Translated material
Anders Oslund
"And the price of the crisis and its consequences will be much more serious than in 1998"
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- The USA is to blame for everything -
The last five years have been unprecedented in world economic history: the market growth rate was almost 5% per year. Everyone expected that this high growth would last another two years. Plus, against the background of this growth, unprecedented macroeconomic stability was observed.
When everything develops so well, everyone begins to torment the question: what troubles to expect?
The greatest unrest is associated with the United States. The deficit of the payment balance of the United States is now 7% of GDP, and no signs of its decrease are visible. Another problem - the Americans stopped postponing savings. And finally, the third problem is the overheated real estate market in the USA and in some countries of Western Europe, primarily in Spain, Great Britain and Ireland. Plus risky mortgage loans for this all expensive real estate.
Unlike the 1998 crisis, few people see the reasons for concern about developing markets. Only in a few countries - Hungary, Turkey, as well as South Africa, there are certain problems. However, if you take into account the small size of these economies and the non -criticism of the difficulties that have arisen there - this is not a subject for serious unrest. In addition, unlike the 2000 crisis (primarily in the IT market), prices in the world shares are held within the rational limits, and the growth of profit is quite sufficient.
It is not surprising that the financial crisis began in the United States and it was in the market for risky mortgage loans. Many Americans, without a financial pillow and having a small annual income, received loans to buy a house without any initial contribution. These loans, in theory, promised good income to banks and other companies operating in the finance market, were sold around the world and now gave rise to a crisis. This is primarily to blame for those who sold such risky mortgage loans - many of them are now bankrupt. The second group of “bad guys” is rating agencies that issued credit ratings to these risky financial instruments, which have always been considered “with a shower” assets. The third group is hedge funds and investment banks that bought these risky mortgage debts. Now they suddenly realized that these assets are not too reliable, and therefore no longer the cent.
- The crisis is walking along the planet -
For the time being, all this concerned only companies that were directly related to risky mortgage loans. However, the problems quickly affected others. The first bell for the market sounded in July, when the Big New York Investment Bank Bear Stearns announced that the two hedge funds that he owned almost completely depreciated. Other investment banks, in particular Goldman Sachs, whose shares lost 30%came under suspicion. Then the previously previously unknown financial institution in Germany went bankrupt. Finally, to the surprise of many, a significant number of risky mortgage loans were found in quite respectable banks - such as PNB Parisbas and Deutsche Bank. It is worth expecting that serious problems, up to bankruptcy, are also overtaken by other large financial companies, although it is useless to guess who exactly will become the next victim.
As a result of these difficult -predictable bankruptcy, fear covered financial markets: the market of interbank loans practically stopped - banks no longer trust each other. The central banks of Europe, the USA, and Japan, of course, took measures to saturate the liquidity of markets and maintain interest rates - they timely poured hundreds of billions of dollars into the market.
Another and even more serious problem is a decrease in world economic growth, if not its stop. The world is already used to the economic boom of recent years. But any boom sooner or later is doomed to end, and it ends, as a rule, by increasing inflation, high prices for consumer goods and re -investment.
Central banks stop inflation, increasing deposit rates. High prices for consumer goods, as well as re -investment, are already a given, but inflation has not yet reached a critical point thanks to a very conservative fiscal policy that has prevailed around the world.
The financial crisis can negatively affect economic growth, and the markets expect it to happen. Prices in the market of metals fell significantly, and oil price has fallen by one tenth in the last two weeks. Hence the fall of shares of metallurgical and oil companies. If world economic growth slows down, then, then, prices for metal and oil will fall even more - this will first affect the Russian economy.
- What does this mean for Russia -
The result of a fall in prices will also be a reduction in the volume of payment balance, which has long held at 10% of GDP. Over the past five years, the volume of imports to Russia has increased by about 28% per year, and this growth will most likely continue, even if the volume of Russian exports is reduced. And this will happen if oil prices fall significantly.
For the Russian economy, this will be good, since high inflation will finally decrease. And besides, there is nothing to fear with foreign exchange reserves with $ 420 billion. Significantly more serious damage will be inflicted on the Russian budget, which now receives 88% of the increase in oil prices. True, a budget surplus of 7.5% of GDP is a good protection against these troubles. Even better, that the drop in oil prices will force the Russian authorities to pursue a more reasonable economic policy, which Yegor Gaidar in his book “The Death of the Empire” has shown so reasonably.
Initially, the price of shares in the growing markets fell less than prices in the US and European stock markets. Which is rather unusual. An explanation for this - growing markets are less involved in the market for risky mortgage loans. In addition, these countries with growing markets have the best macroeconomic balances than the USA, and the best growth prospects.
However, although not immediately, growing economies were also affected by a crisis. There are three reasons. First: the fear of high risks makes investors leave those markets that they know worse. The second: the lack of liquidity, although somewhat stopped, will inevitably reduce the capabilities of Western investors in terms of buying Russian actions and bonds. Most analysts expect that the Western stock market will still fall, and this will entail a fall in stock markets in countries with growing economies. Third: if commodity prices fall and a low price level will remain some long time, then this will most likely hit Russia.
The effect of the crisis:
-more serious than in 1998-
The main question for macro economists regarding the current crisis is associated with the following dilemma: will it affect the current economic boom and, as a result, will reduce economic growth or this crisis will be temporary and will not affect long -term economic growth. So, thank God, it did not happen after the 1998 crisis. Actually, most analysts believe that the current crisis is a financial in its pure form and it will have the same effect as the 1998 crisis.
It is expected that, as in 1998, the US Federal Reserve Bank will significantly reduce the credit rate. Futures markets are now expected to decrease by half a percent, although in 1998 the decrease amounted to three quarters percent. Other central banks are likely to do the same, although the inflationary pressure today is much larger than in 1998.
However, in my opinion, the effect of the current financial crisis will most likely be more serious than from the 1998 crisis. The reason for this is that the whole world has long been expecting that the economic boom should end. All markets are already ripe for this. In the end, the 1998 crisis was limited by Russia and East Asia. Today the center of the crisis is the USA, and European banks have already been seriously injured. Therefore, the price of the crisis, and its consequences, as I think, will be much more serious than in 1998.
Russia is well prepared for these effects. Including thanks to the lessons extracted from the 1998 crisis. If global growth is slowed down and oil prices will decrease, this will give such a necessary impetus for reforms in Russia, which were stopped in 2003.