Global Economy. Part 3/4

Today we continue the topic of global economic analysis of the situation and events happening in the world, if you have not read the previous part, it is better to start with it by clicking here. This time we will touch more on finance.

The global financial crisis

At the moment almost all the countries of the world have problems related to the financial crisis, and recently, to all this was added the crisis of energy and food. However, so that this article is not the size of an economics textbook, we will talk only about some of the players in the political-economic arena, which will reflect plus or minus the general economic condition.

China

In 2020, China gave up imports of coal from Australia, which covered 25% of the Celestial Empire's electricity generation. At the same time, China did not send proposals, for example, to the Ministry of Energy of Russia to organize the export of coal, but simply increased the consumption of liquefied natural gas. The result was not long in coming.

Today, China is facing an acute energy crisis, due to which the largest factories across China are forced to turn off electricity, according to the blackout schedule. In fact, the largest industrial giants, work only 3-4 days a week. This is hitting all the world's industries and economies of all countries extremely hard, because the supply of components from China is tied to almost all the world's manufacturers in engineering, electronics, pharmaceuticals, light industry and food industry.

In addition, one of the largest real estate developers in the world, the China Evergrande Group, is on the verge of bankruptcy. The company's debt now exceeds $300 billion, more than 2 percent of China's GDP. The bankruptcy of a giant like Evergrande threatens in turn to bankrupt hundreds of businesses in China and even more investment funds in the United States and Europe. The fall of this domino could bring down China's stock market, which would drag all the others down with it.

USA

The U.S. economy used to be considered one of the strongest and most stable economies, but few paid much attention to the methods by which the U.S. supported its economy and what the consequences of such "stability" might be.

The U.S. has actively abused its printing press for the past 20 years to support its economy, which was especially noticeable during the crisis of 2020, when trillion-dollar investment packages were poured into the market in order to postpone the global collapse of the U.S. credit and financial system, and the dollar itself. Because of Fed and ECB policies, more dollars have been printed in the last 5 years than in the past 100 years. This situation has a number of very dangerous consequences for the global economy, which can now only be dealt with by extreme measures. As a result of U.S. economic policy, the following circumstances arise:

• Catastrophic amounts of money, which since 1971 (the date of the abolition of the "gold standard") are not secured by anything and are held only on the "word of honor", have entered the masses, which greatly undermines confidence in the dollar as a reserve asset, which entails that many countries and multinational banks are gradually getting rid of the dollar as a reserve asset. Due to the devaluation of the dollar over the past 100 years, its purchasing power is at best 7%;
• Structural crisis due to the inefficiency of the economic management model due to the new crisis features;
• Huge inflation in the order of 25-30% per year, which they try to hide by offsetting it with income and report adjustments. Mortgage rates, interest on loans, as well as the prices of energy resources, food, building materials, components and real estate are rising.
• Because of the crisis of energy and supplies, sanctions against Russia and the emergency demand for electrical wires, chips and other components, many of the largest U.S. plants are forced to suspend production, which has a negative impact on the economy.
• For all that, GDP is falling by 7-8% per year, which is also masked (the numbers in the reports do not match the actual production).

The Fed's economic policy has shown its incompetence by driving itself into a dead end, as printing dollars is no longer possible, as inflation will be completely out of control. However, at the same time, if you don't print, the stock market, which is used to artificial pumping, begins to fall.

On top of that, the U.S. foreign debt is number one in the world and is at historic levels of over $30 trillion. This is a colossal sum, exceeding 150% of the annual GDP of the country.

U.S. national debt as a percentage of GDP from 1900 to 2020.

These are default rates for any country in the world, but the U.S. is kept afloat by the fact that their dollars are still in demand, but if this demand disappears, the States will lose everything. The only way out of this situation for the U.S. is to crash the stock market, but now this collapse is estimated by analysts to exceed the crisis of 1930-39 (the Great Dipression) in 1.5 times, which means a drop in world GDP of at least 50%.

Based on the above, it can be argued that the comments of many international economists about the imminent collapse of the credit and dollar system are far from unfounded and have strong arguments under them.

Europe

The situation in Europe can hardly be called more positive, since the EU economy in many aspects is extremely dependent on the United States, Ukraine, Russia and other countries. Taking into account the recent events related to the actions in Ukraine and sanctions, which hit the EU with a little less force than Russia itself, the situation is extremely depressing, and if retaliatory sanctions are imposed by Russia, the situation for Europe will be stalemated.

The EU countries are still completely dependent on supplies of provisions and energy resources from Russia and Ukraine. The prices of food, electricity, fuel have already risen to their historic levels and no long-term improvement of the situation is in sight. As for the stock market, the Fed and the ECB have, so to speak, the same "sandbox" and the EU stock market is as bloated as the US stock market.

Russia

The West's economic war against Russia through sanctions has hit the country's economy quite hard, leading to the following consequences:

• Exports and imports decreased, and foreign trade, which fills the country's budget, declined significantly. Because of this, small and medium business suffered greatly, which was not ready for the cessation of supplies from Europe and several other countries.
• The destructive policy of the Central Bank and the banking system, which does not allow investing into the economy of the country in national currency, within 2-3 months threatens to stop many industries, if the policy of the Central Bank will not be changed.
• Many plants have already been stopped, like plants for the production of tires (the stock of the available ones will be enough only for 3-4 months). Hundreds of thousands, if not millions of unemployed people have appeared because of the shutdown of production facilities.
• Access to a large number of assets abroad, which were frozen by sanctions, was lost.
• The sanctions also had a strong impact on food prices, components and living standards of the population.

There are enough problems, to put it mildly, with various kinds of operating systems and components for complex mechanisms, such as cars. However, the Russian Federation has accumulated over $600 billion to support its economy and production. To all this, the Russian stock market is not "pumped up" artificially, unlike the same markets in the West, which after the recent fall of the Russian stock market creates an increased interest in them for investment from China and the Middle East.

Cracks of dollar power

It is no secret that the dollar is losing its value as a reserve asset every year. The reason is that many states and banks are reducing the share of the dollar in their reserve storages, since they know that the dollar system, which we know so well, will not exist for long. On top of that, many countries are not happy with the fact that they have to engage in foreign trade only for the dollar, devaluing their national currencies and thus increasing their dependence on the U.S. as their main treasurer.

The division of the world into currency zones

Now, we can clearly see the picture of Russia, China, India and the UAE gradually separating themselves from the payment dollar system through new trade contracts between them, in which transactions will be carried out in national currencies, and with the help of the digital yuan. Thus, a new currency zone is emerging that displaces the dollar from its global dominance.

For Russia in particular, this is very important, because its inflation has an imported character.

In the current, quite complex, globally political environment, it is easy to notice that the world is divided into two camps, the so-called Western and Eastern.

The West includes the following countries: EU, USA, Australia, New Zealand, Great Britain, Canada and probably other countries, which have not exactly made their position clear.

The East, in turn, includes the CSTO and SCO countries (Russia, China, India, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, as well as the UAE and possibly other countries that have not made their positions clear.

What causes the division of the world?

It is happening for a number of strategic, political and economic reasons, on one side and on the other. The East can no longer stand idly by, in the sense that NATO countries, led by the U.S., have increasingly taken the countries of the East into their economic and military claws, by building military bases and dollar expansion.

To all this, the East sees the depth of the crisis hole over which the West is hovering and does not want to be dragged down the rabbit hole in the same way. In order to resist the economic and military expansion of the West, the East is forced to create its own alliance with a closed economy, which will work on their own currency system (not on the dollar).

The West, in turn, is also forced to establish new and strengthen old trade partnerships, as the East ceases to be its resource colony and consumer demand remains at the same level.

All of the above is not financial advice, but only the subjective opinion of the author, always do your own research and double-check the information yourself.