Yevgeniy Chernyx
KP.ru
Sunday, Nov 9, 2008
Five years ago, I ran the cultural
section at Komsomolskaya Pravda. Publishing houses used to send me their new
releases now and again for review. One day, after digging through the latest
shipment of such literature, I stumbled upon a book titled, “Sunset of the
Dollar Empire and the End of the Pax Americana.”
I remember reading the title over to
myself several times in disbelief. Way back when, Soviet Americanologists loved
to debate the collapse of the U.S. financial empire. But this book was
published in 2003.
I flipped through the pages, skimming
over the text. The conclusions of the author — an economist named Mikhail
Khazin — seemed convincing enough. So I gave the book to our economics
columnist at KP Jenya Anisimov, who wrote a review and interviewed the author
later at our editorial offices.
All these years, I kept Khazin in the
back of my mind, and followed his career as he spoke at various conferences
throughout Russia. He seemed certain the U.S. was teetering on the verge of an
economic collapse, while other analysts were quick to refute his theory. Now,
as his once unfathomable prognosis begins to come true, KP contacted Khazin for
an interview.
Fired from
the Kremlin!
KP: Mikhail Leonidovich, how did you
end up predicting the current financial crisis?
Khazin: In the spring of 1997, the
Kremlin established the Presidential Economic Department. I was made the deputy
head of the unit. Our first task was to prepare a report for [former President
Boris] Yeltsin about the economic situation. We realized an economic crisis was
pending in Russia and would take place in the late summer or early fall of 1998
if the country’’s economic policies weren’t changed.
KP: What view did the higher echelons
take of your report?
Khazin: They didn’t really take any
view at all. No one read the text except for the deputy head of the
administration and Yeltsin himself. In the summer of 1998, we were fired from
the presidential administration for trying to stop a business project titled,
“State Treasury Bills— Exchange Rate Corridor.” This was the biggest financial
scheme of the post-Soviet era. Just as we had predicted, an economic crisis
gave way that August. Together with my colleagues, I continued researching the
reasons behind the crisis.
After becoming seriously consumed in
our studies of the U.S. financial system, we found an unprecedented parallel.
Just as our T-bill market had sucked all the juices out of the Russian economy,
the U.S. financial market was sucking the resources out of the entire planet.
We realized a similar fate awaited the U.S. financial system. Our article was
published in the summer of 2000 in the “Ekspert” magazine, titled, “Is the U.S.
Digging for an Apocalypse.” We concluded that it was just as impossible to
avoid an economic crisis in the U.S. as the financial collapse in Russia.
Playing the idiot
KP: The U.S. obviously didn’t listen to
the song written by [the renowned Russian rock group] LUBE during perestroika,
“Don’t Play the Fool, America!” Seriously, though, what’s the real reason for
the economic collapse? Let’s try to do this without any heavy duty financial
terms…
Khazin: I’ll try! The economic model
that led to the collapse was the result of a crisis in the 1970s. This was a
terrible financial crisis that was the result of surplus capital. Even the
19th-Century classics in economics literature concluded that capital grows
faster than labor provides compensation. As a result, there is a lack of
demand. In traditional capitalism, this problem is solved on account of crises
in excess production. And in an imperialistic system, the problem is solved on
account of capital outflow. But by the 1970s, these solutions had run their
course. However, the internatinoal situation demanded the U.S. either make a
great scientific and technological leap forward or lose the Cold War to the
USSR. The administration of [President Jimmy] Carter and the head of the
Financial Reserve System Paul Walker developed a very tricky concept. For the
first time in the history of capitalism, capitalists began helping others,
issuing new currency in an effort to stimulate aggregate demand .
KP: They decided to switch on the
printing press?
Khazin: Exactly. In the early 1980s,
they started to stimulate demand through state support. For example, they
launched the “Star Wars” program. As of 1983, they placed an emphasis on the
household economies.
KP: You mean, they relied on the
average citizens?
Khazin: Yes. For an entire quarter
century, households received funds as a result of issuing new currency in
larger and larger quantities.
KP: In other words, credit?
Khazin: Yes. The U.S. was able to make
the next step in technological progress as a result of this excess demand. They
accomplished the collapse of the USSR and numerous other significant fears.
But… The boom took place thanks to resources that were supposed to provide for
future growth. The country ate its own resources two generations ahead of time.
The U.S. built up tremendous debt. This is clearly seen if we compare the
growth of debt in U.S. households with the entire U.S. debt and GDP. The
economy is growing at an annual rate of 2-3, or at a maximum 4 percent. But
debt is increasing at a rate of 8-10 percent.
KP: Well, let the debt keep growing…
The U.S. lived fine up until now without a problem… Better than we did!
Khazin: Yes, the U.S. did create a very
high standard of living by stimulating consumer demand. Generations lived
without having to experience poverty. But it’s impossible to live forever in
debt. Household debt has now surpassed the national economy — more than $14
trillion. Now it’s time to pay up. Of course, Wall Street tried to postpone
this collapse. I won’t go into detail about derivatives and other such
financial assets, but this was just a gasp for air before an inevitable death.
Another problem in the U.S. is that
powerful industries were built around this growing demand. Whatever decision
Wall Street takes right now, the demand is going to fall. What will happen to
these industries? In 2000, we estimated that 25 percent of the U.S. economy
would disappear. Today, we think the number is closest to one-third — if not
more.
KP: That’s a lot!
Khazin: That’s an incredible amount!
But what exactly does this mean — the destruction of one-fourth of the U.S.
economy? It means an uncontrollable increase in unemployment, a horrible
depression, a sharp increase in the effect of social services on the budget…
Now, the U.S. is jumping all over the place doing everything its can to rescue
this fraction of the economy. The government is stimulating banks and
manufacturing… But regardless, in 2-3 years, the U.S. will face a crisis
similar to the Great Depression.
Who is Who
Mikhail Leonidovich Khazin was born in
1962. He studied mathematics at the Yaroslavl University and Moscow State
University. In 1984-1991, he worked at the Soviet Academy of Sciences. In
1993-1994, he worked at the State Working Center of Economic Reforms. In
1995-1997, he was the head of the Credit Policy Department at the Economics
Ministry. In 1997-1998, he was the deputy head of the Presidential Economics
Department. In June 1998, he left state service. At the moment, he is president
of the consulting firm, Neokon.