“It seems that such a crisis will not be repeated.” But here, as Leo Tolstoy says: “All happy families are equal, each unhappy family is unhappy in its own way.” A new crisis is quite probable, but it will be “unhappy in its own way” due to its causes and manifestations.
What was the 2008 crisis like?
That memorable cataclysm of fifteen years ago is known to have been caused by the following main factors. A price “bubble” in the American real estate market after a rapid increase in prices, surpassing the commissioning of objects. Low loan rates and requirements to obtain them. This led to a mortgage boom and insufficient collateral to borrow as prices rose.
The US Federal Reserve rate was then 2%, with inflation around 5%. Additionally, there is a craze for financial derivatives, which are poorly regulated and divorced from the real value of the underlying assets.
The bursting of the “bubble” of overvalued real estate and its derivatives caused the collapse of the main mortgage banks due to the impossibility of selling guarantees. Which, in a chain of dominoes, caused massive defaults, bankruptcies, disruptions in company sales and income, and economic decline in leading countries.
What could a new crisis be like?
Now the situation is completely different. Lessons have been learned from that crisis. Central banks strictly monitor the security of loans; there is no credit “boom.” Regulators are mitigating banking problems in developed economies by pumping in huge amounts of money. Because it is still cheaper than if you miss the situation.
The example of the recent spring banking crisis in the United States and Europe demonstrated this practice. And from this side hardly any danger can be expected. However, this is what Winston Churchill called: “Generals are always preparing for the last war.”
Now the challenges are opposite in many ways, but potentially no less dangerous. There is a lot at stake in the world, both literally and figuratively. Due to the immense “flood” of money into economies to stimulate them during the pandemic, inflation has spiraled out of control. And in recent months, central banks around the world have dramatically increased their interest rates in the fight against it.
For example, in the US the Federal Reserve interest rate is 5.5%, in the UK it is 5.25%, in the eurozone on September 14 it was raised to 4.5%. Inflation is declining with difficulty and in these regions it amounts to 3.7%, 6.8% and 5.3%, respectively. The central banks’ target is 2%.
As a result, there is a danger of the worst combination of these indicators for the economy: stagflation. That is, stagnation due to very expensive loans combined with high inflation. This “explosive mix” is capable of undermining the world economy on both sides.
Furthermore, in recent months there has been a sharp worsening of geopolitical risks in various parts of the world. Breakdown of logistics supply chains for raw materials and goods, shortages and high prices of resources. Slowing down in China as one of the largest consumers and producers of products.
Yes, all this did not happen in 2008. “But does this make it easier?”, as Vladimir Vysotsky sang.
Which countries are the most vulnerable to the new crisis?
First of all, the new economic crisis will affect Europe and developing countries.
The eurozone has had almost zero GDP growth rates for several quarters in a row, that is, the same stagnation. And despite this, the European Central Bank is increasing the interest rate, since the price increase is very high.
This creates additional obstacles to production, investment, consumption and economic growth. Furthermore, in Europe there are numerous sources of geopolitical tension and migration crisis. The economic outlook in the EU is therefore quite bleak.
And in many developing countries in Asia, Africa and Latin America, the debt burden is high not only for companies, but also for entire countries that have been consuming relatively cheap loans for a long time.
An increase in global rates could be catastrophic for several countries. The debt crisis can lead to a general economic crisis in them. In addition to this, we observe difficulties with the supply and high cost of agricultural raw materials, food and energy.
But in Russia?
Unlike 2008, the crisis will not extend directly to the banking and productive system of our country.
This will not happen, first of all, due to the fact that Russia now has much fewer economic, financial and export-import ties with countries where the spark of a crisis could explode. From this position, Russia has a low susceptibility to its “import” and is less susceptible to the consequences of the crisis due to this factor.
However, the indirect impact can manifest itself in this way. In the event of a crisis of contraction of the world economy, the need for energy and other raw materials, the basis of Russian exports, will decrease. This would be a very negative phenomenon for our country. A rise in global interest rates and a shift away from risky financial assets would create additional risks for the ruble and pro-inflationary pressures.
In particular, the following could hypothetically counteract these phenomena. Stimulate national production, internal business, real import substitution. Establishment and development of new effective international supply and sales relationships.