Yesterday, for the first time in nine years, the US Federal Reserve Board raised its benchmark interest rate from 0,25% to 0,5%. The world stopped in anticipation of serious market turmoil. Is it worth waiting for them? Indeed, from an absolute point of view, a change in the rate for such a tiny amount is rather insignificant. A business that is robust enough to make a profit can easily handle an extra quarter percent of the cost. Cope with a much greater load. But nothing of the rate of profit in the financial markets at all in this section is ridiculous. The meaning and the true meaning of such a decision by the Fed is absolutely not at stake as such. And not even in the expectation of further rate hikes next year, which may turn out to be much more significant.
Meaning and meaning in a completely different. Base interest rate management is a key element of monetary policy. And monetarism has been the main instrument of state management of the economy almost all over the world for a couple of decades. If you look at the classical theory, then within the framework of monetarism, the state intervenes in the economy only by regulating the money supply. When the economy grows rapidly and is prone to overheating, the rate rises, making credit expensive and slowing down low-profit projects. Growth is slowing, and the threat of crisis is declining. When the economy shows a downturn, the rate drops, increasing the cheap money supply. This should lead to the revival of projects for which the loan was too expensive, and reduce the risks of a general economic downturn. All this together is called monetary countercyclical regulation. But this is a theory. It is worth a closer look at the practice.
The Fed recorded the threat of an economic downturn in 2006, and began a cycle of gradual lowering of interest rates, increasing the money supply. The system did not actually work, and in 2008 we got a rather serious collapse of the markets and a recession in the real economic sector. We speak, of course, about the United States. Surely history crisis in the markets 2008 year can not be attributed only or mainly to the cyclical phenomena in the economy. This is an order of magnitude to a greater extent was the crisis of the derivatives market. Nevertheless, this crisis had a tremendous impact on the real economy, and caused the Fed to naturally desire, by drastically reducing the rate, to prevent a full-fledged economic collapse. I think everyone remembers the phrase of the head of the Fed that if needed, the money will be scattered from helicopters.
A lot of time has passed since that crisis in order to understand that there are practically zero rates in the United States and in Europe that could not have a significant impact on the state of the real economy. Statistical revival seems to be an exceptional game of numbers and for the most part is tied to the virtual sector. Today, more than seven years after the crisis, the world is on the verge of a much more significant economic downturn. It was not by chance that in many countries, talk of the need to introduce generally negative interest rates to save from recession became popular.
This state of affairs suggests that monetarism is no longer an effective lever for regulating real economic activity. Cheap loans and trillion-dollar liquidity injections were used by economic agents around the world for completely new purposes. The existing derivative bubbles were blocked from the explosion, a collective inflating of new bubbles was made, primarily on the stock markets, a significant part of the troubled debts changed the status from private corporate to public. All this suggests that the world is faced with problems of a completely different order than those that until now have been solved by monetary methods. And indeed it is.
Moreover, the main causes of the problem situation of the world economy today are no secret to anyone. And they are as follows:
1. Since the world is a closed economic system, which in recent decades has become truly global, it has its own natural limits of development. And these limits on a huge range of products reached. The economic result is always a balance between supply and effective demand. There are no problems with the proposal. By providing cheap money, the Fed and the EuroCB attempted to increase effective demand by influencing the solvency of those who were to meet this demand. But rested on the fact that there is also physical demand, which in principle can not be so easily affected. Well, a person does not need several cars, refrigerators or sets of furniture. And even the rapidly progressing technological gadgets cannot be changed every month to more advanced ones, since they still could not master all the possibilities of those that already exist. This objectively inhibits the growth of demand as such outside of its value. This is one important factor.
The second is that, no matter how cheap the loan is, it still remains a loan, and it must be repaid, and the loan must be paid, including interest, which only at first glance seem miserable. In fact, real consumer loan rates are at least twice as high as announced. And at a certain point, the share of regular payments on existing loans becomes so high that it becomes impossible to think about new loans.
The third important factor is that, with the absolute growth of the population of the planet at a rapid pace, the objective need for jobs on a global scale decreases. This leads to an objective reduction in labor incomes, which are the main source of global demand.
The fourth important factor is that any new technological breakthrough that creates new jobs and new incomes that are the source of demand in a closed system inevitably causes a fold greater reduction in demand and jobs in obsolete industries and technological production, replaced by new ones. .
Finally, the fifth, perhaps the most important factor, is that the capitalist mode inevitably leads to a constant concentration of capital. First, it is the flow of capital from small businesses to large in all sectors, and then from the real sector of the economy to the financial one. The latter was largely contributed by the separation of money from the real gold base in the 70-s of the last century, which created the possibility of an infinite monetary issue. As a result, the bulk of the money is already concentrated today in the entire 1% of the world population, which in principle does not have demand needs that can sufficiently stimulate the global economy.
2. With the volumes of real demand and real production, rested in the objective limits of the system, any additional cash infusion is not able to revive economic growth, but leads to one of two possible consequences - hyperinflation or inflation of stock bubbles in all markets. In principle, we observe both. Only hyperinflation in our time is carefully hidden in the currency depreciation agreed in all countries, which makes the situation look outwardly stable. And the stock bubbles through the efforts of core and all other media are served in the rainbow tones of progress and prosperity.
In the created conditions there is one significant trend that completely suits the USA as a generator of world money. Since the real economy is stagnating, the real volume demand for resources also stagnates. In addition, hiding hyperinflation in goods of final demand, especially high-tech, is much easier than in basic goods. This inevitably leads to a violation of the ratio of the cost between the raw material and the final product. Commodity prices are rising more slowly or may be falling at all, which we see in the example of oil, while the prices for the final product are constantly increasing. This factor already leads to political problems, since it automatically makes the whole world dependent on the producers of the final redistribution. The owners of most of these products are the United States or European countries. Stock bubbles are also inflating lighter and larger in the largest markets. And those are also located in the United States. But this state of affairs cannot be eternal.
The situation of the accumulation of problem potential must inevitably be resolved either in the form of a tough conflict on a global scale, or the whole world must agree to complete enslavement. The desire to implement the latter option is fortunately not observed. China. Russia and a number of other countries are striving to break out of the vicious circle. One of these ways is to create alternative money that can shift or at least push the dollar on the financial Olympus. But for this new currency should have a fundamental difference from the dollar. In particular, to obtain a real basis in the form of generally accepted values. That could again be gold, oil or something else that has real value and absolute large-scale demand from the world economy. For this purpose, concerted actions are being taken to promote the Chinese yuan worldwide, any really affordable amounts of gold are bought up, alternative financial instruments such as a BRICS or ABII bank are being created.
Since the prospects for future currency confrontation are determined, today the United States is beginning to experience problems with refinancing its national debt. With all that the Fed has absolute freedom in terms of emissions, it alone does not solve the problem in principle. As soon as there is a mismatch in the rates of emission of the United States and other recognized emission centers, an overt hyperinflation effect will immediately appear at the point of maximum emission. To this day, the process is still under control. As a sparring partner for the US dollar alternately acted either the Japanese yen, the euro, or the Swiss franc. And even the recent decision to include the Chinese yuan in the pool of reserve currencies is an event from the same area. It was not by chance that it happened due to the redistribution of shares of all currencies except the dollar itself. Very bad and dangerous, forced for the United States, but the only measure that still allows us to maintain the external stability of the global financial system.
For people far from finance, it is worth explaining another important point. Namely, how the world financial system actually works with the dollar as the only world money. It should be understood that any non-cash dollars are always in the United States in one of the banks. That is, in US dollars, banks act as such super banks for banks as ordinary banks act in relation to their clients. For the US, it doesn’t matter who owns their dollars abroad, China, Russia, Europe or Venezuela. Only one thing is important so that the total amount of dollars abroad does not decrease.
Since the plans of China, Russia and Britain behind China to create alternative money to the dollar are already a kind of open secret, for the United States in full growth has become a problem of ensuring the popularity and strength of the dollar on a global scale. This can be achieved only in one way - the dollar should constantly grow in relation to other currencies of the world, and gold and other capacious real assets, which can form the basis of an alternative currency, remain at the lowest possible price levels. That is, no other way to save their funds, except for investing them in dollars, should not remain in principle.
This is the task that the Fed announced yesterday to raise the base interest rate cycle. This should contribute to the growth of the dollar against other currencies, create a global dollar deficit and ensure the flow of any free cash around the world into dollars. Any financial speculator, any industrial capitalist or a simple private investor should get an understanding that his salvation is in the dollar, and only in him.
The very fact that after a long period the Fed has taken such a step indicates that the final period of the existence of the world financial system in its usual form begins. This move by the Fed will certainly cause, although not immediately, extremely significant problems in external markets for the United States. And first of all in Europe, which for the USA is the largest vassal market. Next year in Europe we will see a lot of interesting events and crises. Including the beginning of the most important of them - the collapse of the debt Euromarket.
We will see an attempt to create an alternative world currency based on the gold provided by the Chinese yuan, or at least the final stage of preparation for such a phenomenon.
The show begins. And no one can relive him in a comfortable chair, watching events from television screens and staying aloof from what is happening. It will be a fascinating sight, albeit a very painful one.