US shirked its responsibility to the global economy – top Russian economist
RT: Mr. Gerashchenko, hello and thank you very much for being here. You became head of Centrobank [Russia's Central Bank] when Russia began pursuing its 'shock therapy' policy, following advice from American experts. How would you advise your American colleagues now, with the situation they are facing?
Viktor Gerashchenko: Live within your means, that's all. That's just what they told us back then, with no idea at all about our economic and social situation at the time. That was in 1992, when we began – well, parts of the government began – to listen to their advice after Russia joined the IMF that year. Later, they wrote – and the famous Stieglitz, a Nobel laureate and former economic advisor to Clinton, was among them – that they were doing everything wrong. What they were telling us was all wrong.
RT: If we think about the ability to live within one's means, who is better at that now: the Russia of those days or today's USA?
VG: You see, the USSR was living on credit, of course. But it was solvent, and other states were eager to give credit, even the US, though the latter wasn’t doing it directly, but through European affiliates. They all knew, after all, that the Soviet economy was under control and that the country would pay its debts sooner or later, even without high oil prices. That's why they were eager to give credit to the USSR, especially to finance the purchase of high-tech goods to be supplied to the Soviet market. The fact is, though, that after 1932, a time of crisis for the US, America wouldn’t sell the USSR complete production facilities, like the car plant in Togliatti or chemical plants, of which the USSR had bought four billion dollars worth and which had played their part in its technical progress. But anyway, the Soviet Union's credit rating was quite high.
It has been easy for the US to take credit because of the entire system that’s been built up since 1945. When the IMF was being set up, there was a heated dispute between the UK and the US. Of course, the British had to back off, because their economy had been greatly damaged by the war. That later led to the devaluation of the pound, some years after the war. In fact, all of Europe was living off the Marshall Plan back then, and that consisted mostly of agricultural commodities, along with some industrial plants and factories that had depleted their technological potential, ones that the US didn’t need anymore. This, in part, was the reason for America’s technological leap. Over more recent years, though, with production capacities growing rapidly in the Third World, the share of production in America's GDP has been shrinking. That's how America began to live on credit. And living on credit is always difficult, as a time may come sooner or later when debts will have to be paid off. Right now, nobody wants to remember that it was in the early 90s, when Bush and the Republicans came to power, that the US external state debt, obtained by issuing treasury bonds with different terms (anything from one week to 20 years) and interest rates, grew massively. Right now, it has been increased still further. So, generally, it all happened under Republican rule. My question is, then, why all the hubbub now? It’s just political games, nothing more.
RT: How much time do you think the USA has left before it has to start living within its means?
VG: Well, you see, speaking of the country's gold reserves… The USSR only joined the IMF in 1992, although it was among its founders back in 1945. The Soviet delegation took part in all relevant discussions and we even managed to secure the right to keep our contribution to the capital of the World Bank in gold, the reserves of which Stalin was very keen to control. The gold was to be kept in the USSR, with the IMF having the right to come at any time to check it was still there and hadn’t been sold.
The USSR could have joined the IMF before December 1st 1945, but then the head of Gosplan, Voznesensky, stepped in and said, "We came out of the war so poor that if we gather and file all the stats required by the IMF, all will see is how much we actually lost in the war. So we’d better not join."
IMF rules dictate that any country's currency reserves resulting from a good balance of payments and without a budget deficit should be kept abroad, either in US dollars or in gold.
Well, it would be ridiculous to buy gold, the price of which tended to swing all the way from $800 to $400 an ounce in just a year. The US never maintained gold prices, even though it used to be $35 an ounce, and in 1971, President Nixon raised it to $70 an ounce. When De Gaulle collected all dollars throughout France and sent them to the US asking to exchange them for gold, the gold content of the dollar was devalued. But everyone keeps quiet about that.
They began living on credit. You could only keep your currency either in gold, or in a currency that was used in 90 percent of world trade at the time. And so did our country. Even though now we’ve kept it in dollars, euros and even, in small part, Swiss francs or something of that kind, since 2002. But the US to some extent lives in debt to the entire world. And that isn’t right.
RT: The US managed to avoid a federal technical default. But what was the threat for the whole world?
VG: If the US declared a default it wouldn't have been able to repay treasury bonds it had issued, according to the limit set by Congress, to the Ministry of Finance, or to the US government, or to the US President, the government head. So they wouldn't be able to replace them with new bonds in time.
RT: And what happens within the country if they reach a compromise to cut their expenses?
VG: This has no explicit connection to the situation within their country. On the other hand, the dollar exchange rate, including cash, immediately drops on the world's markets.
And the exchange rate for securities traded around the world drops as well, in spite of the fact that they're issued by US companies. So, they incur bookkeeping losses at the very least, and perhaps even real financial losses.
To a large extent, the debt was formed under the Bush presidency. The war in Iraq and their role in the Afghanistan conflict required huge military expenses.
And in effect, the whole world, including our country, has been funding those military costs, their budget deficit, and their balance of payments deficit.
RT: The approved US military budget for this year alone is about $700 billion. And frankly speaking, there are no reasons to believe that these military expenses will be reduced. Do you believe this could be possible?
VG: I believe that the globalization which has been happening for a while now and which hasn't been giving much to developing or Third World countries, will result in some kind of collapse.
RT: Since 1940, the US has raised its debt limit 90 times, that’s become a standard procedure. But then, the situation progressed to the point of shaking the world's markets and the world was threatened with unknown economic territory. How did that happen?
VG: To a large extent, in the 1960s or 1970s, 90 percent of international settlements were in dollars – that was between countries that weren't even connected with the US. Then the euro zone was established to start giving up national currencies, even though some European countries like Denmark didn’t join. Nonetheless, the dollar remained the key settlement currency. Everyone needed dollars, and often required dollars rather than any other currency. Therefore, the dollar became the worldwide currency. But a worldwide spread also calls for worldwide responsibility. And the US authorities didn't show enough of that responsibility.RT: A number of economists call the actions of the US “financially irresponsible.” Do you agree, or is it rather a kind of game being played in their own interests?
VG: From the viewpoint of economic theory, there is a certain irresponsibility. LaRouche, a famous American economist of French or Canadian origin, about 10 years ago said that the US economy, considering its domestic and foreign economic policy, is bound to face a crash like the Roman Empire.
RT: If ratings fall, the economic players, central banks, will change the structure of their reserves. Can a mass dumping of the US treasury happen, and what implications can we expect in this case?
VG: What else is there for them? Our Chinese colleagues, in spite of their trade surplus with the US and their unwillingness to revalue their currency, still keep most of their funds in dollars, even though they use them actively to penetrate the development of African and Asian economies, to develop their infrastructure, and so on.
There’s nowhere to go. The world is established in a unipolar way. You can’t just get out of a marriage, especially when you have kids.