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    Reagan, riding the bomb

    The Economy of the Supra-Power: Is There an Alternative?

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    Zinoviev Club member Dmitry Kulikov on the questions the Russian government is facing

    "The function of capital has become one of its functions subordinate to the function of power. It is above all guided by non-economic considerations, namely the considerations of organizing and maintaining the supra-social power in society."

    Alexander Zinoviev, "The Factor of Cognizance"

    Previous contributions have mainly focused on the phenomena of total or managed democracy and a new world order — global power. Today, it is worth analyzing the global economy from its new non-economic (supra-economic) forms, focusing on reasons beyond the traditional narrative which characterizes the global economy.

    Economy can be defined as a science (or pseudo-science) and an object that produces various types of products, but primarily it should be seen as a form of economic management. The key categories of economic management are profit and loss. This is how it has been since Adam Smith and others before him, and since the merchants of Venice first compiled their profit and loss statements (balance sheets). However, the last quarter of the 20th century saw the rise of new regulatory categories and a new form of economic management, with profit and loss as the economic aspects of society ceding precedence to the super-profits of the global supra-power.

    Liberal economists praise the economic policy of President Ronald Reagan (Reaganomics), which allegedly helped contain a deep economic crisis that lasted from the late 1960s to the early 1980s. They say that the US economy was revitalized by tax cuts and more liberal economic regulations, which is not true. The US economy did not resume growth because of this, but because of reliance on unlimited and unrecoverable loans. The two secret weapons of Reaganomics were the disposal of the gold standard back in the mid-1970s and the policy of unlimited loans initiated in the early 1980s.

    Under Reagan, the US sovereign debt soared by 88 percent, from $834 billion in 1980 to $1.5 trillion in 1986. The $800 billion, which would be several times more if estimated at the current prices, were invested in the US economy without a trace.

    The US sovereign debt grew by another 46 percent under President George H. W. Bush, or by over 200 percent over a decade.

    The credit policy benefits dried up by the beginning of the 1990s, but the US economy received a fresh lease on life when the Soviet Union and the socialist system as a whole collapsed. The post-socialist countries entered the dollar market, increasing it several-fold and helping the United States keep afloat under President Clinton, when the US debt increased by "mere" 17 percent.

    But this resource was exhausted by the end of the 1990s. The US debt increased by 77.5 percent under George W. Bush. There was no one from whom the United States could borrow. This is the underlying reason for the 2008 crisis.

    President Obama offered a solution by suggesting that more money be printed to finance new loans.

    The US debt has grown in absolute terms from $834 billion in 1980 to approximately $17.2 trillion in 2013. Over the past 33 years, it grew by about $16.6 trillion or $500 billion a year.

    This $500-billion irretrievable annual investment, minus the printing expenses, helped maintain the high standards of living (consumption) in the so-called civilized world. The current US debt amounts to approximately 100 percent of GDP, and the aggregate EU debt is approximately the same. The biggest debtor in the EU is America's most loyal ally, the UK, whose debt amounts to 400 percent of GDP. So, the miracle of Reaganomics was actually a major financial fraud that has spread throughout the "civilized" world.

    These debts can never be repaid. Moreover, it is becoming increasingly difficult to service them even despite very low interest rates. The budget deficit is increasing, and the GDP growth rate is hovering somewhere near the zero mark (some experts place it below zero). Debts continue to accumulate, and even the lowest interest must be paid. But the inflow of money from the stagnating economy has long become a trickle. Cutting social spending is not a solution, because this would mean losing the next election, and so the government borrows more money, moving in a vicious cycle.

    The "civilized" world will have to write off its debts sooner or later, because repaying them is impossible even theoretically, and the living standards will most likely plummet. The middle class, which has been the pillar of western governments for the past 150 years, lost its ‘power' status at least 30 years ago. The typical middle class is made up of well-to-do (but not rich) people who save and accumulate funds. The group of those who can do this now has dramatically diminished. The current middle class is as a social group capable of consuming a certain degree of products (which is spending rather than saving) and so, being satisfied with its consumption ability, should support the government. This is untrue, because consumption in the mythical middle class is financed entirely with loans, from car and mortgage loans to money borrowed to pay interest on outstanding loans. And so loans keep growing. In short, private household debts are almost as big as government debts.

    People often ask me whether western economists don't know this. Surely, they must be aware of this, and they will definitely find a solution, say those who believe in the supernatural characteristics of the western society.

    Why did they allow this to happen at all then?

    The answer is very simple. Reaganomics and the US policy in general were aimed at a super-target, which was to destroy the Evil Empire (the Soviet Union). Unlimited borrowing helped the United States and other western countries topple the Soviet Union. Set to achieve global hegemony, the US government and its public accumulated huge sovereign and private debts. When their target was achieved, they should have stopped borrowing and begin re-paying. But they seemed unable to do this. They cannot lower the level of consumption or cut defense, social or other expenditures. They are like athletes who have won by taking stimulants: without them they are nonentities, but with them they are champions. There is an even closer resemblance to drug addicts, who require increasingly larger doses to achieve the same effects.

    By destroying the Soviet Union, the United States gained access to a powerful drug — global power, and created a supra-power, as defined by Alexander Zinoviev. Its one and only task now is to maintain global control; nothing else matters for a supra-power.

    There are grounds to believe that this magical system of unlimited and unrecoverable loans will collapse in a year or two years.

    It would be beneficial to give up the global grip in this situation, instead inviting partners to manage global affairs commonly while having the freedom to address their unique sets of problems. It is necessary for the U.S. to tighten its belt and learn to live without loans and without printing more paper money. Will the United States choose this option and admit that the emperor has no clothes? I don't think so. No one willingly gives up one's grip on the world.

    So, the United States will choose a crooked path. In fact, it has been moving in such direction for the past few years, and the events in Ukraine is part of this scenario. Unable to maintain its pseudo-economy based on loans and printing of more money, it would not stop at launching a new world war for global control, if it believed for a second that it could win it.

    This is the essence of the current geopolitical situation. Now, we need to ask ourselves several questions. Answers to them are vital for making realistic plans.

    Can debts be devalued, or better still, written off through the issue of more paper money? If so, what should Russia do in this situation? Lend a helping hand? What would it get in return? Is there guaranteed "payment" for assistance? Would this prevent the slide into a big war or increase its possibility?

    Or will we choose a destructive scenario, which includes the idea of the petro-ruble? If so, what price are we prepared to pay? Is Russia as a country and nation ready to pay for helping destroy US global hegemony? Do we understand that this is what we are doing when we introduce the petro-ruble, create the BRICS development bank and expand the SCO? What else can be done towards this goal? Can an all-out war be avoided? What kind of a world order should replace the US supra-power? Do we have a design or at least rough idea?

    These are only few of the many questions which the Russian leaders need to answer, if they are responsible people seeking to make responsible decisions. In my opinion, the choice has been largely made. But Russian people should ask themselves these questions, too, trying to get down to the essence of the matter.

    We will try to answer some of these questions in subsequent contributions from Zinoviev Club members.

    Tags:
    clash of civilizations, Ronald Reagan, West
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