The crisis is caused by economic policy
Published: February 1st, 2018
The natural consequence of this policy in accordance with the rules of the Washington Consensus was the degradation, offshorization and restructuring of the Russian economy to the needs of the NATO countries in the raw materials and markets for the end products, as well as the export of capital and brain drain, the establishment of external control over key mechanisms for the reproduction of the economy: monetary policy , financial market, appraisal activity, payment systems, export infrastructure, ownership of most of the structure enterprises.
As long as the ruling elite was striving for full integration with the West (until the change of citizenship and transfer of property to foreign jurisdictions), the growing external dependence of the Russian economy was not felt as a threat to the security and sovereignty of the state. There was a naive conviction in the boundless possibilities of mutually beneficial cooperation with Western countries. At the same time, the obvious inequality and inequivalence of such a "cooperation" was ignored, in which Russia annually lost more than 100 billion dollars of exported capital and tens of thousands of people who left the country. However, as soon as Russian President Vladimir Putin took a course toward equal cooperation and Eurasian integration on a mutually beneficial basis, the US and its NATO allies used their influence on the reproduction of the Russian economy in order to prevent the restoration of its national sovereignty.
The most vulnerable places were chosen as the main direction of the strike: financial market, monetary policy, export of hydrocarbons. Prior to this, following the recommendations of the International Monetary Fund, the Russian monetary authorities fully opened these areas for an external blow by transferring the ruble exchange rate to free float mode, the privatization of the Moscow stock exchange in the interests of financial speculators, the Bank of Russia's refusal of any currency restrictions and effective lending measures economy.
The simultaneous imposition of a financial embargo by Western creditors and a sharp increase in the key rate by the Bank of Russia brought the Russian economy from the trajectory of growth to a turbulent regime of functioning with disastrous consequences for the production sector, but with huge benefits for currency speculators. With the efforts of Washington and the Bank of Russia, the economy was dragged into a stagflation trap, a way out of which in the existing macroeconomic policy is impossible, the results of which have already become: losses of about 20 trillion rubles of non-produced GDP, over 5 trillion. rubles of untapped investments, up to 10 trillion rubles of incomes not received by the population. And this is not taking into account the losses of individuals and legal entities due to bankruptcies of many thousands of enterprises and hundreds of banks.
The deteriorating position of the production sector has tangible social consequences as a result of a significant drop in the incomes of the population, an increase in unemployment, and the dropping of a large part of the able-bodied population into the "social bottom". Simultaneous astronomical growth in revenues associated with Western networks of currency speculators (estimated to be up to $ 50 billion from 2014, obtained by manipulating the ruble exchange rate), as well as the withdrawal of more than a trillion rubles of the Central Bank's funds, through the monetary pumping of the financial pyramids «Otkrytiya» and other oligarchic groups close to the monetary authorities, point to the beneficiaries of this policy.
The reasons for the stagnation of the Russian economy are due to monetary policy, in which there is almost no credit for investments aimed at industrial development. The overwhelming part of capital investments of the enterprise is financed by own means, and the share of industrial investments in the assets of the banking system is equal to several percent. The transmission mechanism of the banking system, which ensures expanded reproduction of the market economy through the transformation of savings into investment, does not work. This is due to prohibitively high interest rates for most manufacturing enterprises and excessive volatility of the ruble for investors. Both are in the competence of the Central Bank. Having raised the refinancing rate in 2014 above the average profitability of almost all industries, the Central Bank moved the banking system to idle mode of operation.
Having ceased to control the ruble rate, he actually transferred the exchange rate to speculators, whose manipulation in the currency market gave rise to a huge financial funnel. As a result of these actions, for the third year there has been a flow of money from the productive sphere into the speculative one. In this case, the Central Bank, instead of creating money for lending to economic activity, withdrew from the economy about 8 trillion rubles, exacerbating the outflow of 200 billion dollars of foreign loans and investments. Obviously, economic development requires investment. Their growth is ensured by a bank loan. In successfully developing countries, production growth is accompanied by a faster growth in investment, which is financed by a corresponding increase in bank credit. Thus, tenfold growth of GDP in China from 1993 to 2016 was accompanied by an increase in investments of 28 times, of money supply and bank credit in the manufacturing sector - by 19 and 15 times, respectively. On a unit of GDP growth, there are almost three units of investment growth and about two units of the increase in the money supply and the volume of the loan. This is how the mechanism of economic growth works: the increase in economic activity, measured by GDP, is provided by outstripping growth of investments, most of which is financed by expanding the credit of the state banking system. This is how all successfully developing countries have risen during the last century, including the postwar restoration of Europe and Japan, the rise of new industrialized countries, and the modern economic miracle of China, India and the countries of Indochina.
This pattern confirms the importance of bank credit as a financial instrument for advancing the growth of the modern economy. Its wide application became possible due to the use of fiat money created by the state through targeted money emission, directed to finance the budget deficit and funding of state banks and development institutions. The Bank of Russia policy is based on an outdated concept of the nature of modern money, which does not take into account their fiat character and related functions. A consequence of this is the systematic dysfunction of the Russian monetary system, which does not ensure the normal reproduction of the economy, serves the nonequivalent foreign economic exchange and export of capital, does not allow investment and innovation activity to rise.
The inflation targeting policy is based on a primitive idea of money as a commodity, the price of which is determined by the equilibrium of supply and demand. Guided by this logic, the Central Bank is trying to reduce the inflation of money (trying to increase purchasing power) by reducing their supply. This automatically leads to a contraction of the loan, a fall in investment and innovation activity, as a result of which the technical level and competitiveness of the national economy are reduced, which entails devaluation of the ruble and a new wave of inflation. This vicious circle of monetary policy, we again pass for the fourth time with consistent primitivization and the growing technological backwardness of the economy. The monetary authorities do not understand that modern money is created under debt obligations in order to finance the extended reproduction of the economy. The main goal of monetary policy in all successfully developing countries is to create the conditions for maximizing investment and innovation activity. At present, the US Federal Reserve and the ECB apply broad money emission in order to overcome the structural crisis and revive the economy, which since the beginning of the global financial crisis in 2008 increased the monetary base by 4.6 and 1.5 times, respectively.
The main channel for increasing this amount of money is financing the state budget deficit in order to ensure the necessary expenditures for R & D, modernization of the infrastructure, stimulation of investments in the development of a new technological order. China, India, as well as Indochina countries emit money for investment plans of economic agents in accordance with centrally established priorities. The only factor limiting the issue of fiat money is the threat of inflation. Neutralization of this threat requires the linking of cash flows in the production sector and in the transmission mechanism of the banking system. Otherwise, the money issue can create a breeding ground for the formation of financial bubbles and currency speculation, fraught with the destabilization of the economy. The money issue in order to save the banking system in 2008 and 2012 has led to exactly similar consequences. At that moment, banks used loans received from the Central Bank to increase foreign exchange assets, instead of lending to the production sector.
In successfully developing countries, targeted money emission for investment lending does not lead to inflation, on the contrary, its results are: increasing production efficiency and expanding output, thereby reducing costs, increasing the supply of goods and increasing the purchasing power of money. As the volume and efficiency of production increase, so do the incomes and savings of the population and private business, as a result of which private sources for investment are growing, and the importance of money emission is decreasing. But as soon as private investment activity falls, the state compensates it with an increase in public investments, including through the issue of financing the budget deficit and development institutions. This is what we see today in the policy of quantitative easing in the US, the EU and Japan, and the growth of state investments in China and India.
The Russian economy is doomed to a low level of accumulation, which remains half the level of 1990 and is one and a half times lower than the level necessary for its simple reproduction because of a fundamental refusal to use the generally accepted method in the world's leading countries for financing investment expenditures through targeted credit emission. The development of the economy is subject to the needs of the external market because of the linkage of money issue to the growth of foreign exchange reserves, as a result - the emergence of raw specialization and chronic underfunding of internally oriented industries. Solvent enterprises compensate for the lack of domestic credit through external loans, which results in non-equivalent external economic exchange, offshorization of the economy, and its vulnerability to sanctions. Another consequence of the lack of domestic credit is the transition of control over Russian industry to external creditors: more than half of industrial enterprises are under the control of non-residents.
It has been scientifically proven that there is an optimal level of monetization for each macroeconomic system at a certain point in time, a deviation from which in either direction results in an increase in inflation. Both theoretically and empirically it is shown that the monetarist dogma of a directly proportional relationship between the amount of money and inflation is partially met only when this optimal level is exceeded. Monetization of our economy is much lower than it, and its further reduction does not provide lasting macroeconomic stability, but automatically entails a decline in production, investment, competitiveness and technical level of the economy.
Necessary for the withdrawal of the Russian economy to the path of advanced development measures a long time ago were proposed by economic science and confirmed in practice in successful countries. They are based on the all-round investment activity stimulation in the perspective directions of the new technological structure growth through the coordinated application of all economic state regulation instruments: strategic and indicative planning, target money issue, development institutions, elective currency regulation, public-private partnership, fiscal system, antimonopoly and technical regulation, trade and industrial policy, etc.
The program of the advanced development of the Russian economy, proposed by the scientific community (hereinafter referred to as the Program) ensures achievement of goals set by the head of state based on growth of business and investment activity with a rate of at least 8% of GDP growth and 20% increase in production investments per year due to a corresponding increase in bank credit. The load of idle production capacities, the increase in labor productivity and the elimination of hidden unemployment, the activation of the available scientific and technical potential, the deepening of the processing of primary commodities, makes it possible to expect a doubling of the output of goods under the current state of production factors.
The program is a combination of state planning and market self-organization on the basis of public-private partnership, including joint development of indicative plans and execution of mutual obligations by special investment contracts. The investments required for their implementation should be financed by providing the Bank of Russia with targeted long-term loans to authorized commercial banks that are required to monitor their intended use and bring them to enterprises at a percentage that does not exceed the profitability of production. Due to these and other measures, the Program provides for raising the rate of accumulation to 35% of GDP on the basis of a corresponding increase in its monetization for the implementation of strategic and indicative plans for the growth of the new technological order.
The state banking system should work in accordance with these plans, and officials and businessmen should be responsible for fulfilling their jointly developed and accepted obligations. But before orienting the banking system for investment support for economic growth and development, it is necessary to return the Bank of Russia to fulfill its constitutional obligations to "protect and ensure the stability of the ruble" and oblige to take the necessary measures: - to indicate the fluctuation of the ruble rate in the 1% interval on the target; - Restore control over the Moscow Stock Exchange by the Bank of Russia by eliminating the possibility of using insider information by financial speculators; - use the generally accepted methods in the world practice to prevent attempts to manipulate the currency and financial market, including the introduction of preliminary declarations of cross-border capital transactions, limitation of credit leverage, foreign exchange interventions, etc .; - introduce a tax on monetary speculation (Tobin tax); - if necessary to reflect speculative attacks, fix the currency position of commercial banks and introduce full or partial sale of foreign exchange earnings.
It is also important to move from the colonial practice of quoting the currencies of the metropolitan countries on the native exchange to the standard unit of the national currency quotation accepted among sovereign states. For example, as of January 30, 2018, the quotation of 100 rubles was $ 1.78 and € 1.44. By a combination of objective factors, the ruble exchange rate can be stabilized (in the medium term) at any reasonable level within the price competitiveness of domestic goods (from the current 60 to the previously observed 80 rubles per dollar). The ratio of the market rate to the purchasing power parity is indicative of its relative understatement, the ratio of the monetary base and foreign exchange reserves is about its security, and the balance of foreign trade is about its reliability.
The ruble could be one of the most stable currencies in the world, if the Bank of Russia did not give its currency rate to currency speculators. The introduction of these measures will ensure the stabilization of the ruble's exchange rate in the medium term, which is a prerequisite for the rise of investment activity and the economic recovery on the trajectory of sustainable growth. In general, the transition to a goal-oriented multi-purpose monetary policy is necessary, which will include simultaneous achievement of the goals of economic growth, inflation and investment, as well as the systemic management of interest rates, exchange rates, currency positions of banks, the volume of money emission across all channels and other parameters monetary circulation.
The program provides for a set of interrelated and mutually agreed measures to stabilize the monetary system and prices, as well as to reduce dependence on external financing by, among other things, reforming domestic development factors, as well as promoting the competitiveness of Russian companies. Let's consider the key ones.
Stabilization of the monetary system:
- Deployment of targeted lending to manufacturing enterprises, whose sales are guaranteed by export contracts, government contracts, contracts with domestic consumers and trade networks. These loans at a rate of 2% should be refinanced by the Central Bank for the obligations of enterprises through state-controlled banks with completion to final borrowers at a rate of no more than 4% for a period of 1 to 5 years with strict control over the targeted use of money exclusively for production needs. The required volume of such loans is at least 5 trillion. rub.;
- Deployment of targeted financing of government-approved investment projects at the expense of Central Bank loans to development institutions at a rate of 1% for 5-15 years against bonds of state corporations, governments, subjects of the federation, municipalities, international organizations. Volume - not less than 2 trillion. rub.;
- Threefold increase in the volume of preferential credit lines for support of small business, housing construction, agriculture, refinanced by the Central Bank through specialized institutions of federal and regional development at no more than 2% per annum, including mortgages;
- Development and implementation of the state program of import substitution in the volume of at least 3 trillion. rub. Provision of a targeted credit line for these purposes by the Central Bank up to 1 trillion. rub. Prohibit import and leasing for public funds (budget and funds of state companies) of any products, analogues of which are produced in Russia, including the import of aircraft, cars, drugs, beverages, furniture, etc. Long-term price stabilization:
- A sharp activation of the antimonopoly policy, in case of its inefficiency - a temporary price freeze on essential goods;
- Granting the right of the FAS in case of a sharp price fluctuation, first sharply return it to its previous level and only after that investigate the validity of its change;
- Ensuring unimpeded access to the city markets for Russian commodity producers, clearing commodity distribution networks for free competition;
- Avoiding an increase (medium-term fixation) of regulated tariffs, including for end-users of heat and electricity. Termination of their annual indexation.
Revision of tariffs only on the basis of a comprehensive analysis of utility efficiency, generation and transmission of electricity. If necessary - reverse consolidation of power networks in the hands of the state, development and implementation of a state program for the development of energy sales infrastructure. Providing citizens, small and medium-sized businesses with free access to goods and services of natural monopolies, bypassing intermediaries.
Reducing dependence on external financing:
- Withdraw the assets of the state (the Reserve Fund, the National Welfare Fund, the reserves of the Bank of Russia) from the obligations of countries leading an economic war against Russia. Translate them into politically neutral instruments, primarily gold, the obligations of the BRICS countries. To transform the Reserve Fund into a Development Budget, the funds of which should be spent on stimulating investments in perspective directions of economic growth by funding development institutions, bonds of state corporations, infrastructure bonds;
- Deofshorization of Russian business through the implementation of a comprehensive system of measures (introduction of the status of a national corporation, termination of the relationship between the state and the state sector with offshore companies, and the introduction of restrictions on their admission to sensitive sectors of the Russian market);
- Legislative inclusion of the goal of creating conditions for economic growth, increasing investment and employment in the list of objectives of the state monetary policy and the activities of the Bank of Russia;
- Transition to the regulation of the money supply by setting a refinancing rate with monetary emission primarily for refinancing of commercial banks (secured by credit claims to production enterprises), state bonds and development institutions. At the same time, the refinancing rate should not exceed the average rate of return in the investment complex, and the terms of granting loans should correspond to the typical duration of the research and production cycle in the manufacturing industry;
- Cardinal expansion of the Lombard list of the Central Bank, inclusion of promissory notes and bonds of solvent companies operating in priority areas, development institutions, guarantees of the federal government, constituent entities of the federation and municipalities. At the same time, in order to avoid the stimulation of capital export and currency speculation, the receipt of foreign securities and foreign assets of Russian banks as security for pawnshop and other loans of the Central Bank should be stopped;
- Multiply increase the capital of development institutions by issuing their long-term bonds redeemed by the Bank of Russia and included in its Lombard list; - To create the State extra-budgetary investment and credit fund on the model of the German KFW with its refinancing at the expense of the Government Reserve Fund and redemption of bonds by the Bank of Russia in accordance with the state investment program;
- To open a credit line of the Central Bank for refinancing of corporations and banks that face the termination of external credit due to sanctions on the same terms as foreign loans replacing;
- To repeatedly increase the financing of the leasing institutions of domestic equipment through targeted refinancing by the Central Bank at 0.5% per annum;
- Limit borrowing by corporations abroad (controlled by the state); gradually replace foreign-currency loans of companies (state-controlled) by ruble loans from state-owned commercial banks through their targeted refinancing from the Central Bank at an appropriate interest rate;
- Restrict the provision of guarantees to citizens within the system of only ruble deposit insurance with the simultaneous increase in the required reserves in foreign currency;
- Create a State Reinsurance Company to replace foreign reinsurance institutions.
Promoting the competitiveness of Russian companies:
- Development and implementation of the target program of modernization and advanced economic development on the basis of a new technological order;
- The introduction of planning the activities of development institutions, while increasing the refinancing, proceeding from the established priorities of modernization and development of the economy on the basis of outstripping growth of a new technological order;
- Allocation of strategically and socially significant enterprises: in respect of the former, to prevent the transfer under the control of foreign capital or closure (for example, the MIC), for the second - closure (for example, city-forming enterprises and backbone banks). In the event of their bankruptcy, the provision of the possibility for labor collectives to apply to national enterprises with restructuring of their obligations;
- Conducting a census of enterprises in order to fill the existing gaps in identifying owners, managers, employees of enterprises, but also to restore the correspondence between economic entities and legal entities. The practice of providing enterprises with so-called integrated reporting that allows us to comprehensively evaluate not only the current state, but also the prospects for the functioning of the enterprise in a changing environment for a wide range of indicators of its activities.
Legislative establishment of the right of labor collective, specialists and managers to create their collegial bodies (council of workers, scientific and engineering council, board of governors) and election of their representatives to the supreme body of strategic management (the board of directors), ensuring the accounting of interests of all participants of the enterprise's activity in combination with interests of the development of the enterprise as an economic entity. In the general case, if the bankruptcy of an enterprise leads to its liquidation and the destruction of workplaces, the labor collective must have the right to establish control over it, including in the form of its reorganization into a national enterprise. Creation of a management system for economic development.
To make the system work more sustainable, it is necessary to centralize managerial and economic resources in the newly created state committees for strategic planning and scientific and technical development at the presidential level, and move on to systemic stimulation of the NTP.
The next article in the series will be written about this.
Source of publication: http://kolokolrussia.ru
06.03.2018 Will Europe win the trade war with the US?
02.03.2018 Germany is shocked by Putin's message
01.03.2018 Trump very sharply responded about WTO