January 2022.. What is happening in the global economy?
Stock markets are on the verge of collapse, China, in its attempt to save itself, is driving the United States of America towards the sinking.
Last year, the insane issuance of unhedged money by central banks in the West finally turned the economic crisis into a final stage: accelerated inflation.
Inflation has become global in nature. Price growth in the United States of America is accelerating from 6.8% in November of last year, to 7% in December. In the eurozone, from 4.9% to 5%, and in Britain, from 5.1% to 5.4%. At the same time, official statistics understate the numbers.
This accelerating inflation dooms the US Democratic Party to defeat in the upcoming parliamentary and presidential elections. Which is forcing the current administration to fight inflation, at the very least, through the known measures for that: reducing the injection of uncovered funds, and increasing the interest rate on loans.
In just two months, we have seen a sharp change in market participants’ expectations regarding the number of Fed rate hikes: from 2-3 times to 7 times. Analysts from all sides are expecting the Federal Reserve to raise interest rates by 0.5% in March, a very radical measure.
And with the US government’s debt of $29.6 trillion in December 2021, an interest rate increase of 3% for this year means an additional $888 billion must be found somewhere to pay interest. Let me remind you that the budget deficit for the third quarter of 2021 was $348 billion. If current trends continue, this means that the budget deficit for FY 2022 will be around $1392 billion (and is likely to be even higher). That is, if the rate were raised by 3% annually, the US budget deficit would rise by 64%, but it would not be able to be covered by the issuance of uncovered money – that, in the end, would accelerate inflation again. This is bankruptcy in eloquent Arabic, while the Biden administration is facing a dead end, like Lebanon, with no way out. The traditional way out on the part of the International Monetary Fund for such a situation is to cut social spending, but this is an official suicide for the Biden administration, and for the United States of America as a country.
And what happens with the entire American economy, will happen with businesses and families. That is, it can be said with confidence that a large part of them will go bankrupt with an increase in the interest rate by 3%.
But now inflation in the United States has reached 7%!! To limit this, you need to raise the interest rate not by 3%, but by at least 9%. In the sense that the country’s government guarantees to kill the economy without even reaching the necessary half of the necessary measures.
This, in addition to limiting the issuance of paper money, will inevitably lead to a stock market crash, which in itself can lead to a multiplication of problems several times, and the bankruptcy of an additional tens of percent of American companies and families.
In short, the United States of America is now faced with two bitter choices regarding the method of death. The measures announced by the Federal Reserve are only an attempt to delay the crash, but even these half-hearted measures cannot be implemented. The stock market is likely to crash before the Fed hits 3%, at which point central banks around the world will have to reissue hard cash, cut interest rates again, and inflation will accelerate into double digits.
The acceleration of inflation in the USA, the West and the world cannot be stopped under the current circumstances, and we will inevitably reach global hyperinflation within a few years.
In addition to the aforementioned measures, I believe that we will also soon see strong pressure from Washington on the Arabs in the Gulf region to reduce energy prices. With the Saudis short of money domestically, their resistance to this pressure will be fierce, and in light of the US backsliding, such resistance is likely to succeed.
Also, the Federal Reserve’s plans have another dimension. The attempt to stop the injection of funds through quantitative easing, and the increase in the interest rate in the dollar area, will lead to a debt crisis in developing countries, especially most Arab countries.
And here we come to the second main topic of January, as the mounting problems in the Chinese economy force the Chinese central bank to start cutting the interest rate (from 2.95% to 2.85%), and it is likely that it will not be the last rate cut this year.
If, by some miracle, the West manages to raise the interest rate without collapsing its economy, then within one to two years Chinese yuan loans will become cheaper than dollar loans, which will help replace the yuan in loans in the global financial market. This will begin the process of replacing the yuan with the dollar in global trade and finance. Of course, with the subsequent explosion of hyperinflation in the United States of America, because all trillions of paper dollars will be returned to the United States, which will shift the balance between the quantity of goods and the quantity of money.
In fact, China is also repeating the path of the United States and the West towards the abyss, but it entered this path too late, and it can still emerge victorious from that situation, if it can withstand the moment when the USA and Europe collapse.
China itself has printed a huge amount of paper yuan, but if the dollar collapses, it will be able to release its currency into global circulation, reducing inflation in the domestic market.
The closer we get to the climax of the crisis, the faster events develop. In 2022, the United States will run out of time to make the decisions necessary to maintain world leadership, or even just survive.
Political analyst / Alexander Nazarov
The article expresses only the opinion of the newspaper or the writer