Is Another Depression Looming?

Western leftist economists are known for having predicted eight crises out of five that erupted. Well, critically thinking people like to predict different crashes, collapses and depressions. The existing system turns out to be irrational so often and in such a large measure, it has so many discrepancies and conflicts, that it is hard to resist the temptation: it seems natural to suspect that something will certainly collapse or break down.

If a building is constructed poorly, it can be maintained through constant repairing and being propped up for a long time. The older generation still remembers how it was done in the Soviet Union. The way it happens in the time of capitalism we can observe now.

The question is how efficient the props are. Sooner or later, somebody makes a mistake, something goes out of control, and the uncontrolled process of destruction (in other words, economic crisis) is triggered off.

The Analysts have long ago raised concern about the real estate prices becoming all-time high in the majority of countries. However, the chattel mortgage system postponed a crash. While the banks loaned money to the people who needed dwelling, the apartments and houses continued to be sold. And as a result the housing crisis turned out to be the debt crisis.

This summer happened something that had to happen sooner or later. On a mass scale the Americans ceased to pay off the housing debts. Unlike Russia where the market was in 1998 wrecked by the officials, in the USA the citizens themselves did so. The outcome was the same ? the baking crisis burst out. Shares have fallen and the exchanges began to fluctuate feverishly.

The American crisis spread over to Europe and Asia.

Against this background, Russia?s situation is a little better. There are two reasons for that. Firstly, in spite of extremely high prices, Russia?s population has not taken out enough loans yet to wreck the market as it was in the USA (the Russians has been rather afraid of taking out the bank loans for a long time). Secondly, the economic growth is kept up due to very high oil prices. Even if the exchange crisis is followed by the decline in global production output, it will not occur immediately.

In principle, the Russian people should be happy: if the global trends tell on the housing markets in Moscow and St. Petersburg, local citizens will have a better chance of buying apartments.

But, unfortunately, their cheerful mood may be darkened before long.

Today the West Europeans are busy discussing whether the exchange crisis will lead to the same decline in output and slump in demand. For Russia the question can be formulated differently: whether and when the oil prices will drop as a result of the present world economic instability. And the bottom line is if the Kremlin has time to hold the presidential election before the economic recession.

When the economy is on the rise, the increase in the raw materials and oil prices outstrips the general growth. However, when a recession starts, the raw materials go down in prices quicker than the manufactured goods. In other words, Russia like many other countries that are the raw materials periphery of the world capitalism, can suffer from the crisis to a more considerable degree than the West. The world economy growth in 2000-2007 led to the redistribution of the global cash flows in favor of Russia and gave rise to the new imperial ambitions and the ?sovereign democracy? system. The opposite tendency may wreck the domestic economy as well as make the politicians believing in recovery of the state grandeur give up their dreams. It is obvious that the ?sovereign democracy? will not survive the economic situation that created it. If this forecast is right, Vladimir Putin?s resignation in 2008 will be a most wise move.

On the other hand, the situation is far from being that simple. The interconnection between the political and financial crises is evident, but complicated. In 1929 the exchange crash triggered the Great Depression. The results were fascism in Germany, collectivization in the Soviet Union and the New Deal of Franklin D. Roosevelt in the USA. The 1997-1998 financial crisis resulted in serious political changes in many countries ? from Brazil to Russia. The 2001 exchange crisis did not affect the economy, but strangely enough, shortly after shares had fallen the terrorist acts occurred in New York and another war started in Afghanistan followed by the invasion of Iraq.

Now it is impossible to predict how the current crisis will end, but it is clear that there will be fallout.

Russia?s top officials will do their utmost to hold the presidential election smoothly, without political complications and unwelcome surprises. And the name of the next president seems already to be known: deputy Prime Minister Sergei Ivanov is most likely to carry the election. The powers that be will try to remain united, to avoid conflicts while redistributing the key state positions. I believe they will manage to do that. After all, given the ?managed democracy? environment, it will be easy enough to hold properly orchestrated elections. But intelligent implementation of political schemes is not the same thing as settlement of the crisis, especially if the crisis is global rather than local.

It is after the elections when the most interesting events will start happening.

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