The battle for the Fed has begun

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

The topic of the rate of the US Federal Reserve System seems irrelevant only to a completely narrow-minded person. We live in the Bretton Woods financial and economic system, the US dollar is a single measure of value in the modern economy, all our life activity is tied to this system.

Suffice it to say that you can get a loan from a bank (this is, as is clear, not about a payday loan) only if you present a model of your business (well, at least a carefully developed business plan), which should be based on an economic IMF forecast. The same IMF, which is still the main strategic coordinating body of BB. systems.

Therefore, the topic is important. So it was not for nothing that US President Trump, immediately after the meeting in Helsinki, raised this topic. And not once, but twice (in an official interview and in his twitter). By the way, we note that all the arguments about the "influence of Russia" here, frankly, are not entirely appropriate: the question is purely economic, objective, here the question is about the choice of the development scenario and Russia cannot influence the situation in principle, well, perhaps, openly lay out your assessment of various factors. It's another matter who in the United States will listen to this assessment.

To begin with, let's ask ourselves a question: what, in fact, is the problem? The problem is that since 1981, when the “Reaganomics” policy began, the economy, first in the United States, and then the entire world, has been stimulated through the growth of private demand. Which, in turn, was provided not due to the growth of real disposable income (they have not grown in the United States since the beginning of the 70s and today are at the 1957 level in terms of purchasing power), but due to the growth of the debt burden. At the same time, this load itself was compensated by refinancing the debt against the ever decreasing cost of the loan.

In particular, the US Federal Reserve's interest rate fell from 19% in 1980 (the US was fighting inflation) to, in fact, 0 in December 2008. Of course, the cost of servicing commercial loans has always been above zero, but it also fell, until some time. But as a result, only private debt in the United States has grown from about 60% of annual income for an average household, as it was in 1980, to more than 130% in 2008. Now this level has dropped slightly (to about 120%), but still remains prohibitively high for normal interest rates.

The question is: why raise the rate in such a situation? Well, everything works, and thank God! The answer is very simple: when you stimulate the economy by printing the dollar, the effectiveness of this printing (if the markets are not growing) drops all the time. That is, the growth of the economy from every dollar printed is reduced. And at the moment when this efficiency dropped to zero, other problems began to appear. For example, the fact that a significant part of state institutions (budgets) have already restructured for a high flow of liquidity and the reduction in emissions led to state problems.

For example, for several years the nominal yield on securities in Germany and Switzerland has been negative. Actually, for others, it is also really negative (since inflation exceeds nominal income), but formally, nevertheless, there is some plus … Similar problems with economic growth: without using more and more cunning methods of calculation, positive growth is not observed … And this must not be allowed …

From the point of view of "mainstream" economic logic, it is necessary to raise the rate, that is, to exterminate all financial "parasites" that have grown on the flows of emission liquidity and return efficiency to capital (that is, positive profitability), the ability to reproduce itself. Yes, at the same time, there will be problems for many subjects of the world economy (the dollar is the world currency!), But as a result, the economy should recover. Note that we, as theorists, have a slightly different approach to this problem, including assessing a possible recession, but this is completely irrelevant, since practically the entire economic establishment, without exception, adheres to this logic. Recall the end of the 70s (the 19% figure cited a few paragraphs above did not scratch anyone?).

So, the trouble is that those who have the maximum costs lose the most in such a situation. And for manufacturers in the United States, it is, by definition, higher than that of China, Southeast Asia, India, or even Latin America. Since salaries are higher, so are the cost of infrastructure and financial costs (insurance). And when I said at the Dartmouth Conference in Dayton on November 5, 2014 that there are two scenarios for economic development, and one of them is the salvation of the world dollar system at the expense of industry and the real sector of the United States in general, it was this option with an increase in the rate that I had in mind in as the first part of the alternative.

And the second part is offered by Trump. Well, more precisely, the forces that stand behind him, and which I had in mind in my speech, since in November 2014 he had not yet announced his nomination. The essence of this scenario is to return production to the United States and, using the domestic market as a base and maximizing exports (including using political instruments, which is already there), save our own American real sector. And since, if the rate is not raised, the economic crisis in the world will continue, then it will be impossible to raise the economy due to general growth, but it will be possible to do this at the expense of other participants (primarily China and Western Europe), which became the main beneficiaries of the previous issue.

The trick is that high interest rates create problems for exports, facilitate imports and discourage investment in the real sector. No, if the United States, as it was in the 1920s and 1930s, could close its borders and prevent imported goods, then the rate would not play a role (everyone has the same rules of the game), but to implement such a scenario it is necessary to destroy not only the WTO, but also the entire Bretton Woods system, with its obligatory freedom of movement of capital. And purely domestic markets may not be enough for the recovery. And, of course, even the President of the United States cannot do this right away. But in which direction it is moving is already clear. And this is just the second scenario from the alternative I outlined in November 14: saving the US economy by destroying the world dollar system.

For a while, Trump could not afford to voice this all more or less explicitly, he spoke only general conclusions: "Let's make America great again," "We won't let us live at our expense," and so on, theses with which an American citizen hard to argue. But his opponents (as we understand, supporters of an alternative economic model) understood everything from the outset, why they were actively engaged in sabotage. But after the meeting in Helsinki, Trump openly announced what height he wants to take in this (hitherto secret) war and, thereby, created the casus belli. That is, a reason for open war. I repeat once again: although everyone can see the fight in Washington, the real reason for it remained secret, which created a rather strange feeling for all observers. But now everything has changed.

The return ultimatum, as we have seen, was instructed to voice the head of the IMF, Christine Lagarde. And from that minute (that is, from the middle of last week) the fight of the bulldogs under the carpet was over. An outright war has begun, the first goal of which is to control the Fed's policy. Specifically: raise or lower the rate. Well, and how the hostilities will develop, we will closely monitor.