Ruble to all head
Speaking at the Public Chamber of the Russian Federation at the second All-Russian Research and Practice Conference of the Analytics Association, presidential adviser Sergey Glazyev said that the direction of the main attack was clearly marked in the hybrid aggression being waged against us: the information war and sanctions that “knocked Russia out of the economic growth trajectory ". What to do in this situation?
Unfortunately, our counter partners have achieved significant success. If all developed countries show economic growth, come to the position of a new way of life, then our financial and economic system moves in the opposite direction.
For the sake of speculators
The central bank announces inflation targeting, but gets the opposite result - it rises twice. In Russia, the movement of capital is not limited, non-residents dominate the market. There are a lot of similar examples, which indicates a strong dependence of our financial sector on foreign factors.
“Of the oil-producing countries, the most affected, except for us, Mexico and Nigeria devalued their currencies by only 11 percent”
At this time, in the West, a new technological pattern is being born, with which the restructuring of world production is connected. Signs of recovery, which we observe in such periods, say that there the economy is already quite firmly developing bioengineering, information, nanotechnology. And this market is growing at 35 percent per year.
But on the whole, the period of changing technological structures is always a depression in the economies of most countries, uncertainty, volatility in the financial market, a sharp increase in the role of the state, an arms race. So it was in 30-s of the last century. And it was repeated in 70 – 80, when the militarization of space began. In the latter case, this prompted the development of high technology, microelectronics. It was they who, figuratively speaking, dragged the American economy for many years, when the market for information and communication products added 25 percent per year.
Changing technological structures is also a challenge to national security. What do in this situation? In the West, sharply increased funding for the economy. Literally flooded it with cheap money. This is due to the fact that such a period is characterized by very high risks. Private business with great care and reluctance to develop new technologies. Therefore, to create the most favorable environment for economic modernization, advanced countries pursue a policy of financial easing. For example, the money supply has increased three to four times since the beginning of the current crisis in the West. There is a huge flow of money. The total value of world reserves was about three trillion dollars, and this process continues.
It is supported by global financial institutions. It can be predicted that for several more years, the issue of world currencies will be approximately 700 – 800 billions of dollars a year. Moreover, it is conducted at negative interest rates and its volume is about five times more than our entire monetary base.
Unlike the advanced countries, Russia, instead of reducing these rates and increasing cash flow, pursues a policy of raising them. But when we raise interest rates, we get a slowdown in production and GDP growth rates. The value of money begins to exceed the profitability in most industries. Currently, only the mining industry and the chemical and technological complex of Russia have sufficient profitability to take loans at our interest rates. And no one thinks that almost half of the stock capital of industry is formed through bank loans. As a result, enterprises are faced with a choice: either to curtail production and repay loans, reducing working capital and raising prices to compensate for costs, or go bankrupt.
Someone has managed to go the way of raising prices. At the beginning of 2015, we had continuous losses in the industry, now the financial results in some places have increased against the background of a decline in production. Following the rise in price, enterprises began to increase prices for their products. And who could not, began to reduce production.
To repeat: a high interest rate did not reduce inflation, and the attempt to stabilize the ruble failed. As soon as the Central Bank announced the transition to a floating rate, strong fluctuations began. With such volatility, no investment processes are possible, as well as development. This is a rather strange phenomenon from the point of view of management theory, since at the moment the ruble is the most secure currency in the world.
Why such a super-high subsidy of the ruble exchange rate? It is connected with the fact that our market is very open, although its scale is only one percent of the world. In essence, our financial market is US-centered, because it is based on the issue of the US dollar. It is not surprising that, in the conditions of openness, foreigners mainly operate on it, the share of non-residents exceeds 75 percent. This suggests that we do not control our market. To steer in such a situation with our own financial and economic development is simply impossible - we are not the masters here.
Naive statements that the ruble exchange rate is entirely related to oil prices. This factor has, of course, a certain value. But from the oil-producing countries, the most affected countries, except for us, Mexico and Nigeria, devalued their currencies only by 11 percent. Why ruble depreciated twice? Because no one in the world throws their national currency into free floating. But we decided to go our own way. Contrary to the Constitution and the fact that the strengthening of the ruble is the most important task of the Central Bank, Russia, in the presence of huge foreign exchange reserves (we have two times more than the entire money supply in the economy) continues to experiment.
The ruble is not only the most secure currency, but also the most undervalued at the exchange rate, while the most volatile. This is absurd. The Central Bank could stabilize the ruble exchange rate at any level, and with a margin of safety. But this is not done because the monetary and financial market is essentially given to foreign players. The share of speculative operations on it exceeds all reasonable limits. It is the withdrawal of the Central Bank from control over the course and the surrender of positions to speculators - the reason for the high volatility of the ruble recently.
Amid falling economic activity and rising prices, the volume of transactions at the Moscow Currency Exchange doubled in just 2015 a year. The profitability of operations on it today is about 80 percent. That is, the exchange is also under the control of speculators, according to Glazyev. And such a policy is interested. Their goals are the opposite of state. If we maintain such a course in the economy, we cannot count on our own development.
Central bank errors
Our academic science warned of the consequences. The central bank, the members of the National Financial Council are aware of the official opinion of the adviser to the President of the Russian Federation on regional economic integration, Sergey Glazyev, and his proposal. There is a conclusion of the Economics Section of the RAS. It says: the transition to targeting inflation will lead to a combination of price hike, production decline and a reduction in investment.
“There is no logic in targeting inflation,” Glazyev is convinced. “If you think that this is a system policy, you are deeply mistaken.” The fact is that targeting involves giving up control over the cross-border movement of capital, from linking the national currency to gold. Under these conditions, you can simultaneously fix the course and engage in autonomous monetary policy. This strange management scheme that we have developed is unscientific. Even 50 years ago, it was rejected by academic science. The classics of monetarism understood gold as money and did not take into account neither credits, nor feedbacks in the economy, nor debt obligations, did not realize that money was secured only by obligations, and not by something else.
If we continue this practice of cross-border capital movements without restrictions, given the weakness of the domestic money market and its microscopic character, we will not be able to manage our financial and economic system. The ruble will depend only on speculators who are not subject to sanctions and who can take loans in the West in any amount. For them, such a niche is specially left by the Americans. Whatever interest rate the Central Bank sets, the speculators always have the opportunity to go abroad and take almost any loan there for free. Accordingly, we can not manage and our system of money supply.
Thus, inflation targeting is nothing more than manipulating a key rate with an open capital account. Conducting such a policy for three years has driven us into a stagnant trap. Economists say: devaluation-stagnation spiral.
The Central Bank is wrong all the time not only in inflation forecasts, but also in estimates of the volume of capital movements across the border. The country's leadership constantly invites to invest in Russia. But while the opposite is observed. The avalanche outflow could have been foreseen as soon as the West began talking about sanctions.
What should the Central Bank do logically in such a situation? Replace shrinking external sources of credit internal. But the opposite was observed: an increase in interest rates and a reduction in lending, which aggravated the effect of sanctions on our financial and economic system. This is what allowed Obama to declare: Russia's economy is torn to shreds.
Lack of money in the economy, high interest rates led to the fact that our corporations went to borrow abroad. As a result, almost one hundred percent of the country's monetary base was recently formed exclusively for external sources of credit and foreign investment. Today they make up 70 percent, which is still too much. Although in principle the financial system is balanced. We could well develop at the expense of domestic sources of credit and income. But the fact is that along with the increase in foreign loans, capital leaves the country. We have no control over it.
A significant part of the income flows into offshore. On this officially (including due to the non-receipt of taxes) we lose a trillion rubles of budget revenues annually. The return of this money used to go at the expense of foreign loans. Such a cycle is 120 – 130 billions of dollars a year. Half settles in the western financial system without a trace. The capital accumulated in offshore from Russia reaches 0,5 trillion dollars, as many more simply disappeared.
Following loans, property rights go abroad. When you take money there, leave a deposit. And now we see the outflow of property rights. The share of non-residents in our industry averages over 50 percent. And our power engineering on 90 percent belongs to non-citizens of Russia or people with several passports. Following the monetary base in the Anglo-Saxon jurisdiction and property rights are gone.
In essence, Russia is a donor of the global financial system. It would seem that in such a situation we should not be afraid of economic sanctions. But the trouble is that due to the ongoing monetary policy, we were in complete external dependence. And now, when the flow of external credit dries out, the money supply is automatically reduced. Less often loans are taken, investments are curtailed, the economy is falling. The analysis shows that even if all the incomes of enterprises are turned into investments, we will not be able to provide even simple reproduction.
Primakov's example
“The conclusion is that our monetary authorities are amazed by the cognitive weapons, - considers Sergey Glazyev. “This is when an idea directly opposite to the vital interests is being introduced into your head.”
The answer to the questions of who does this and why, is contained in the recommendations of the IMF, which were left by the foundation's mission in Moscow a year ago. In particular, it is the IMF that advises Russia to continue raising interest rates, while the United States - to reduce them. Where is the logic?
Unfortunately, this practice, apparently, will continue. In accordance with the “Program of Russia's monetary policy up to 2018,” the monetary base in real terms will be reduced by 30 percent by the deadline. We will come to an extremely low level of monetization of the economy, of the order of 36 percent of GDP, which is critically dangerous. Approximately the same happened at the beginning of 90, when monetary surrogates, offsets, barter appeared. Do we want this?
The most annoying thing is that stagflation in the country takes place against the background of large reserves. The capacity utilization of industry is only 60 percent. And you can safely increase production by 40 percent. But for this, we need to develop along the straight line along which we walked until we announced inflation targeting. Today, the development trajectory is at zero, and the level of activity in the economy is two times less than it was even in Soviet times. It turns out that we are working for wear while the main capital is shrinking.
Where is the way out of this vicious circle? According to Glazyev, it is necessary to do what is being done in the whole developed world in a market economy. Task number one is to ensure the stability of the ruble.
First, the central bank needs to return to the market. Free him from speculators. Establish on the stock exchange the same regulatory rules that apply throughout the world, and work to ensure the stability of the ruble, relying on our gold and foreign exchange reserves.
Secondly, simultaneously lower interest rates. The problem is that most of the money that the Central Bank issues is spent on the foreign exchange market. A short-term loans are issued for a week at a rate of 11 percent and can work only as sources of financing speculation. Almost all the money that the Central Bank introduced into the economy through refinancing last year, turned out to be transferred by commercial banks to foreign currency assets. The main money goes to speculation and work against stability. The rest of the official tools - budget support for small and medium-sized businesses, mortgages, social programs - are used on a residual basis. Until there is control over the targeted movement of money, we are doomed to further degradation and chaos.
Thirdly, it is necessary to come to a multi-channel system of economic growth, which is possible at low interest rates, long terms of loans and state control over the targeted use of money. Interest rates can be zero if funds are allocated for public procurement, other federal programs.
Fourthly, the State extra-budgetary investment and credit fund can be used as an alternative. The general director of the Center for Scientific Political Thought and Ideology, Doctor of Physical and Mathematical Sciences Stepan Sulakshin and a number of other specialists developed the concept of such a financial institution. Only when these conditions are fulfilled, the bulk of loans will go to the development of production, investment, innovation, modernization, etc.
Finally, there are government bonds - the issue of money for financing the budget deficit. This is the main channel used by the United States and the European Union. The US Federal Reserve, for example, prints money mainly for state debts. The whole issue is spent on maintaining the budget deficit and Russia is helping to pursue this policy by dollarizing its economy, which even President Vladimir Putin recently condemned by making a public suggestion to Finance Minister Anton Siluanov.
As the well-known economist John Keynes said, if the capacities are not loaded and there is potential for growth, the amount of money should be increased until the potential is exhausted. Thus, you will achieve a fall in inflation by reducing costs, production scale and investment. The main thing is to direct money for development.
So far our monetization of the economy is lower than in the West, at about 8 – 10 trillion rubles. Although we had an example of such a policy - immediately after the default of 1998, when Victor Gerashchenko and Yevgeny Primakov introduced a similar system and got a stunning effect: a sharp increase in industrial production (20%) in a year, a fourfold decrease in inflation while expanding the monetary base.
Japan, China, India came to today's sustainable development due to the credit issue, the volume of which increased three to four times. Of course, such a system cannot work without strategic planning. But if the appropriate decisions are made, then, as Sergey Glazyev emphasized, he and his associates can guarantee that the economy will grow at least eight percent a year.
Unfortunately, our counter partners have achieved significant success. If all developed countries show economic growth, come to the position of a new way of life, then our financial and economic system moves in the opposite direction.
For the sake of speculators
The central bank announces inflation targeting, but gets the opposite result - it rises twice. In Russia, the movement of capital is not limited, non-residents dominate the market. There are a lot of similar examples, which indicates a strong dependence of our financial sector on foreign factors.
“Of the oil-producing countries, the most affected, except for us, Mexico and Nigeria devalued their currencies by only 11 percent”
At this time, in the West, a new technological pattern is being born, with which the restructuring of world production is connected. Signs of recovery, which we observe in such periods, say that there the economy is already quite firmly developing bioengineering, information, nanotechnology. And this market is growing at 35 percent per year.
But on the whole, the period of changing technological structures is always a depression in the economies of most countries, uncertainty, volatility in the financial market, a sharp increase in the role of the state, an arms race. So it was in 30-s of the last century. And it was repeated in 70 – 80, when the militarization of space began. In the latter case, this prompted the development of high technology, microelectronics. It was they who, figuratively speaking, dragged the American economy for many years, when the market for information and communication products added 25 percent per year.
Changing technological structures is also a challenge to national security. What do in this situation? In the West, sharply increased funding for the economy. Literally flooded it with cheap money. This is due to the fact that such a period is characterized by very high risks. Private business with great care and reluctance to develop new technologies. Therefore, to create the most favorable environment for economic modernization, advanced countries pursue a policy of financial easing. For example, the money supply has increased three to four times since the beginning of the current crisis in the West. There is a huge flow of money. The total value of world reserves was about three trillion dollars, and this process continues.
It is supported by global financial institutions. It can be predicted that for several more years, the issue of world currencies will be approximately 700 – 800 billions of dollars a year. Moreover, it is conducted at negative interest rates and its volume is about five times more than our entire monetary base.
Unlike the advanced countries, Russia, instead of reducing these rates and increasing cash flow, pursues a policy of raising them. But when we raise interest rates, we get a slowdown in production and GDP growth rates. The value of money begins to exceed the profitability in most industries. Currently, only the mining industry and the chemical and technological complex of Russia have sufficient profitability to take loans at our interest rates. And no one thinks that almost half of the stock capital of industry is formed through bank loans. As a result, enterprises are faced with a choice: either to curtail production and repay loans, reducing working capital and raising prices to compensate for costs, or go bankrupt.
Someone has managed to go the way of raising prices. At the beginning of 2015, we had continuous losses in the industry, now the financial results in some places have increased against the background of a decline in production. Following the rise in price, enterprises began to increase prices for their products. And who could not, began to reduce production.
To repeat: a high interest rate did not reduce inflation, and the attempt to stabilize the ruble failed. As soon as the Central Bank announced the transition to a floating rate, strong fluctuations began. With such volatility, no investment processes are possible, as well as development. This is a rather strange phenomenon from the point of view of management theory, since at the moment the ruble is the most secure currency in the world.
Why such a super-high subsidy of the ruble exchange rate? It is connected with the fact that our market is very open, although its scale is only one percent of the world. In essence, our financial market is US-centered, because it is based on the issue of the US dollar. It is not surprising that, in the conditions of openness, foreigners mainly operate on it, the share of non-residents exceeds 75 percent. This suggests that we do not control our market. To steer in such a situation with our own financial and economic development is simply impossible - we are not the masters here.
Naive statements that the ruble exchange rate is entirely related to oil prices. This factor has, of course, a certain value. But from the oil-producing countries, the most affected countries, except for us, Mexico and Nigeria, devalued their currencies only by 11 percent. Why ruble depreciated twice? Because no one in the world throws their national currency into free floating. But we decided to go our own way. Contrary to the Constitution and the fact that the strengthening of the ruble is the most important task of the Central Bank, Russia, in the presence of huge foreign exchange reserves (we have two times more than the entire money supply in the economy) continues to experiment.
The ruble is not only the most secure currency, but also the most undervalued at the exchange rate, while the most volatile. This is absurd. The Central Bank could stabilize the ruble exchange rate at any level, and with a margin of safety. But this is not done because the monetary and financial market is essentially given to foreign players. The share of speculative operations on it exceeds all reasonable limits. It is the withdrawal of the Central Bank from control over the course and the surrender of positions to speculators - the reason for the high volatility of the ruble recently.
Amid falling economic activity and rising prices, the volume of transactions at the Moscow Currency Exchange doubled in just 2015 a year. The profitability of operations on it today is about 80 percent. That is, the exchange is also under the control of speculators, according to Glazyev. And such a policy is interested. Their goals are the opposite of state. If we maintain such a course in the economy, we cannot count on our own development.
Central bank errors
Our academic science warned of the consequences. The central bank, the members of the National Financial Council are aware of the official opinion of the adviser to the President of the Russian Federation on regional economic integration, Sergey Glazyev, and his proposal. There is a conclusion of the Economics Section of the RAS. It says: the transition to targeting inflation will lead to a combination of price hike, production decline and a reduction in investment.
“There is no logic in targeting inflation,” Glazyev is convinced. “If you think that this is a system policy, you are deeply mistaken.” The fact is that targeting involves giving up control over the cross-border movement of capital, from linking the national currency to gold. Under these conditions, you can simultaneously fix the course and engage in autonomous monetary policy. This strange management scheme that we have developed is unscientific. Even 50 years ago, it was rejected by academic science. The classics of monetarism understood gold as money and did not take into account neither credits, nor feedbacks in the economy, nor debt obligations, did not realize that money was secured only by obligations, and not by something else.If we continue this practice of cross-border capital movements without restrictions, given the weakness of the domestic money market and its microscopic character, we will not be able to manage our financial and economic system. The ruble will depend only on speculators who are not subject to sanctions and who can take loans in the West in any amount. For them, such a niche is specially left by the Americans. Whatever interest rate the Central Bank sets, the speculators always have the opportunity to go abroad and take almost any loan there for free. Accordingly, we can not manage and our system of money supply.
Thus, inflation targeting is nothing more than manipulating a key rate with an open capital account. Conducting such a policy for three years has driven us into a stagnant trap. Economists say: devaluation-stagnation spiral.
The Central Bank is wrong all the time not only in inflation forecasts, but also in estimates of the volume of capital movements across the border. The country's leadership constantly invites to invest in Russia. But while the opposite is observed. The avalanche outflow could have been foreseen as soon as the West began talking about sanctions.
What should the Central Bank do logically in such a situation? Replace shrinking external sources of credit internal. But the opposite was observed: an increase in interest rates and a reduction in lending, which aggravated the effect of sanctions on our financial and economic system. This is what allowed Obama to declare: Russia's economy is torn to shreds.
Lack of money in the economy, high interest rates led to the fact that our corporations went to borrow abroad. As a result, almost one hundred percent of the country's monetary base was recently formed exclusively for external sources of credit and foreign investment. Today they make up 70 percent, which is still too much. Although in principle the financial system is balanced. We could well develop at the expense of domestic sources of credit and income. But the fact is that along with the increase in foreign loans, capital leaves the country. We have no control over it.
A significant part of the income flows into offshore. On this officially (including due to the non-receipt of taxes) we lose a trillion rubles of budget revenues annually. The return of this money used to go at the expense of foreign loans. Such a cycle is 120 – 130 billions of dollars a year. Half settles in the western financial system without a trace. The capital accumulated in offshore from Russia reaches 0,5 trillion dollars, as many more simply disappeared.
Following loans, property rights go abroad. When you take money there, leave a deposit. And now we see the outflow of property rights. The share of non-residents in our industry averages over 50 percent. And our power engineering on 90 percent belongs to non-citizens of Russia or people with several passports. Following the monetary base in the Anglo-Saxon jurisdiction and property rights are gone.
In essence, Russia is a donor of the global financial system. It would seem that in such a situation we should not be afraid of economic sanctions. But the trouble is that due to the ongoing monetary policy, we were in complete external dependence. And now, when the flow of external credit dries out, the money supply is automatically reduced. Less often loans are taken, investments are curtailed, the economy is falling. The analysis shows that even if all the incomes of enterprises are turned into investments, we will not be able to provide even simple reproduction.
Primakov's example
“The conclusion is that our monetary authorities are amazed by the cognitive weapons, - considers Sergey Glazyev. “This is when an idea directly opposite to the vital interests is being introduced into your head.”
The answer to the questions of who does this and why, is contained in the recommendations of the IMF, which were left by the foundation's mission in Moscow a year ago. In particular, it is the IMF that advises Russia to continue raising interest rates, while the United States - to reduce them. Where is the logic?
Unfortunately, this practice, apparently, will continue. In accordance with the “Program of Russia's monetary policy up to 2018,” the monetary base in real terms will be reduced by 30 percent by the deadline. We will come to an extremely low level of monetization of the economy, of the order of 36 percent of GDP, which is critically dangerous. Approximately the same happened at the beginning of 90, when monetary surrogates, offsets, barter appeared. Do we want this?
The most annoying thing is that stagflation in the country takes place against the background of large reserves. The capacity utilization of industry is only 60 percent. And you can safely increase production by 40 percent. But for this, we need to develop along the straight line along which we walked until we announced inflation targeting. Today, the development trajectory is at zero, and the level of activity in the economy is two times less than it was even in Soviet times. It turns out that we are working for wear while the main capital is shrinking.
Where is the way out of this vicious circle? According to Glazyev, it is necessary to do what is being done in the whole developed world in a market economy. Task number one is to ensure the stability of the ruble.
First, the central bank needs to return to the market. Free him from speculators. Establish on the stock exchange the same regulatory rules that apply throughout the world, and work to ensure the stability of the ruble, relying on our gold and foreign exchange reserves.
Secondly, simultaneously lower interest rates. The problem is that most of the money that the Central Bank issues is spent on the foreign exchange market. A short-term loans are issued for a week at a rate of 11 percent and can work only as sources of financing speculation. Almost all the money that the Central Bank introduced into the economy through refinancing last year, turned out to be transferred by commercial banks to foreign currency assets. The main money goes to speculation and work against stability. The rest of the official tools - budget support for small and medium-sized businesses, mortgages, social programs - are used on a residual basis. Until there is control over the targeted movement of money, we are doomed to further degradation and chaos.
Thirdly, it is necessary to come to a multi-channel system of economic growth, which is possible at low interest rates, long terms of loans and state control over the targeted use of money. Interest rates can be zero if funds are allocated for public procurement, other federal programs.
Fourthly, the State extra-budgetary investment and credit fund can be used as an alternative. The general director of the Center for Scientific Political Thought and Ideology, Doctor of Physical and Mathematical Sciences Stepan Sulakshin and a number of other specialists developed the concept of such a financial institution. Only when these conditions are fulfilled, the bulk of loans will go to the development of production, investment, innovation, modernization, etc.
Finally, there are government bonds - the issue of money for financing the budget deficit. This is the main channel used by the United States and the European Union. The US Federal Reserve, for example, prints money mainly for state debts. The whole issue is spent on maintaining the budget deficit and Russia is helping to pursue this policy by dollarizing its economy, which even President Vladimir Putin recently condemned by making a public suggestion to Finance Minister Anton Siluanov.
As the well-known economist John Keynes said, if the capacities are not loaded and there is potential for growth, the amount of money should be increased until the potential is exhausted. Thus, you will achieve a fall in inflation by reducing costs, production scale and investment. The main thing is to direct money for development.
So far our monetization of the economy is lower than in the West, at about 8 – 10 trillion rubles. Although we had an example of such a policy - immediately after the default of 1998, when Victor Gerashchenko and Yevgeny Primakov introduced a similar system and got a stunning effect: a sharp increase in industrial production (20%) in a year, a fourfold decrease in inflation while expanding the monetary base.
Japan, China, India came to today's sustainable development due to the credit issue, the volume of which increased three to four times. Of course, such a system cannot work without strategic planning. But if the appropriate decisions are made, then, as Sergey Glazyev emphasized, he and his associates can guarantee that the economy will grow at least eight percent a year.
Information