/ world today news/ Former US President Donald Trump predicted a new Great Depression for America. This, according to him, speaks of the ruin of one of the largest banks in the country. California’s “Bank of Silicon Valley” (BSD) unexpectedly went bankrupt within 48 hours. Analysts call this event the biggest financial collapse in the United States since the crisis of 2008. A similar fate befell the New York-based bank Signature and the cryptocurrency bank Silvergate.
Joe Biden’s administration will not bail out investors in a failed BSD. At the same time, the US president himself said on March 13: “Americans can rest assured that the banking system remains safe.” Russia immediately tensed, recalling Boris Yeltsin’s reassuring statements on the eve of the 1998 bankruptcy.
Will the banking collapse of the US economy and the world economy, will Russia manage to stay out of another economic storm, and will it all end in another world war? We speak with Andrey Kobyakov, a member of the Izborsky Club, an economist who predicted the 2008-2009 crisis in his 2003 work The Decline of the Dollar Empire and the End of Pax Americana.
Andrey Borisovich, can the bankruptcy of two or three banks, even large ones, be considered a symptom of the coming crisis?
Andrey Kobyakov: Let’s start with the fact that against the background of the American banking system, these are not such large banks, and their importance should not be exaggerated.
However, there are undisclosed results of stress tests conducted by the US Federal Reserve. And they were rated by many as alarm bells.
We know that the Fed has already begun to slowly pump additional liquidity into the banking system. What is the problem? The fact that all banks are interconnected and the failure of one institution leads to problems in others. No one can tell in advance the actual dimensions of the pit. Even the 2007-2008 crisis got off to a slow start. And then, like a bolt from the blue, it turned out that all the banks had non-performing mortgage bonds that had no exchange value. And at some point their liquidity dropped to zero.
Is the American and world economy again threatened by such a danger today?
A.K.: Of course, there is a danger of such a crisis developing. And the alarm bell rang. But I want to note that the problem of one of the largest financial institutions in the world, Credit Suisse, has been discussed for half a year. The problems are so serious that all the insurance on this bank’s liabilities has gone up.
And this is already a “heavyweight”, whose assets are in the trillions. In addition, due to certain circumstances, “Credit Suisse” turned out to be very closely connected with the American financial market. It is one of the main world banks. And it is not clear to anyone what it would be necessary to save such a bank. Moreover, the bank, of course, has no interest in not disclosing this information publicly. Because the bank’s main problem is if depositors flee.
So, the beginning of a new “bankruptcy” cannot be ruled out?
A.K.: So something like that has already started happening. Trading in shares of a number of banks on American stock exchanges was suspended yesterday. Among them are Charles Schwab, First Republic Bank, etc.
There are data that in the first minutes of trading the shares of “First Republican Bank” fell by 67%. Western Alliance lost 76%. And the auction was suspended. We understand that if the Federal Reserve does not take any steps to calm the market, the decline may repeat itself. And at any moment to expand and reach the “heavy categories”.
But Joe Biden promises to seek tougher regulations to avoid new bankruptcies. will it help
A.K.: It is too late. Regulatory standards must be increased to prevent a crisis. If the crisis develops, then the norms, on the contrary, should be reduced so that the hole in the banks’ balance sheets does not become the cause of bankruptcy.
But when a banking crisis hits, tightening regulations is foolish. It means pouring gasoline on a burning fire.
The American economy is ripe for the crisis. But can the same be said of the world? In other words, are we now on our way out of the “Great Recession” or have we stopped crawling and started falling?
A.K.: First, I would separate the concepts of financial and economic crisis. If we are talking about an economic crisis, then I am sure that a recession is inevitable this year. It is taking place in most European countries, and according to official signs, it has been observed in the USA for half a year already.
It is clear that all efforts and the hawkish policy of the Federal Reserve do not stop – there is still a desire to fight high inflation by raising interest rates, which means limiting liquidity in the economy and increasing the cost of credit. All this leads to recession. The question is how deep it will be. Growth rates are very modest.
And how will world capital behave in such a situation? Will it be able to solve its problems without causing another world war or without another issuance of the dollar, as during the pandemic?
A.K.: If you withhold emissions and fight inflation, then you get a deepening macroeconomic crisis. Growth rates will be unequivocally negative. But the Federal Reserve’s interest rate hikes are making the cost of servicing the U.S. government debt completely unacceptably high.
Considering the size of the US debt, this will mean that almost half of the budget will be spent on paying off those debts. This is absolutely unacceptable, since it will require a reduction in budget expenditures, on which, by the way, the economic activity of the United States depends.
So war?
A.K.: In order to start a war, it is necessary to increase the budget expenditure again, specifically for the military sphere. And why can it be done? So borrow again. Taking out a loan with high interest rates means getting yourself into a trap and ending up in a situation where you can’t repay. The bankruptcy of the dollar means the loss of the status of the world currency. Accordingly, the main advantage – the ability to use the printing press to ensure prosperity and unequal exchange in the world.
What does America import? A variety of goods. And what does he pay with? Papers. They have a negative trade balance. And the entire foreign trade deficit is covered by the issue of dollars.
Have the candidates for the role of heirs to the dollar been identified?
A.K.: Yes, we see that China is consistently showing its ambitions in this regard. It is now approaching the final phase when the yuan will really begin to replace the dollar. As a payment instrument, it is already heavily used. Remember, for example, the agreement with Saudi Arabia, which will sell oil for yuan, not dollars. And despite the fact that the US lost the trade war with China. Did they manage to reduce the trade deficit with China? No, he’s grown up.
A logical question: will we feel the consequences of this new world crisis in Russia?
A.K.: If the crisis really becomes global, then I am afraid there is no way to avoid it. And there is only one way to avoid being affected by this crisis. If our commitment to foreign trade and financial transactions is a very small fraction compared to the size of our economy.
A country of the size of Russia could achieve this state if we ourselves used our own resources, if we did not destroy our own manufacturing industry and so on.
But the de facto ratio of export earnings to Russia’s gross domestic product is no less than 25%. This is a very serious addiction. And so global inflation did not bypass us. And a major global recession will lead to a drop in demand for raw materials. That is, exactly this is the basis of Russian exports. Therefore, there is a great danger that at some point we will end up with a negative trade balance.
But does Russia still have time to avoid the impact of this crisis?
A.K.: If slogans turn into deeds. For example, the slogan of import substitution. If we restore lost industries, it will have a softening effect. This is how we will reduce our dependence on imports. That is, increasing the degree of quasi-isolation of its economy. But it takes a lot of time. For example, we almost completely lost our own machine tool industry. To bring it back to the level we need for self-satisfaction is clearly not enough in one or even five years.
Translation: V. Sergeev
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