/View.info/ If we carefully look at the description of the global economic crisis in the public space (including in interviews with the heads of the monetary authorities of various countries), we can note a number of interesting circumstances. The first of these is the very large number of errors.
As typical, we can note the reasoning of the head of the Fed, Powell, who in the fall of 2021 repeatedly noted that the rise in inflation was a “local spike” and would “subside” very soon. In reality, inflation was rising until June 2022 (i.e. almost a year), and its decline was caused by a fairly sharp tightening of monetary policy (including an increase in the discount rate).
Another example is the confidence of many monetary authorities, primarily the US Federal Reserve and the ECB, that raising interest rates will return inflation to normal, that is, to a value not exceeding 2% per year. As you know, despite all the efforts of the monetary authorities, inflation in the US did not fall below 6-7%.
At the same time, under the current conditions, it is completely unclear how it can be reduced further, since from January 2023 (ie, even before the banking crisis) there is a clear upward trend. What will happen by the end of spring, how the loans given to the banks will perform is a big question, but that they will not reduce inflation is quite obvious.
The second circumstance: practically all experts stopped talking about the causes of the crisis. If at the first stage of its development, in the summer-autumn of 2021, there was a lot of talk about the beginning of the cyclical crisis, the possible beginning of a recession, today these conversations have died down considerably. The reasons are obvious: current events do not at all fit into the logic of the cyclical crisis.
For this reason, the search for non-economic causes (mass quarantine, “Russian aggression”, China’s political expansion) begins, but these are more attempts to answer the question “Who is to blame?”, rather than “What is the cause?” and “What to do?”.
At the same time, it is quite naive to look for methods to combat a phenomenon that is apparently not recognized within the financial and economic mainstream. In this situation, it is much more likely to deepen the crisis than to find a way out of it.
The third circumstance is related to the specifics of the development of the crisis, which actually mostly distinguishes it from the cyclical one. The latter grows quite quickly, but remains at the minimum point for a very short time, giving way to growth. The current crisis looks different: on the one hand, it is proceeding very gradually, evenly, neither speeding up nor slowing down.
On the other hand, all attempts to correct the moments associated with its most striking manifestations (for example, inflation in the spring of 2022) only lead to the fact that it begins to strengthen in other sectors of the economy. For example, in the US, the construction and industrial sectors have apparently stagnated since the fall.
This behavior of the economy is not described by existing macroeconomic models, which creates serious problems: any predictions quickly begin to contradict reality. And since the models are built in accordance with the dominant liberal theory, their correction does not give any effect, here it is necessary to fundamentally change the theory.
On top of all this, an extremely serious problem of the financial and economic management system is superimposed. The fact is that since the beginning of the 1980s, since the advent of “Reaganism”, only one tool to stimulate the economy has dominated. Recall that the main mechanism of “Reagannomics” was the credit stimulation of private demand by refinancing private debt in the conditions of a constant reduction in the cost of credit.
In particular, the average US household debt from 1981 to the end of 2008 (the beginning of the IV PEC crisis, see below) increased from 60% of real disposable income to more than 130%, and the discount rate fell from 18% to almost zero.
The purchasing power of the average US wage at the end of 2008 was at the level of the mid-1950s. Since then, there was no question of a systematic change of the situation, but only of plugging holes, the resource for which was exhausted by the end of 2019 (see M. Khazin “Memories of the future. Ideas of the modern economy”, M. , 2019).
If we describe the mechanism of “Reaganism” not in financial, but in economic terms, then we can denote it as follows: the growth of added value takes place thanks to the redistribution of emission dollars.
Since this resource at that time seemed unlimited, and the main political task was the breakup of the USSR (after which, in 1991, it seemed that the political risks for the Western world completely disappeared), the entire system of economic and financial management was restored according to this mechanism.
As a result, today all attempts to somehow adapt the economy to real problems are limited by the fact that the management system understands and has only one tool: increasing or limiting emissions.
At the same time, different sectors of the economy have completely different sensitivities to emissions, which is clearly visible in the banking crisis of March 2023. Today, it has finally become clear that this crisis is absolutely man-made and its only purpose is to achieve political permission to issue money in favor of the banking (financial) sector.
Since, from a financial and political point of view, the main problem is high inflation (which devalues household incomes and leads to a decrease in living standards), a political decision was made in the spring of 2021 to fight rising prices. But as the scale of the necessary tightening of monetary policy turned out to be clearly higher than preliminary estimates, the financial sector began to fight for its rights.
As it has dominated in recent decades in terms of control over the institutions of economic governance, the result was not long in showing itself: in two weeks of March, more than 400 billion dollars were provided to the financial sector in the US alone, a record amount in history.
Yes, theoretically this money is given on credit, but there is no reason to be under the illusion that if the banks need it, the loans will be rescheduled “all the way”. In fact, the argument that was presented to achieve such a result (we do not mean the public discussions now) was the simplest: if the banking system collapses, a catastrophe will begin, and the only instrument of support, as we noted, is the issue. Which was done.
The situation that developed until 2008 was described in a theory developed by a number of Russian economists (O. Grigoriev, A. Kobyakov, M. Khazin) over the past 25 years. It is described in detail in the books by A. Kobyakov and M. Khazin (“The Decline of the Dollar Empire and the End of Pax Americana” 2003) and the above-mentioned book by M. Khazin from 2019. One can also note the book by O. Grigoriev “The Age of Growth. Lectures on neo-economics. The Rise and Fall of the World Economic System, 2016.
In accordance with this theory, IV crisis of falling capital efficiency (PEC-crisis) began in 2008, which led to a structural crisis in the world economy at the beginning of the summer of 2021.
The specificity of the structural crisis is the inconsistency between the main parameters of the economy, finding it in an extremely unbalanced state. Of course, to maintain the economy in such a state, it is necessary to spend more and more resources, which was precisely the case with the dollar. And when the scale of the imbalance exceeded the ability to offset them by emissions, a crisis began.
The main mismatch in the modern economy is the mismatch between the amount of income the economy can provide to households and their spending at the next stage of the economic cycle. The missing part is simply compensated by redistributed emission dollars, but this volume in the most developed countries (USA, Western Europe, China) reached 25% of their GDP, which is 1.5–2 times the potential scale of the II PEC crisis in 1930 – 1932 years.
It is this crisis that most closely resembles the modern one, although now it is not going along a deflationary scenario, as it was then, but an inflationary one. It is for this reason that then the collapse of the financial markets preceded the beginning of the structural crisis (October 1929 and March-April 1930, respectively), and now the structural crisis has already begun, and the collapse of the markets has not yet occurred.
But then the crisis followed the classic structural scenario: about 1% of GDP per month or 10% per year. The crisis lasted almost three years, and as a result, the US GDP fell by about 30% (it is impossible to say more precisely due to the lack of adequate statistics), and the standard of living of the population fell by about 40%.
At the same time, structural distortions (of the same nature as today) were then around 15% of GDP. As M. Khazin’s estimates show, the cumulative decline in GDP is approximately twice as large as the main structural imbalance,
The structural crisis is very difficult to stop and today in the US it is approximately 8% of GDP by the end of 2022. To hide the scale of the fall, a number of statistical tricks are used, the main one being the underestimation of inflation.
It should also be noted that the real GDP of the US is unlikely to exceed 15 trillion dollars (slightly less than that of China, which has 16 trillion dollars), everything else is value-added capitalization of fictitious financial assets.
As the crisis develops, this fictitious component will drop sharply, this will be especially pronounced during the almost inevitable collapse of financial markets (well, or the beginning of hyperinflation). And the duration of the crisis will be approximately 6-7 years from the moment of its beginning, that is, the summer of 2021.
In other words, it is possible to expect the end of the crisis and its transition into the “greatest” depression by the beginning or middle of 2028. At the same time, it should be borne in mind that the crisis may intensify due to the sharp reduction in the scale of that part of the world economy that will use the dollar.
Of course, the economic theory developed by O. Grigoriev, A. Kobyakov, M. Khazin and others has not yet been fully verified, but twenty years have passed since the first books appeared, and many points that at that time seemed exotic, now in practice they appeared quite acutely. In this regard, there are serious reasons to believe that this theory will describe the crisis processes taking place in the economy.
This theory suggests that the anti-crisis measures taken today, developed within the framework of the liberal theory, have no effect on the development of the crisis, they only slow down its development, while deepening the bottom of the crisis.
Most likely, taking into account the above-mentioned characteristic of the main mechanism of state management of the economy (turning on / off the printing press), nothing can change either in the USA or in the EU. But other regions (“currency zones” in Kobyakov-Khazin’s terminology) can deal with the crisis much faster.
In conclusion, one can only quote the great physicist Ludwig Boltzmann: “There is nothing more practically useful than a good theory.” For a way out of the crisis, the old liberal theory is not exactly suitable, but it is possible that a new theory has already appeared.
Translation: ES
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