About the world economy in 2022 and about economic forecasts
МОСКВА, 26 января 2022, Институт РУССТРАТ.
In the recent past, on the eve of the new year, the key topic of the world’s media has always been the economic forecast for the coming year. In December of this year, the topic of the economic forecast for the next year, 2022, was overshadowed. Both in the whole world and in individual countries, including Russia.
Here, for example, are the traditional forecasts for the next year of the Danish Saxo Bank. It talks about serious adjustments to the policy in the field of «green» energy, about the constitutional crisis in the United States, about the beginning of a hypersonic arms race between the leading military powers, about the expected discovery by doctors of the secrets of longevity, etc. But from the material provided by the bank, it is not clear against what economic background the events indicated in the forecast will occur.
The British Center for Economics and Business Research (CEBR), which previously gave detailed forecasts of the global economy, this year limited itself to only one concise assessment. According to his calculations, in 2022, the total GDP of all countries of the world will overcome the $100 trillion mark for the first time.
Analysts from Bloomberg, instead of a full analysis of the development of the economy in the next year, limited themselves to naming 10 main risks for the global economy in 2022 (coronavirus mutations, inflation, tightening of the US Federal Reserve policy, curtailment of state support for the economy, the consequences of Brexit, a slowdown in China’s economic development, etc). Bloomberg actually gives only separate fragments of the overall picture, but does not add up the whole puzzle. Like saying: let people think for themselves.
So why are there so few and primitive descriptions of the future of the global economy at the end of this year? I think there are several reasons.
Firstly, the optimistic forecasts that economists gave at the end of 2019 were a complete disgrace to their authors. Most of the authors of forecasts assured that in 2020 the state of the global economy will be better than in 2019. At the end of 2019, global GDP growth was 2.6%.
It was expected that in the next 2020 there will be an increase in the range between 3 and 4 percent. And it turned out to be a collapse. According to the IMF, global GDP fell by 3.5% last year. Caustic jokers reminded last year’s would-be prognosticators of the catch phrase of an American economist John Galbraith: «The only function of economic forecasting is to make astrology look more respectable.»
Secondly, many analysts and experts are now blowing on water, having been burned on milk two years ago. That is, they refrain from making any forecasts. Some even question the possibility of forecasting the economy due to the appearance of such non-economic factors as «viruses» and other «infections».
But such «contagions» provoke lockdowns, which hit the economy much harder than collapses on stock exchanges or the bankruptcy of the largest banks and companies. They say that even epidemiologists cannot say in advance what will happen to the COVID-19 virus next year, what new strains will appear, how much vaccines can really protect humanity from the viral «infection», etc.
Global economic forecasting is dead under these conditions. Or, at least, it has disappeared from the scene for many years to come, while humanity and the world economy will be ruled not by central banks and governments, but by some invisible entities called «viruses».
Thirdly, there is a purely psychological reason for the current lack of coverage of economic forecasts. All serious economists, bankers and businessmen know perfectly well that forecasts have long been a tool for managing the economy and markets. A pessimistic forecast generates some actions of market participants, while an optimistic forecast generates completely different ones. They always try to give optimistic forecasts, because pessimistic forecasts can become an effective «trigger» of an economic crisis.
Famous American manager John Williams used to say: «The fluctuations of the economy are comparable only to the fluctuations of economists.» Keep in mind that reputable economists are not observers, but doers; their vociferous opinions about the future of the economy help create that future. Most of them are used to talking about the future economy either with admiration or not at all. Here a joke by an American economist comes to mind Rudolph Penner: «The problem is not that economists don’t know how to predict, but that politicians demand too optimistic forecasts.»
The paucity of economic forecasts for 2022 is a clear sign that the prospects for the global economy are very poor. And this, in my opinion, is the main reason for the current shortage of serious forecasts. I will try to further substantiate this thesis.
Back in the early autumn of last year, most analysts and experts were confident that next year would be better than the previous one. And, probably, they were preparing to make everyone happy in December with their justifications for this optimism. But in the last quarter of last year, unexpectedly for many, the IMF and the World Bank began to make downward adjustments to estimates of global GDP growth in 2021 and 2022. What caused this?
Firstly, in November of last year, the World Health Organisation (WHO) scared everyone with the message that a new strain of coronavirus called Omicron is moving from Africa. Its contagiousness and lethality have not yet been accurately assessed, but the media has already begun to stir up fears and warn that Omicron can cause new lockdowns with all the ensuing consequences for the economy.
Secondly, for many, the decisions of the US Federal Reserve System, which were taken in November and December of this year, were shocking.
The second reason is even more serious. I want to talk about it in more detail.
On November 3, the Fed announced a decision to start curtailing the Quantitative Easing program (QE). And on December 15, it was announced that the speed of curtailing the QE program will be doubled. For market participants and businesses, these decisions have become a very serious signal that the clouds are gathering over the global economy.
For those who are not familiar with the term QE, I note that it was coined and launched by the US monetary authorities back in 2008, at the height of the financial crisis. «Quantitative easing» is a euphemism that covers up the grossest violation of the rules of monetary policy that were prescribed in economics textbooks.
Textbooks said that central banks should issue money in a way that does not provoke either inflation or deflation, i.e., the issue should ensure an equilibrium between the money supply and the commodity supply.
In the era of the gold-dollar standard, which lasted a quarter of a century after the end of World War II, there was a «golden brake” on the «printing press” of the US Federal Reserve, which did not allow this «printing press» to be abused. In 1971, the President of the United States Richard Nixon announced the end of the exchange of dollars for gold (a commitment that the United States made at the Bretton Woods Conference in 1944).
And in 1976, the Jamaica Monetary and Financial Conference finally abolished the gold-dollar standard, replacing it with a paper-dollar standard. The «golden brake» was removed from the «printing press” of the Fed, and it became possible to create as much «green mass» as the «masters of money» (the main shareholders of a private shop called the «US Federal Reserve») wanted. De facto «quantitative easing» began already in the 1970s, and the global financial system began to rapidly fill up with «green paper».
The growth of the dollar mass was accompanied by a rapid increase in the total debt of the United States (after all, the dollar is credit money that enters circulation through the accumulation of debt on loans issued or purchased bonds and other debt securities). This could not but create huge imbalances in the American economy. This, in particular, was reflected in the inflating of giant «bubbles» in the stock market.
The US economy has gone through a series of crises over the past half-century. The last one is the 2008-2009 crisis. That’s when the «printing press» of the US Federal Reserve was turned on at extremely high speed. And to justify such monetary madness, the term QE was coined. Quantitative easing continued after the crisis ended. They say that the American economy should be helped to recover.
If at the end of 2007, the Fed’s assets were slightly more than $800 billion, then in October 2014 (when the third QE program was completed), they were already approaching $4.5 trillion. The money supply was built up almost exclusively by the Federal Reserve buying treasury and mortgage-backed securities on the market.
In seven years, the money supply created by the Fed’s «printing press» grew more than fivefold. despite the fact that the commodity mass produced by the US economy has grown during this time by no more than 20%. According to all the canons of economics, rampant inflation (even hyperinflation) should have begun. But it didn’t. For the simple reason that all the products of the printing press flew to the stock market, inflating index «bubbles» there. This periodically burst, creating shocks in the American economy.
Quantitative easing has another terrible risk: astronomical amounts of green paper in the US and global markets threaten that at one fine (or rather terrible) moment, the dollar may sharply devalue and lose its status as a global currency. Accordingly, the «owners of money» lose their power over the American and global economy.
Since the end of 2014, the Fed has been trying to «put the genie back in the bottle», i.e. reduce the money supply. It was very bad. By the end of 2019, the US Federal Reserve’s assets were reduced only to $3.9 trillion. And in March 2020, the so-called «COVID pandemic» was declared. And in the same month, the Fed announced the start of a new round of QE. By November of last year, the Federal Reserve’s assets reached $8.7 trillion, which means that they grew more than 2.2-fold in just two years.
By the way, many other central banks since the beginning of the “pandemic» acted exactly like the Fed, i.e. increased the production of their «printing presses». The assets of all the world’s central banks increased from an estimated $30.5 trillion to $41.9 trillion between the end of 2019 and the end of 2020 (an increase of 37%). Data on the total assets of all central banks last year was not yet available.
Of course, the central banks that create reserve currencies, such as the European Central Bank (ECB), the Bank of Japan, the Bank of England, the People’s Bank of China (PBOC), the Swiss National Bank, and others, showed the greatest issuing activity. The ECB for two years of the «pandemic» doubled its assets, in November they reached the value of 8.7 trillion euros. The total assets of four central banks — the US Federal Reserve, the ECB, the NBK, and the Bank of Japan — reached $30.8 trillion as of November last year (against about $20 trillion at the beginning of 2020).
Analysts and pundits have been wondering how long the leading central banks can continue such a crazy policy of «quantitative easing». No one doubted that the current currency system, based on the dollar and several other reserve currencies, was doomed. Everyone was just wondering what the “masters of money» were up to, whether they had a «spare airfield», when the dollar and other reserve currencies would collapse.
By closely synchronising the actions of the leading central banks, one can stretch out another year or two (if to count from December 2021). The main thing is that during this time it is necessary to complete the «spare airfield». There are several versions of such an alternative currency system, but I will not discuss them in detail. I will only note that experts mentioned such options as reviving the gold standard in some form, replacing the “old» dollar with a «new» one, creating a supranational monetary unit, etc.
And now I return to the decisions of the US Federal Reserve on November 3 and December 15 of last year. According to sober and honest independent experts, these decisions mean that next year a global economic crisis will break out. Given the accumulated imbalances in the global economy (first of all, the total global debt, which, according to the Institute of International Finance, has reached the level of $300 trillion), the crisis will be extraordinary. In terms of its devastating consequences, it will surpass all post-war crises and probably surpass even the most severe world crisis in the history of capitalism that began in 1929.
It is a little surprising that the heads of other central banks have not yet made any hints about curtailing their QE programs. They continue to increase their assets at the same pace, which simultaneously reflects the process of increasing the money supply.
But if an economic crisis starts in America, then no amount of QE programs will save the economies of other countries from economic collapse. Crises are spreading around the world like wildfire. So it was in 2008, when the crisis began with the collapse of the US mortgage securities market, then it spread to other sectors of the American economy, and a little later it spread to Europe and other parts of the world. Not bypassing Russia.
In addition to the huge debt, the most powerful time bomb is financial derivatives, which for some reason have been very rarely talked about lately. No one really knows what the size of the derivatives market is, because banks and companies do not reflect them on their balance sheets, these are off-balance sheet positions. But the total value of derivatives (in the form of nominal values of derivative contracts) is measured in hundreds of trillions of dollars.
In the mid-2000s, the Bank for International Settlements (BIS) estimated that the total amount of outstanding derivatives (i.e., the sum of their face values) was 1,400 trillion (1.4 quadrillion) dollars. At the end of the 2008-2009 crisis, the Bank for International Settlements (BIS) reduced this figure to $600 trillion by closing most of its positions (mainly by netting).
The figures are rather arbitrary, since even the BIS does not have a complete understanding of the off-balance sheet operations of banks and companies. Today, according to the most conservative estimates, the total value of all derivatives in the world has exceeded $2 quadrillion. Derivatives will be remembered when the crisis begins. It’s like a nuclear weapon. It is not often remembered in peacetime (not only by ordinary citizens, but even by politicians).
But if a big war starts, especially between nuclear powers, it is remembered. It may be recalled that during the 2008-2009 crisis, the inability of many banks and companies to meet their obligations under derivatives led them to bankruptcy. Famous American billionaire Warren Buffett called derivatives «financial weapons of mass destruction” in 2002.
A little more about the US Federal Reserve’s decisions of November 3 and December 15. The QE program, which was launched by the Federal Reserve in March last year, provided for the purchase of $120 billion worth of securities every month, including $80 billion worth of Treasury bonds and $40 billion worth of mortgage-backed securities.
The Fed’s November 3 decision called for a reduction of $15 billion in purchases each month, including $10 billion in treasury securities and $5 billion in mortgage-backed securities. The Fed’s December decision accelerated the roll-back of its QE program by half, meaning that the Federal Reserve pledged to reduce its monthly purchases of treasury securities by $20 billion and mortgage-backed securities by $10 billion. Thus, it was assumed that by March this year, the curtailment would be completed.
But that’s not all. An important parameter of the central bank’s monetary policy is the key (or base) rate. It is a benchmark for the country’s money and financial market. The lower the key rate, the cheaper the money. A reduction in the key rate is usually carried out simultaneously with the launch of QE programs; such a reduction further «softens» the conditions for market participants and other economic entities (simplifies access to money).
When there were three consecutive QE programs in the US in 2008-2014, the key rate was lowered to the «baseboard». On the eve of the crisis, it was equal to 4.75%. And in December 2008, it had already fallen to 0-0. 25%. In the period from the end of 2015 to the end of 2018, it was gradually raised to 2.50%. Even a year before the start of the «pandemic», it began to be gradually reduced. But with the beginning of the «pandemic» (March 2020), they again lowered it to 0-0. 25%. And it is still at this level.
And so, in the middle of this December, after the meeting of the Federal Open Market Committee (FOMC), the Fed published figures reflecting the views of Committee members on the key rate in the medium term.
According to the median forecast, FOMC members expect three key rate hikes in 2022 and three in 2023. At the same time, the previous forecast assumed only one rate increase in 2022 and two in 2023. If we assume that each increase will be only one standard step, equal to 0.25 percentage points, then in a year the key rate should be at the level of 0.75-1.0%. But this will be enough to start the collapse of the American economy, followed by a global one.
In the words of a famous speculator George Soros, «the music doesn’t play anymore, but they keep dancing.» The «music stopped playing» in November-December of this year, but many market participants «continue to dance». This means that they take cheap (almost free) money from banks and buy securities on the market. Even in the summer, they grew quickly, but now they are growing only slightly.
But players act out of habit. The largest corporations buy back their own shares in the market, spurring the growth of capitalisation of their business. But out of ten people on the «dance floor» (stock market), nine are still «dancing», and one has already stopped.
Here are some examples. In November, Microsoft said it would continue to buy back its shares. And yet the CEO of Microsoft Satya Nadella threw out more than 50% of his Microsoft shares in one day. Tesla’s Elon Musk just sold $10 billion worth of stock. However, he decided not to frighten other market participants, saying that the sale is not due to market considerations, but to the need to get cash to pay taxes.
Serious analysts say that in the first months of next year, there will be more sellers than buyers. Out of ten, only one will «dance» on the floor. One of these serious analysts is a well-known American sociologist and economist William Engdahl.
In his article «Will the Fed Crash Global Financial Markets for Their Great Reset?”, he bluntly asserts that the collapse of the American and global economies in 2022 is inevitable.
It is noteworthy that he sees the coming crisis not as a spontaneous phenomenon, but as a pre-planned event. And he does not count the beginning of the preparation of this crisis from the decisions of the US Federal Reserve on November 3 and December 15 of this year.
He considers the beginning to be the appearance of the COVID-19 virus on the world stage in January 2020, followed by the announcement of a «pandemic» by the World Health Organisation (WHO), and then the introduction of so-called «lockdowns» and other «pandemic control measures» that began to destroy the economy. The «pandemic» and the coming economic crisis are links in the same chain, elements of the same plan called the «Great Reset».
The ultimate goal of the «Great Reset» is to build a unified world state. The social structure of Klaus Schwab’s brave new world is the mysterious «inclusive capitalism». In fact, this is a new slave-owning system, where, of course, there will be a totalitarian regime without any rudiments of democracy and the market.
There will be strict planning. Let’s recall the Soviet era: in the USSR, plans were developed, discussed and executed – monthly, quarterly, annual, and five-year plans. For the entire economy as a whole, for individual industries and industries, for regions, for certain types of products, etc. But there were no forecasts.
The genre of economic forecasting is disappearing before our eyes. Today, the scarcity of economic forecasts is explained by the growing chaos (artificially created). There will be no economic forecasts tomorrow because the «Great Reset» provides for a transition to a world order with very strict planning.
Just don’t equate Soviet planning with planning in Klaus Schwab’s “brave new world”. In the first case, planning was an instrument of a nation-wide state; in the second case, it is a world government representing the interests of the world’s elite – the new slave owners.
Concluding my thoughts on economic forecasts, I will repeat my point once again: Today, we are interested not only in the content of individual forecasts, but also in the presence or absence of forecasts as such. The gradual disappearance of forecasts is a sign that the «Great Reset» is moving forward.