Russian economist predicts “Great Depression 2″ in the United States – Who is Mikhail Leonidovich Khazin?
Mikhail Khazin - Putin
It’s interesting to see how more and more countries around the world are becoming more and more bold in their analysis of the current financial crisis in the United States. Economists are predicting more loss by the United States and see a “Great Depression 2″ waiting in the wings. (Read the following report)
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This article is based on an article from a Russian newspaper.
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.
(Article continues below)
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.GovMint.com
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.
GovMint.com
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Comments
Well this is a lovely post, actually more like drastic. Tom Perry is right the US needs to contract the money supply and allow more cash in hand. Now a days in the US no body owns anything. Everything is in credit from one person to another and the circle is so confusing that when one creditor defaults all of them in that mess suffer as we saw in 2008.
Economists and Lawyers should be jointly studying the private international banks in the United States and western Europe and their interconnectivity with sovereign states. International ruling, U.S. v. The Libellants and Claimants of the Schooner Amistad, Her Tackle, Apparel, and Furniture, Together with Her Cargo, and the Africans Mentioned and Described in the Several Libels and Claims, 40 U.S. 518(1841) indicates that sovereign states have jurisdiction and sovereignty over trade matters. This would appear to invalidate the legal authority of the Federal Reserve since its secret interconnecting relationship with international private banks violates international law. The Federal Reserve Note and Euro do not appear to be two independent debt instruments but appear to be part of one interconnected monetary debt system. This system is administratively supported by organizations like the World Trade Organization, Rating Agencies, Stock Market Exchanges, International private banks, and the United Nations. All sovereign states assets are at risk. Through the interconnectivity of the different private banks, which includes the Federal Reserve, debt assets become co-mingled and lose their sovereign identification. In addition, this co-mingling violates jurisdictional boundaries, which prevents legal accountability. The Federal Reserve System, which is almost one hundred years old, and the European Union, which manages currency for 16 countries have extensive programs to promote profit from leverage but made no provisions to manage losses. The issue would appear to challenge whether losses can be managed when assets and debts are co-mingled. There is no provision to adjudicate losses for sovereign states where jurisdiction and sovereignty has been co-mingled with multiple institutions. Any of the interconnecting private banks including the FRB can link with sovereign states and crash their economies. Sovereign state currencies have risk and liability limitations by virtue of their sovereignty and jurisdiction, but international debt instruments do not. There are 18 sovereign states with their monetary systems intermingled in the Federal Reserve-European Union international debt system, which creates a statistical risk factor of 6.402373705728e+15 interactions with potential risk for failure. This calculation only considers the number of sovereign states and does not factor the number of private banks which would increase the risk. This risk is why banks have not disclosed the true value of losses.
How can Americans and knowledgeable proponents of “END THE FED” put this issue to rest and disband these private banks and the “inter connectivity” which you discuss?
I have been saying something like this for years! The U.S. has been living beyond its means since 1965. By 1971 we had to delink the dollar from gold. However with nothing to replace it, the dollar remained the world reserve currency. Since that time to a greater or lessor degree we have traded notional dollars for durable goods and service. A great deal if you can get it! Alas the people in charge didn’t actually understand what they were doing , and therefore sailed way past reasonable limits. As long as A/ the dollar remains the world reserve currency and B/ as long as the Fed does not radically contract the money supply, we’ll have a long Japan like stagnation and adjustment.
The USSR collapsed because of internal problems such as unreliable information for planning, decline of energy resources, and finally a lack of faith in their system. Praise the gods they were wise enough to let it go peacefully!
Tom Perrys last blog post..The Obama Victory