What will happen to global economy?
© Фото: Анна Форостенко / «Голос России»
Next
is a hypothetical unfolding of events. A dynamic system, as the move
described above, would engender the possibility of a myriad of different
developments. Here is a possible scenario.
In the next 24 hours
the media runs amok. There was not much of a New Year’s celebration in
the Western Hemisphere. People were afraid. They were speculating what
may happen. Some planned a run on the banks to withdraw their money,
though not knowing what to do with it in a system that may collapse.
They couldn’t even convert their cash dollars and euros into Bricsos, as the Bricso
was to be only a virtual currency. Some planned to convert their bank
accounts into BRICS currencies. They would be safe. Others continued to
trust the dollar, the existing system, no matter how defunct it was.
They figured Washington will again find a solution to save them.
When the banks opened, 48 hours after the announcement,
the western stock markets literally collapsed. They had to be closed
for an indefinite period of time to salvage what hadn’t been wiped out
yet and to consolidate and control the damage.
Reality Check comment: Surely, the President's Working Group on Financial Markets (aka
“Plunge Protection Team”) would intervene in the markets, but when
everyone is trying to sell their holdings no intervention can keep the
markets afloat. The size of the US financial markets (esp. financial
derivatives markets) is in the hundreds of trillions of dollars dwarfing
the US gross national product. There is no way to avert a collapse if
the BRICS pull the rug from under the US market.
At
the same time, there was indeed a run on the banks. Some wanted to
withdraw, others to convert their money. The resulting chaos made the
authorities close the banks again. After ten days, people took to the
streets. They had no cash left to buy food and other necessities. The
banks opened again, first for a few hours per day with strict withdrawal
limits.
Reality
Check comment: There is nothing surreal or impossible in this scenario.
Actually, we can speculate that the US and EU banking systems have been
preparing for a crisis of similar magnitude. The European “bail in”
banking regulations and the Cyprus banking collapse are two examples of
the West preparing for a generalized banking crisis.
After a month,
as lines behind the counters got longer instead of subsiding, some
European governments considered, especially the weaker Eurozone
countries, to exit the Euro, revert to their former currencies and to
nationalize their banks. This move would allow them to print their own
money, stimulate their local economy with a national banking system for
local production and internal consumption, thereby creating jobs –
restoring confidence in society.
Reality
Check comment: In this highly plausible scenario the IMF, European
Commission and World Trade Organization (WTO) would be powerless with
their likely sanctions, such as capital controls, international trade
blockade, or a ‘financial marshal law’ to stabilize the illusionary
‘markets’ – simply because the markets would indeed be illusionary,
since those countries which decided to exit the Euro and progress to
local production for local consumptions have decided to get rid of their
corrupted leaders and chose their own way of recovery. See Argentina
after the 2001 collapse.
The US indeed ordered the IMF to re-introduce the gold standard at
an arbitrary rate of US$ 2,000 / oz. and with a ‘debt-equity’ ratio of
10:1, meaning that a country’s outstanding debt or unmet obligations, as
is the case in the US, could be ten time higher than the gold coverage
of its circulating money mass.
To protect the interests of the dollar economy, the IMF in unison with the BIS – Bank for International Settlement, the de facto
central bank of central banks, also the presumed largest gold
depository of the Western economy, introduced strict rules for countries
that decided to follow the new gold standard. For example, Quantitative Easing
– QE – a euphemism for printing money – was strictly controlled for the
US dollar as well as for the Euro. The 10:1 ratio was not to be
exceeded. Banks were again divided between investment banks and the
traditional commercial banking, effectively bringing back the Glass–Steagall Act – that Bill Clinton declared ‘dead’ in 1998.
Reality
Check comment: Basically, in this scenario, the BRICS countries forced
the US to swallow the bitter pill of tough economic measures. Washington
would have never accepted a limit on their “printing rights” unless it
was forced to. Somewhat paradoxically, a brutal financial attack from
the outside world may be necessary to make the US go back to a saner
form of economy.
The Gulf State oil producers rushed to convert their dollar reserves into Bricsos
– some into euros, as they didn’t trust the BRICS. Of course, by the
time the banks opened, the dollar had already lost about two thirds of
its value vis-à-vis the Euro and the British Pound. The current loss
from conversion into Bricsos
would be even higher, but who knows what will happen to the Euro. Will
the Eurozone stick together? – Fall apart? – Chose different alliances –
maybe migrating towards the BRICS system?
Six months down the road,
Greece, Spain, Portugal, Italy and Ireland had chosen to exit the
Eurozone and to restart their economy with their local currencies; some
of them quietly seeking an alliance with the BRICS. The Eastern European
and Central Asian countries which recently acquired Eurozone status
were in a dilemma: they desperately wanted to belong to the Western
monetary system, but in trade they were closer to Russia and China, key
partners of the BRICS. Their state of limbo would create internal unrest
– parts of the population still identified with the former Soviet
Union, others tried to stubbornly adhere to the dollar system, no matter
how defunct it was.
Reality
Check comment: One important consequence of this scenario is that
political leaders around the world will see that the change is possible.
The mere sight of the BRICS’ actions should have a liberating effect on
the mindset of national leaders who grew accustomed to the idea that
American economic hegemony is eternal and invulnerable. In this
scenario, the Eurozone breakup becomes almost inevitable because the
mechanisms of economic coercion employed by the European Commission will
be “jammed” by the ensuing crisis. Without firing a single shot, the
BRICS and their allies can start a chain reaction of financial
liberation in Europe and around the world.
Western
stock markets had opened again a few months earlier, but were trading
cautiously, with firm limitations. Speculative buying long or short
was prohibited. Stock market listed companies and corporations were
carefully analyzed as to the extent of their autonomy within the ‘Western markets’ – vs. dealing with the BRICS market.
What was left of the globalized Western ‘market economy’
was limping along. Many were in doubt whether they should remain
faithful to a system that has let them down. Some thought to diversify
into the BRICS domain, as they saw the long-term gains in a sounder and
more just economy.
On
the other hand, the BRICS and its two associate members, Iran and
Venezuela, recovered rapidly from the first shock, as their new strong
currency gave them a boost vis-à-vis the other half of the world economy
which was still teetering on the dollar with some backing of the Euro.
Reality
Check comment: In this scenario the BRICS would work hard to develop
their internal market(s) in order to compensate the reduction of demand
from the decaying western economies. Internal market development coupled
with efforts to satisfy the internal demand with internally produced
goods has created a virtuous cycle of sustainable economic development.
Within the first year,
Indonesia and Malaysia joined the BRICS alliance. The BRICS market grew
almost exponentially, not only in production and consumption, but also
in research, especially for alternative, renewable sources of energy – a
policy promised by the BRICS Presidents at their Press Conference in
Paris on New Year’s Eve 2014. Freedom from fossil fuels meant also
political autonomy and a path towards real democracy and well-being.
Food self-sufficiency for the BRICS and their allies will be achieved
from day one. The West won’t be able to jack up the prices for food
commodities (markets crashed, lack of speculative capital). This will
reduce the price of food worldwide. At the same time, the people in the
West won’t be able to consume as much as they did before 2014, making
the food available to the whole non-western world at bargain prices.
Reality
Check comment: This scenario creates the perfect environment for a
“BRICS Renaissance” or “reverse brain-drain”. For decades, the West has
bought off the smartest and the best educated from around the world. In
this scenario, the process has been reversed. Within the first year
scientists began flocking to the banners of BRICS research institutions.
The
new BRICS system became increasingly attractive even for those still
adhering to the traditional, gold revamped ‘dollar-euro economy’. As
more of the richer, more prestigious – and remaining – Euro countries,
Germany, France, The Netherlands, Finland, Sweden, Denmark – saw the
benefits of trading with the BRICS system, the Euro became gradually a constant in trading with the BRICS market.
By early 2015, negotiations began to make the Euro part of the Bricso basket.
Reality
Check comment: Hard feelings between politicians can’t cancel objective
economic needs. Europeans needed to sell their exports to the BRICS
countries and needed to buy the hydrocarbons – while waiting for viable
renewable energies to become marketable. Eventually, they got used with
the new system even if they didn’t like it.
At the beginning of 2015 the Shanghai Oil Bourse was in full bloom. It traded trillions of Bricsos, not only from BRICS and associate countries, but from all over the world. Hydrocarbon producers realized that the Bricso
was a stable currency, offering more long-term security then dealing in
dollars. Hydrocarbon trading in dollars gradually subsided.
In
addition, the SOB member countries agreed on levying an energy tax –
one per-mil (0.1%) of the daily volume of trade – to fund research and
investments for alternative renewable energies.
Reality
Check comment: Besides providing a steady stream of financing for
energy related research, such a tax is a wonderful damper for excessive
volatility. In the West, financial oligarchy has always blocked any
attempt to introduce a “transaction tax” or a “Tobin tax” on financial
transactions. BRICS countries have the luxury to introduce financial
safety measures that are impossible in the countries controlled by
financial parasites.
The
exchange rate of the gold-backed dollar tended to fluctuate
significantly. Gold as the backbone of the dollar based Western economy
was vulnerable to speculation. Even though the exchange rate to the
dollar and associated currencies was fixed, speculative fluctuations
influenced the conversion rates of the gold-dependent currencies –
demonstrating the psychological factor of instability. Nobody was really
sure if and when the IMF would decide on another gold-dollar parity
rate. This could happen any time, since the IMF was still a mere
extension of the US Treasury.
Reality
Check comment: This is a very important aspect that most of the “gold
bugs” get wrong. The return of the gold standard doesn’t mean that the
existing financial oligarchy will lose its grip on the American and
European financial systems. The method of control may require adjustment
but nothing will change if the whole financial infrastructure (i.e. the
banks, the clearing houses, the exchanges) remains under the control of
the same old financial clique. The gold standard per se is not a
“silver bullet” for the global economic problems. A deeper reform is a
needed.
The
artificially inflated speculative value of gold was gradually falling
towards its real intrinsic value. It still may take a while until the
value of gold – which cannot be eaten in times of crisis – would end up
at its mere industrial value. Gold has had a long-lasting tradition and
thousands of years of history as one of the most precious metals,
measuring the wealth of kings and czars. It will take a new way of
thinking, new generations, to realize that what really counts are not
primarily material values but cooperation, solidarity and peace among
people. Material values always tend to interfere with these sustainable
human values.
On the other hand, the Bricso had by now, early 2015,
the solid backing of 9 nations, the economies of the five BRICS, plus
those of Iran, Venezuela, Indonesia and Malaysia. – Mongolia, with a
fast growing economy – about 10% per year – was also envisaging coming
closer to the BRICS.
Reality
Check comment: In a contest between a gold standard and a properly
managed fiat standard, the fiat monetary system will win because few
people will agree to replace the banking clique with a clique of the
world’s biggest mining companies.
As more countries tended to trade in Bricsos,
the currency gained in strength. It became a solid reserve and
reference currency for many non-BRICS countries. The energy tax was
popular and its use transparent. It was a trend-setter for a different
way of thinking. From 2015 / 2016 forward,
protection of the environment and a life more integrated into nature
with more social justice, using what nature had to offer without
destroying it, became increasingly ingrained in the minds of people.
These concepts were also reflected in teachings and culture.
Reality
Check comment: The main change achieved through this financial and
economic maneuvering is a “paradigm switch”. The world’s economy must
embrace the ideology of “innovation without financialization”. The
current economic structure has an unnatural tilt or bias towards
financial markets that tend to dominate over the traditional industrial
economy and agricultural economics. Boosting innovation and curbing
financialization is the key to a stable, sustainable and equitable
economy.
From about 2020
onwards a shift from material to human life values became noticeable. A
healthy environment, protection of species and resources became
progressively important. A solid education and health services for all
became important. The value of economies was no longer just linear,
material and measurable growth – the old GDP – but included also – and
to an ever-growing degree – values of well-being, such as capability of
conflict resolution and living in harmony with each other and the
environment.
What the BRICS had started in 2014
was perhaps a utopia – a new monetary and economic system, detached
from wars and conflicts for greed, striving for peace and equality.
There was no way to predict its outcome – other than faith that with
political will the utopia might succeed.
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