NEW – February 22, 2023
In this article, I would like to use a simple and understandable example to explain the rather complex events taking place in the world, including Russia’s goals and objectives for the coming years. Moreover, I am even ready to share the very principle of how to learn how to understand and analyse news.
Let’s take a household example that everyone understands. Imagine an ordinary person with a salary of 50,000 rubles, who decided to get a mortgage on quite attractive terms. The bank offers them a mortgage loan at only 0.5% per annum.
Let’s say the loan amount is 5 million rubles – a lot of money, but the monthly payment is only 15,000 rubles due to a very low interest rate, which is almost zero, which makes the overpayment on the loan minimal. Why not apply for it?
A satisfied client leaves the bank’s office, but one day the bank calls the client and informs him that the conditions have changed and now the interest rate is as much as 15%. Note how the monthly payment changes in this case, even though the amount and term are the same.
Only the interest rate has changed, but now a person has to pay 63,000 rubles a month instead of 15,000 rubles. And if earlier, after paying off the loan, they still had 35,000 from their salary for other expenses (food, transport, children’s education, repairs, etc.), now the person instantly becomes bankrupt, because the monthly payment exceeds their entire salary and they do not even have money left for food.
But this story is not about greedy bankers, but about world politics and what is really happening in it and what goals Russia is pursuing. How do these two loan calculation pictures explain global politics?
The situation in world politics is as follows. There is a world hegemon who has already fed up with everyone. And many would be happy to get rid of it. But how? The United States is a power with nuclear weapons and the world’s first army – with aircraft carriers, fifth-generation fighter jets, etc.
The world’s reserve currency is also the US dollar. The United States also has a significant share in the global economy, which allows them to threaten unwanted countries with sanctions, block reserves, etc. In addition, the United States has many allies – the so-called “collective West”, which voluntarily or under duress supports the decisions of the United States.
The task at first glance looks quite difficult, but even the hegemon with its capabilities has its own Achilles heel. Such a vulnerable point is the huge national debt, around which there are many disputes and battles on the Internet. Some say that this is a problem for the United States, while others chuckle and say that this is a duck of propagandists from the idiot box and the national debt does not pose a problem for the American economy.
I would like to give an objective assessment of whether the huge national debt of $31 trillion is a problem for the United States or not. As in the example above, everything depends not so much on the amount of debt, but on the interest rate. In the US, the target inflation rate has been around 2% for many years. This allowed to keep interest rates in the region of zero or so.
Therefore, it was not a big problem for the US to service its debt at such low rates. Indeed, look at the first picture and ask yourself, is it a big problem to pay 15,000 a month on a loan if you have a salary of 50,000? This is quite feasible. The United States spent only 6% of budget revenues on debt servicing at near-zero rates. This is quite a lot for the country’s budget. But not so much to broadcast from every TV “have you seen the US national debt”?
However, things have started to change dramatically in recent years. The United States, which was known for its low inflation, strong and stable economy, and low interest rates, suddenly began to raise them.
Please note that the US Federal Reserve has recently raised the interest rate eight times in a row. And today the rate has already increased to 4.5–4.75% per annum. American economists have calculated that when the rate exceeds 5% per annum, servicing the national debt will become the largest item of expenditure of the US budget, exceeding spending on defence, education or medicine.
At a rate of 10%, they estimated that servicing the national debt would cost the US budget 2.3 trillion a year. And this will already exceed the military budget three-fold. And note that this is if the interest rate simply changes. But the national debt itself has to be increased, because Americans have been living in debt since 2001, spending more than they earn. And Congress is discussing another increase in the national debt ceiling, because the budget lacks $1 trillion.
In general, the economic situation in the United States is rapidly moving towards the second picture from this article, i.e., towards an economic collapse. And this is mainly because the US interest rate is growing rapidly. But why have rates started to rise so sharply in the US in recent years?
This happened because in the United States, inflation jumped to a record for the last 40 years – up to 9% in 2022. This is unusual for the United States, because for many years their inflation rate was 2%. Because of the sharp deviation from the target level, it was necessary to raise rates in order to stabilise the situation in the economy and slow down inflation. But then the main question arises – why did inflation suddenly rise so sharply in the United States?
And here we come to where this article started. The hegemon has already annoyed everyone, and various countries of the world, including Russia, are doing everything possible to give the US a hard time. The United States could easily digest and survive each of these actions separately, pouring another portion of printed dollars. But many problems are occurring simultaneously, forcing the US to print more money, causing inflation to rise above the target level and creating risks of a collapse of the US economy.
The main goal of the actions of most normal countries in the world is to create problems and unnecessary expenses for the hegemon, so that its economy is impracticable. This is the only way to defeat a nuclear power that prevents everyone from living. By the way, this will not work in the direction of Russia.
The US has a national debt of 137% of GDP, and at this level of debt, all that remains is to push the US off a cliff, forcing it to raise interest rates, which will make debt servicing unaffordable. But Russia has one of the lowest levels of public debt to GDP in the world – 16%. Unlike the United States, we are not mired in debt, and we are pursuing a sound financial policy. And the United States spent money without thinking, so they created a critical vulnerability in the budget, where they can hit accurately.
It was a starting point for understanding world events. To reinforce this principle, I plan to look at specific examples of global events leading the United States to the financial abyss in the next few articles. For example, our actions in the Northern Black Sea region. Just think about how this affects US spending or income, and then you can immediately guess Putin’s strategy for conducting this operation.
Whisper of the Kremlin
Copyright © 2023. All Rights Reserved.