to contribute to show that "there is a price" for the kind of attack politics that Power's comment represented.

After leaving the campaign, Power remained active in the public debate. In an Aug. 13 article in the New York Review of Books, she argued that Obama had an opportunity this year to reverse the decades-long advantage that the Republican Party had with voters on national security and foreign policy issues.

"Although few have focused on this, the Democratic Party today is also in a strong position to show that it will be more reliable in keeping Americans safe during the twenty-first century," she wrote. "If the party succeeds in doing this, it will not only wake up the United States and the world from a long eight-year nightmare; it will also lay to rest the enduring myth that strong and wrong is preferable to smart and right."

Power was at one time considered a contender for a top post in an Obama administration. But her name has not surfaced recently, and she is not listed as a lead official on the State Department review team.

Obama officials have said the review teams will review agency policies, budgets and structures with an eye toward recommending to the new secretaries what is working and what is not.