Record of 11.11.14
What is going on? “Mikhail Khazin – economist, president of company Neocon”
– In the world, during 70 years (anniversary in this year), “Mikhail Khazin – economist, president of company Neocon”
was working Bretton Woods financial system. What is sense of this system? On the Bretton Woods Conference in 1944 was decided that USD will be main currency in the West. BTW, for some reason it is considered that Bretton Woods system was cancelled in 1971, when link(peg) between USD and gold was cancelled. Link(peg) between USD and gold was only one and not very important element of Bretton Woods system. There are 4 main components of Bretton Woods system. 3 of them were created from scratch: IMF (International Monetary Fund), The World Bank, GATT (General Agreement on Tariffs and Trade), which at the present time called World Trade Organization (WTO). There was one more institution which existed before and was given additional functionality: Federal Reserve System of USA. Additional functionality is control of USD not only as local currency, but as world international currency. For this reason all talks about creation of alternative to Bretton Woods system by BRICS is bullshit, because important parts of Bretton Woods system are emission center – Federal Reserve System, and system of international trading – WTO. BRICS does not have this parts. So all discussions about alternative to IMF and The World Bank are rubbish. Efficiency will be about 0. This system worked until end of 80s in the West, since 1991 in the whole world, but when this system started working, US economy was more than 50% of world economy in 1944-1945. Nowadays US economy less than 20% of world’s. In general, everyone, in the first place financial elite, start understand that either we can save world financial system at the expense of US resources or we can save US economy at the expense of world economy system. This 2 scenario are reason of split of world financial elite. Elites understood it quite long time ago. World financial elite depend on world financial institution and have to save this institutions. For this reason this elite developed plan, which actually is copy of plan which was implemented by J.P. Morgan and co at the beginning of 20 century in US. At that time they created first private Central Bank, which had to refinance financial institutions (banks) and control whole financial system. In November 1910 in Jekyll Island in villa of J.P. Morgan very secret meeting of bankers and senators took place. Nobody new about this meeting until 1940s. In meeting was made a decision to create FRS. By the end of 1913 law about FRS was passed. Nowadays there is idea to repeat this trick. So for saving world financial system and for it stability create analog of FRS not in national, but on a world scale, and allow local Central banks to print national currency with quota defined by Central bank of Central banks. In fact that means that US will not able to print money as much as US needs to support budget. This idea was called “Central bank of Central banks”. This idea as opposed to Jekyll Island meeting was widely debated. For example in 2010-2011 in G8 and G20 documents, in internal correspondence, in public talks was discussed that this system will work on the base of IMF, and there will be emission of IMF currency (Special Drawing Rights). At the same time debates started about changing quota in IMF. Countries like China said that when we got IMF quota our economy was this size now it have this size, please increase our quota in compliance with our economy. Of course nobody will allow to increase Chinese quota so fairly, because it will destroy US monopoly (all system was made in US interests). Nevertheless there was such discussion topic. US realized how much this plan “Central bank of Central banks” threaten them. In June 2011 case of Strauss-Kahn proceedings had been instituted. Just as Strauss-Kahn was arrested, topic of “Central bank of Central banks” totally dissapeared from all documents. Russian officials told me that they were very surprised. Usually they receive 2-3 or more letters per day. Topic “Central bank of Central banks” was main there. One day they begun to receive same amount of letters, but without this topic. We have to say a few words to explain why the whole system appear to be in crisis. The point is that the idea of Bretton Woods system in itself is as follows: zone of USD becomes wider. At the cost of expansion was possible to print USD and this emission creates additional income which you can redistribute. Model of world control by USA was as follows: model explained to elites of various countries that if you join us and accept rules of IMF (within the bounds of Bretton Woods system rules were put in charge of IMF) in this case we will print additional USD for you and you will get part of this money. Then you can steal all money or can share money. You will get your piece. As a result we have situation when national elites are pro-American. Peoples support this elites because they have their’s piece of money. Russia’s piece of money is high oil price. But everyone get payment in USD. There was no problems when USD was expanding. Then it was nowhere to expand and crisis of 1970s came. Then they imitated expanding by crediting citizens and refinancing of private debt. Then USSR broke up and USD expanded to former USSR territory. 1990s was a golden age of Clintons – this was an expanding of USD zone. Then in 2000 crisis comes. Then slow economic recession begun. They still had resource related to interest rate decrease, to cost of credit decrease. In December 2008 interest rate reached 0% and at autumn of 2008 crisis came again. At this time there was the last resource related to printing USD at the expense of changing of money supply. Interest rate was decreasing (this was stimulation of crediting) and part of credit money became much bigger than cash resources. Credit multiplier was 17. Since then multiplier was slowly going down. Today multiplier is 4. That means that monetary base increased by 4 times: from 800 billions USD to more than 3 trillions USD. Now there is no resource to print money. For this reason USA is finishing its program qqq(?). And problems already appeared. In this day USA shows “economic growth” at the expense of reduced energy resources prices and restoration of investment process in real sector of the economy. But if we look at private demand, which closes flow of funds, we see that private demand drops. Even in official statistics private demand lost 0.2%. This 0.2% were calculated with understated inflation. With real inflation everything is worse. This is our situation. Then the most interesting thing comes. In 2011 international financiers got a slap on the wrist. They tried one more time: they attempted to put Lawrence Summers at the head of FRS. They did not manage to do it. Nowadays they have a single chance. It is already clear that stock market bubble, speculative market bubble will crash. For financial institution that means asset will decrease in value. Liabilities (i.e. liabilities expressed in terms of nominal money) won’t get up and go away. That means mass bankruptcy. Mass bankruptcy lead to mass investigations. Mass investigations will disclose many sordid actions. For this reason bankers start making force-majeure, which allow to write off an obligations. Classic example is Cyprus, but they will do it on a world scale. The optimal place for it is war in Middle East where on the one hand oil, on the other hand Israel with atomic bomb. Another option is mass act of terror during hajj. All together creates situation when you can explain to bank depositors and money holders that its force-majeure, risks are so high that we have to stop payoffs and this does not depend on us. Financial risks insurance scheme destroyed. Another dangerous for financiers thing happened. There are two scenario. First – save world financial system at the expense of US economy. Second – save US economy at the expense of world economy system. I will not discuss now does it possible. By the look of things, US society became aware that first scenario: saving world financial system at the expense of US economy – is a Democratic Party, second scenario – is Republican Party. May be this understanding was cause of Democratic Party failure on mid-term election. If it is true, isolationist part of Republican Party will intensify. Tendency of isolationism will be in the following way: we do not care what happen in the world, we will save ourselves. May be with Canada and Mexico. Towards other countries: people in trouble are left to themselves. From the point of view of international politics it means that new powers which will come to power will try to intensify relationships with local potential leaders and contrariwise ignore other countries. One of ideological leaders of this group, Henry Kissinger, says that US politics towards Russia is fundamentally wrong: US should not impose sanctions, this is big mistake, and US should understand that Russia can not give up Ukraine, because this is same thing (one country), for this reason we made a mistake, we started separate Ukraine from Russia, this was principled strategic mistake. It is not known how events will develop in US. I start to understood better what is going on in US, because on USA initiative Dartmouth Conference resumed last week was 18th Dartmouth Conference where I participated. It was in Dayton, state of Ohio. By speaking to different peoples I realized that peoples in USA olden than 65 years, those peoples, who grew up before Reaganomics begun, are horrified on the subject of US government actions. Younger peoples..I remind you that Obama is a little over 50.. they vice-versa are morons in this regard. I think US elite will undergo strong restructing. I think that this two scenario logic will dominate. Practically will be Ukrainian scenario: who wants to fight whole world those protect international financiers and bear malice toward US economy. For this reason they have to be ..???.. This is not result, this is only tendency which just started arise. If that is really true, we will get surprising results soon. Nevertheless, this is not a reason to do tremendously silly things, which we (Russia) are doing. Let us change the subject from world situation to Russian situation, which is even more sickening. What is going on? Russian monetary authorities: Ministry of Finance and Central Bank, blindly followed IMF instructions within the scope of Bretton Woods financial system. They have good excuse: we joined this system, we do not have alternative, so we will follow instructions. Ministry of Finance and Central Bank brought economy to a very dead end. The point is that economy can not develop without investments, which needed not only for creating new things, but to support old thing. Facilities are wearing out, always need to fix something. It is takes investments for this, but ruble investments are prohibited by Central Bank within the bounds of IMF instructions, because in compliance with Bretton Woods system only USD can be an investment resource. USD investments require USD return. Since Russia receive less USD, and in 2000s during increase in oil prices Russia gathered quite a lot investments, we have splendid situation. Those USD which we get, we have to give increasingly for imports and interest rate of previous investments. New investments we can’t get, because we do not have USD gain. Additionally, as a result of sanctions, USD refinancing is prohibited. So we have only USD from selling oil to return loan interest of previous credits. Investment process almost stopped. It stopped 2 years ago, there is an economic recession. Monetary authorities (Shuvalov, Dvorkovich, Siluanov, Kudrin, Nabiullina, Ulyukaev) promised growth to Putin. They only managed to make trick as in 1998: devaluation. But there is problem: devaluation helps when you have idle facilities. Using this facilities creates import substitution if local currency drops. So gross domestic product increases. Russia does not have facilities. New facilities can appear as a result of investment process, which is prohibited. So devaluation have only one result: living standard of population dropped. This liberal group (Shuvalov, Dvorkovich, Siluanov, Kudrin, Nabiullina, Ulyukaev) carry out two tasks. On the one hand they are trying to improve economy to serve Putin. On the other hand they are carrying out Washington task to discredit Putin in population eyes. It is possible to say that government made devaluation, but government and Central Bank always hint to population in several different ways: “We are not guilty, it is Putin, he assigned us. Remember how he assigned Nabiullina and said: you all will be satisfied. Putin personally decreased your living standard by 25%” This is dead end for political power. When we discussed this situation in Dayton on Dartmouth Conference I wanted to tell them old anecdote about Rabinovich (Jew) in Russian baths, which was told “take off cross or wear underwear”, but considered that Americans are politically correct and will not understand joke. But we understand this: Vladimir Vladimirovich Putin, you must decide. You want them overthrow you? They will do it. They are doing everything for it. Only one thing saves you, your high rating (among population), against the background of surprises of Central Bank. This is not complicated logic. Monetary authorities and liberals understand this logic. They understand that sooner or later somebody will answer for the consequences. This is very interesting topic. If Putin fire somebody and then he will be overthrown, nobody will come to power again. Russia have fast rotation. Main task is to remain in power. By the time Putin will be overthrown by Washington, this peoples have to be in power, otherwise they do not have future. Remember how Chubais fought for power in 90s. He fought exactly for this reason. He was fired and by the time of change Yeltsin for Putin nobody remember him. He felt very hurt. He wanted to be a president very much. I think he still do not understand why he did not become a president. I think that death of Gaidar was related to his belief that peoples wanted him to be president. Awareness of how furiously peoples hate him became a strong psychological blow. In this situation liberals conflict to each other. Ministry of Finance should blame Central Bank, Central Bank should blame Ministry of Finance. For example Central Bank says: we are responsible for exchange rate and inflation, but not for investment process. It’s government can not provide with investments. Government can say: how we can provide with investments if Central Bank can not provide with rubl liquidity and raise rate of interest as high as clouds. This is unique occurrence. Everyone lower interest rate. Only Russian Central Bank raise, like he is holier than the Pope. Something unbelievable. This is problem.