New secrets of the Fed and old secrets of the Russian Central Bank
Why not a hundred thousand? And not even a hundred
In Russia there is talk of reducing the key rate of the Central Bank and, as a result, bank rates. Meanwhile, in the United States, the Federal Reserve is in no hurry to “soften” credit policy. Let us recall that in Russia they plan to soften from 16 percent per annum, while in America they are stuck on the range from 5,0 to 5,25 percent.
Apparently, it is no coincidence that financiers of any school, including our “Chicago boys” in their liberal youth, have always been interested in why the toughest credit policy in America turns out to be softer than the softest in Russia?
The answer to the question posed in this way seems to be obvious - because all the problems of the dollar have long been decided to be solved at the expense of others. And if this account were ours, Russian, Chinese or European, the answer would be absolutely correct and complete.
However, they are mercilessly putting their own people under the dollar, as a result of which the lion’s share of the dollar debt has long ago fallen on the shoulders of ordinary Americans. And here it would be very appropriate to remember that in the United States financiers are traditionally on the side of the Democrats.
And it was precisely the rejection of precisely this approach to law-abiding US citizens that brought the traditionalist conservative Trump to the White House, who clearly relied on the industrial power and agricultural potential of his homeland. More precisely, for those who are involved in these areas in one way or another.
Why such a long introduction? To what now simply needs to be repeated - the other day the US Federal Reserve System - the local Central Bank, fragmented into a dozen branches and 25 branches in the states, left its rate in the same range - 5,0-5,25%.
But you should be gentler with people
The illustration is quite clear - overseas, again, I have to repeat, this is considered an extremely tight monetary policy. And don’t dream of any mitigation in the near future.
But in Russia we were recently promised easing, not only by Mrs. Nabiullina from our Central Bank, but also by a number of ministers and even deputies. However, here we have a repetition again, and again “why”?
Why does the reduction count start not from five-something, but from 16 percent per annum? At the same time, the Federal Reserve in the States has even retained the volume of money issued for circulation, which is called QT.
That is, the scale of quantitative tightening has been determined. QT is essentially the antithesis of QE - quantitative easing, which the general public learned about during the pandemic from the light hand of the same Donald Trump.
This general public for the most part has no doubt that the whole point of QE - quantitative easing was to simply distribute money to the population, almost scattering bills from helicopters. And for this, the public in the States endures the insane debts that the state has imposed on them.
The main thing is that no one requires anyone to return it immediately or in the foreseeable future. It’s not always possible to even pay interest. What's all this for? Yes, to confirm our long-standing thesis that money is nothing more than a surrogate for trust.
Well, people in the States believe in the dollar, but they don’t believe in Joe Biden, they don’t believe in their Congress, they don’t even believe in the Supreme Court. But they believe in pieces of paper with presidents and electronic bills on gadgets. Not like in Russia, where the public doubted that a strong ruble just a month after the start of the SVO would not last long, and they were right to do so.
Jerome, Jerome or... Rereading Powell
Let’s extend our excursion overseas a little, since it’s no secret that the decisions of the Federal Reserve System will sooner or later be followed by concrete steps by the Central Bank of the Russian Federation. Under the guise of that very policy of de-dollarization, somehow half-forgotten, which we plan to talk about in more detail in future articles.
So, what did the head of the Fed promise to financiers and ordinary US citizens and what does this mean for you and me? First of all, Jerome Powell has no doubt about the prospect of a decline this year, which suggests that the economy is starting to stall due to a lack of cheap money.
I wonder, why doesn’t it stall in Russia then? Because we still have cheap money in our country, although not for everyone. Further from Powell’s words it follows that the Fed is noticing a decrease in inflation, with which “there has been significant progress over the past six months.”
In Russia, some progress is also being noted, but the notorious target of 4 percent per annum is still far away. Hence the question - so, at the Central Bank of the Russian Federation, what rates are you going to fight inflation with, high or low?
Or has a positive trend already been launched? Something is not very noticeable. The eggs alone made such a noise, and there are plenty of threats of this kind.
Percentages of truth... or percentages of dreams
And finally, about those same targets, theirs and ours.
Jerome Powell from the Fed confidently talks about 2 (two) percent per annum as a realistically achievable goal. The Russian Central Bank continues to quietly dream of four. Percentage per annum! Not bad, but two are better.
The Fed acknowledges that “unable to give an exact figure when data on a slowdown in inflation will be sufficient to make a decision to reduce the interest rate.” The following maxim from Jerome Powell reads like a direct quote from the reports of our main Russian credit institution:
“Our confidence is growing, but not to the point that we feel the need to start cutting rates right now. If the labor market weakens unexpectedly, this would be a strong argument for an earlier rate cut.”
In our country, the Central Bank and the Ministry of Finance boldly declare that a reduction in rates can be expected by the summer. To be clear, it means soon after the elections. I would like to believe, but after the elections even pre-election promises are somehow forgotten. And here there are no pre-election ones, but simply from the depths of the Central Bank. There is certainly no one planning to go to any elections in the near future.
Information