The world economy is in a tailspin

Action budgetary infusions on the economy fizzles out, it became clear last year. So the Republican victory in the midterm elections in the U.S. Congress gave the signal for increased incentives: the administration has introduced new tax incentives, while keeping the same and increasing costs - for the current fiscal year is scheduled epic federal budget deficit at $ 1.5 trillion (10% of GDP). The U.S. central bank, realizing that in this abyss of fresh Treasury bonds can not find buyers, launched a second program of quantitative easing, in common parlance, "Cook", which will last until the end of June. Repurchased bonds at an average of $ 75 billion a month, and reinvested the proceeds from repayment already were at the Fed's Treasury (another $ 35 billion). The program's purpose is twofold. First, it increases the monetary base - in the hope that the excess liquidity will encourage households and corporations to increase the purchase (and the banks - to extend credit), which will create a base for economic growth. Second, the program dramatically increased the demand for bonds - the Fed has bought 70% of the issued during the period of the "Cook" treasuries. With the growth in demand increases the price - for the bond market this means a reduction in profitability, which should be passed on to the market by cutting rates. But the loan portfolios shrank not from the high cost and scarcity of money from the banks (the latter filled with cash). Just households and corporations are overwhelmed by debt, and while its size has dropped to acceptable levels, it is difficult to increase borrowing. Reviews Federal Reserve show that households reduce the burden of debt, but it's a long process, because at the peak of the debt exceeded 130% of disposable income. Moreover, the income is not growing now because of low employment and low demand (Figure 1). Finish is near. The leader of monetarist Milton Friedman (the idol of the current Fed chairman Ben Bernanke) wrote: "Whatever the deflation, it is necessary to print money, and it will disappear." His followers have decided to accelerate inflation, which also makes the audience spent. But inflation generates growth not monetary base and broad aggregates (M3), which are not required to follow the narrow, if credit activity falls, it compresses the money multiplier, and M3 is not growing. In the same "liquidity trap" Japan has got 5 consecutive years (in 1999-2003), she led the monetary pumping is increasing at an average base of 30% per year. But the parallel multiplier fell, and the broad aggregates almost did not grow, so deflation continued. To heighten the humiliation of monetarists prices began to rise as soon as the government stopped issuing. The same thing happens in the United States in 2008-2011: Emission threw the monetary base, but the multiplier fell to historic lows, leaving the M3 at the same level. Still, inflation emerged - but not the one that wanted to Bernanke: part of the issue was leaked to the financial markets, creating a rise in prices for basic commodities (fuel, metals, food). Hence, there was a cost-push inflation, which not only stimulates consumer spending, but on the contrary, undermines their demand (Figures 2 and 3). The reality was even worse than all forecasts. Injections are so great that, except for inflation, gave rise to the market is not falling, and the growth percentage - yield treasuries went up, as well as interest on long mortgage: expecting high inflation, no one wants to buy bonds and make loans with interest rates below the price spike. As a result, increased cost of borrowing and treasury. As a consequence, the administration has exhausted her Congress established a threshold of debt in May. Now the Republicans need to cut spending budget, but then drops the economy, living only injections of the state. At the same time increased the rate of return was stabilized credit: demand for mortgages fell again. As a result, economic growth has slowed, but in reality it is still lower than the official figures say: per capita GDP in the U.S. is not growing, and the gross domestic income (the same GDP, but calculated using the income stream, rather than cost) at all left in the negative. If you remove the incentives for state-owned, it becomes clear - the private domestic demand in the United States in 2007-2011, the average shrinks to 3%-plus annually. Thus, the finish, "Cook" is close, but the results are terrible: inflation increased, the money multiplier has fallen, the percentage jumped, economic growth slowed, the housing market has shrunk. And only in the labor market of 600-700 thousand people have moved from temporary to permanent employees - big deal! Evil tongues were quick to note that each is a "redesigned" job cost nearly a million bucks freshly printed (Figure 4). War and bubbles. Other reasons to "Cook" was to drop the dollar, which is exactly what happened - the offer of the U.S. currency has increased, and its price fell. The idea is that a cheap currency stimulates exports and imports undermined by aligning the trade balance. Such dependence is indeed working in the XX century, when the average delay per year dynamics of exchange reflected in trade. But now that the greenback falls because of monetary games, the picture changed: emissions and encourage the growth of the dollar's decline in prices for basic commodities which U.S. imports. In other words, imports rise in price, further worsening the trade balance. Moreover, emission pumping distorts the economy. Normally a cyclical crisis reduces prices for raw materials, allowing producers (especially in the manufacturing sector) to adapt to a drop in demand, reducing selling prices. Now it is impossible to issue tossed prices, depriving the producers the price of weapons. But the weakness in demand is still there, and companies are forced to seek other ways of cutting costs. The choice is not rich. And the economy remains the main means of staff who either cut, or cut his salary by undermining the aggregate demand. "Cook" in the end does not stimulate demand. Other leading countries are not lagging behind. Asians stop the growth rates and raises the stakes. China (the main player here), pretending that revalviruet yuan, in fact, allowed him to grow only slightly against the dollar. But the last for this time greatly depreciated against the euro and the yen, so that the basket of currencies of its trading partners yuan even cheaper. And nothing can be done about it: when the U.S. is attempting to put pressure on China, he suggested that Americans look at themselves. Japan simply copies the United States, but the truncated scale, and after a catastrophic earthquake, no one dares throw a stone at her, other Asian countries have foreign exchange intervention and impose taxes on inflows of foreign money into their assets. China, incidentally, also has issue, so much so that its broad money supply has had time to overtake the U.S. in absolute value and, moreover, by a relative: China's M2 reached 180% of GDP, while the U.S. accounts for only 60%. Europe found itself between a rock and news markets udumala nightmares about the difficulties of its periphery. But now these difficulties, and indeed overwhelming. When the eurozone was created, some have warned of the dangers of a single currency and monetary policy for such differing economies. Fears were confirmed in 2000-2003, when the leading EU countries (Germany and France) have fallen into a recession, because of what the ECB base rate sharply decreased. Then it's cheaper not only production credit, and mortgage: in southern Europe, the latter had become extremely affordable, creating giant bubbles there. In Greece and Portugal used the power of low interest rates. And now they do not know what to pay the debt then recruited. Some form of default in a number of eurozone countries is inevitable. Evronachalstva task is to find the least painful form of debt restructuring. It is not easy: the balance of the ECB is Greek treasuries to 50 billion euros, and another 90 billion it gave the Greek banks. In other words, the default threatens the central bank, and if he stops to take a pledge of securities lending in Greece and it is the country's banking system simply collapses. The unfortunate alchemy. New developments badly affected the scope of private savings. Usually, most of them invested in safe assets (bonds, deposits). But the crisis in the weighted average yield assets included in M2 money supply fell to an unprecedented grassroots of 0.2% per annum. Consumer inflation clearly above those numbers, that is all conservative investments in real terms are loss. Thus the Fed pushes the audience generously invested in risky assets - say, if a lot of money goes into stocks, then the audience will feel "wealth effect": paper, which she owns, rise in price, making people more courageous in spending. In practice, the lion's share of speculative money has gone into developing markets, where growth is higher. This process is spawned off rates between local currencies and forced the authorities of the recipient countries isolate themselves from global flows of hot money taxes: the global financial system breaks up into segments - and protectionism is not far off. And on the Stock Exchange of New York at the end of 2010 clients through brokers brought the size of margin positions to peak in the summer of 2008. People are speculating again on credit, which then is fraught with dramatic collapse of markets (Figure 5). The influence of emission to the commodity markets is huge: fuel rose sharply, industrial and precious metals, food, feed and textile raw materials, some of them even broke through the peaks of 2008, and here and Arab unrest arrived. Brent crude oil reached $ 127 per barrel, gold hit $ 1575 an ounce, and silver - $ 50, and only then came the correction: COMEX exchange for three consecutive days increased the demand collateral for futures in silver, as a result of doubling them. Speculators were caught off guard, and the price per week fell by half. Climate disasters have exacerbated recent nervousness in the sector of agricultural products: corn rose in price aggressively (especially maize), vegetable oil, animal feed, dairy products, meat, sugar, coffee, wool and cotton. Bernanke said that will not last long, because the price increase is concentrated in a narrow range of goods, and in general consumer inflation restrained. But now it's like an anecdote: In January - April consumer prices rise by an average of 0.7% per month (if you remove the evil practices of statisticians - seasonal cleaning and hedonic indexes), and the annual increment (officially 3.2%) reached a peak with in October 2008. This is not the limit: selling prices of producers for the past 12 months has swelled by 10% or more. As a consequence, people's real incomes have gone down and the economic situation worsens. Pseudo-alchemists were caught in their same network. Conclusions and prospects. Let us recall the essence of the current crisis. Beginning in the 1980s in developed countries, a policy of over-demand through excessive lending. Under inflated demand in many countries have established power, which gave strong growth in production. By the beginning of the XXI century the debt burden on households and corporations has become excessive, the mechanism of growth in lending was the crash. Struggling with a crisis of 2000-2003, the authorities lowered their base rates to very low values. Coupled with other measures that led to the real estate bubble, a mortgage secured by a generous and an introduction to the turnover of new financial instruments (CDO, CDS). Bubble burst in 2007-2009, giving impetus to the recession and the credit mechanism of blocking the former increasing demand. But this means that demand is returned to natural levels - levels that are much lower than the supply, calculated on the inflated loans purchase. Formed a fair amount of imbalance, which the authorities do not give blown away by pumping demand at any price. The private sector as a source of growth "won back" for credit breakthrough 2003-2008, (he can no longer take active), and the only way to revive the economy - government program incentives funded with debt. But in the U.S. over 210 years of statistics higher than at present, the level of debt was observed only during the Second World War, by 1950 it dropped below the current level (almost 100% of GDP). In the Great Depression debt grew by only 40% of GDP, and public works Roosevelt applied to lower levels of incidence, cost no more than 8% of GDP. Now the treasury deficit of the third year in a row holds about 10% of GDP, even though the economy and almost did not fall. What will happen when imbalances will send it down? U.S. national debt will reach 150-200% of GDP. Then, the main concern of the authorities to avoid default - no chance for deficit stimulation (Figure 6). Apparently, now the Fed will focus on reducing inflation and interest rates in the markets, while avoiding excessive monetary tightening. We will see another wave of growth in the stock and commodity markets, the summer-autumn peak in inflation and the final fall of the dollar. Perhaps the commodity exchanges will massively raise the value of warranties on raw materials and food futures. Finally, it is possible and another mini-surge in private consumption due to fiscal stimulus. But the magnitude of any inflationary bubbles is limited. When the markets finally realize that the deep crisis is inevitable, the debt burden on the government is excessive, the financial system out of balance, and globalism, was replaced by protectionism, they refuse to trust the authorities in their bonds. This is a toss up interest rates will cause the government sequestrated costs (as it now does the Euro-periphery), and the economy at once enter into a deflationary spiral compression. When will this transition, we can not say in advance. What is clear is that the deficit (read - emission) of the resource remains no more than one or two years. * Author - chief economist at SG IT Invest.