Uneconomical
economy
Identify ways to
stimulate economic growth under conditions of growing debt of public budgets is
becoming a major issue , the answer to which is crucial for most central banks.
High degree of integration of national economies significantly reduces the
effectiveness of monetary control . The inability of a number of central banks
to respond to the challenges , both internal and external. This is most clearly
expressed on countering major issuers cash planet - the U.S. Federal Reserve ( Fed
) , the European Central Bank (ECB) and the People's Bank of China ( NBKNR ) .
Desire to achieve maximum benefits for domestic producers leads to a "
currency war ." In this confrontation , in addition to traditional methods
of regulation of the macroeconomic environment , such as reducing the
refinancing rate and increasing the money supply , there are new methods of
struggle. Programs such as buying "toxic" assets . Their appearance
is due to the impossibility of establishing refinancing rate below zero. At the
moment, the refinancing rate is at its lowest historical values (
from 0% to 0.25% of the U.S. Federal Reserve and from 0 to 0.5 % ECB) .
1. The money supply
INFLUENCE ON ECONOMIC GROWTH
1.1. Method One -
monetary
From the general
theory of modern monetarism is known that the correlation between the money
factor ( mass of money in circulation ) and nominal GNP is detected closer than
between investment and GDP . Dynamics of GDP immediately follows the dynamics
of money. Monetarists point out that there is some relationship between the
amount of money in circulation and the total volume of goods and services sold
in the domestic economy . This relationship is expressed by the quantity theory
of money :
formula 1.1.1
I. Fisher equation of
exchange
M x V = P x Q,
where
M - the amount of
money in circulation ,
V - velocity of money
,
P - the average price
of goods and services ,
Q - quantity of goods
and services produced within the national economy over a certain period of time
(usually a year ) .
Thus the real volume
of production determine the currently available economic factors of production
( setpoint) . Consequently, the change in the nominal GNP is due only to
changes in prices . Thus, in accordance with a quantitative theory of money
price level proportional to the amount of money in circulation. But if this is
so, then change the price level will also be in a certain dependence on changes
in money supply .
In this theory, there
is a paradox - it does not apply to the main planetary issuer - the U.S.
Federal Reserve . This is primarily due to the position of the dollar as the
main reserve currency of the world. U.S. national debt is over 17.5 trillion
dollars, which is significantly more than the amount of the annual U.S. budget
.
Figure 1.1.1
Dynamics of
U.S. debt .
Holders of Treasury
receipts are central banks of all major countries , thus increasing the money
dollar supply leads to the export of U.S. inflation and reduce real U.S. debt
denominated in dollars. Against the euro the dollar fell to 1.3831 per euro.
Towards a common basket of six currencies of the partner countries to the U.S.
dollar fell 79.25 points (Federal Reserve System, nov 2013 ) .
1.2. Method Two -
Keynesian
Keynesians believe
that the chain of causality in the money supply and nominal GNP is: a change in
money supply causes a change in the level of interest rates, which in turn
leads to a change in investment demand and through the multiplier effect - a
change in nominal GNP.
Main theoretical
equation , which is based on Keynesianism :
Y = C + G + I ± NX,
where
Y - nominal GNP ;
C - consumer spending
;
G - government
spending on goods and services;
I - planned private
investment;
NX - net exports
Increasing the money
supply at a constant demand might lead the economy , among other things , the
so-called " liquidity trap " : the interest rate may be reduced to a
critical level , which would mean an exceptionally high liquidity preference .
(Recall : a low interest rate indicates that the securities are too expensive ,
hence they abandon their purchase, hold savings in the form of money). If this
continues to increase the money supply , the interest rate can not react to it
, because below a certain level , it can not fall . Currently refinancing rate
is at a minimum level in the history of the United States , ranging from 0% to
0.25 % per year.
Now the base rates in
many developed countries are at historic lows. At the same time, in developing
economies , they remain relatively high - because they can not reduce inflation.
This gap allows investors to earn practically no risks they took out loans in
developed countries , and then invest these funds in developing countries.
Buildup of excess
liquidity has only a temporary effect , since increase the money supply at a
constant level of production increases and inflationary pressures in the long
run leads to a sharp rise in inflation . Prolonged use of emission lever main
financial institutions in the major economies undermines the foundation of the
future sustainable development of the world economy . There is a serious threat
to the entire planetary financial system, because violated the most fundamental
principles of monetary control . Becoming increasingly apparent need for the
emergence of supranational financial institution regulation, establish common
rules and standards of monetary control . Increasing the level of inflation at
a constant level of the key rate depreciates the real assets of the Central
Bank . Supersoft holding monetary policy increases the debt burden on the
economy. The paradox is that the current low cost of borrowing due to the
artificial creation of excess liquidity through quantitative easing program .
Same source of funding is an increase in government borrowing. This mechanism
is extremely dangerous, as to keep interest rates low for the previous issue of
new bonds requires . Sooner or later, further borrowing will become impossible
because of the huge debts burdened previous and as a result , bloated debt.
Great risk that the reduction of the measures to support liquidity in the
financial market rates increase significantly . This point can be a trigger to
start a deflationary spiral for the global economy .
2 . MAIN AREAS OF
MONETARY REGULATION IN THE global economic slowdown
2.1. Policies to
stimulate the economy through quantitative easing programs
Fed in September 2012
launched the third program of "quantitative easing » (QE3) to buy up
"toxic" securities. The mechanism of buying securities involves the
creation of bank reserves at the Fed accounts for the amount that corresponds
to the value of these securities . That is, the money will be made just as much
need for the acquisition of assets. QE3 would extend the " Operation Twist
" (buying long-term Treasury bonds in exchange for the sale of short-term
) .
The situation is
paradoxical - The U.S. government itself at borrows money through the Fed.
Mechanism is extremely simple :
1) The Government
allocates Treasury bonds on the open market ;
2) the Fed buys these
Treasuries by issuing cash ( includes printing press );
3) The money is sent
to the quantitative easing program .
Fed extends new money
is not evenly throughout the economy. Money fall into the largest U.S. banks ,
which have amassed huge portfolios of mortgage-backed securities . They are
happy to change this trash legitimate banknotes Fed . Further , it is believed
that they get money into the economy , increase purchasing power of society,
transformed into investments , create new jobs . However , it's actually not
the case. Banks categorically unwilling to start a new life - an honest and
useful to society. Received from the Fed money they send back to where the
maximum profit possible - namely, the commodity and financial markets in the
sphere of speculation. In the real economy will get the crumbs. New jobs are
not even enough to absorb new labor force growth in the labor market .
Those cynical looks
adopted by the U.S. Senate in 2011, a bill to impose sanctions on countries
that manipulate exchange rates - a measure aimed specifically against China.
Central banks of the U.S. , UK and Japan printed record amounts of money supply
, either openly pursuing the goal of reducing their own currencies , or getting
favorable depreciation as a side effect. Countries fight for competitive
advantage , to soften the post-crisis economic problems.
Increasing the money
supply , the Fed is forcing China to print new yuan to maintain the dollar peg
. China now imports from the United States through the inflation mechanism peg
, whereas previously exported to the U.S. deflation. With the launch of the
program price in China has been steadily creeping up and the Bank of China had
to choose : either inflation or economic growth. China announced the fight
against inflation a top priority in the monetary policy. Were raised reserve
requirements for commercial banks in China . Measure and worked in December
inflation in China slowed to a 15-month low and producer price growth was the
lowest in 2 years. For 2013 it was about 2.5% , and in 2014 the Centre for
Development Studies of the State Council expects average annual inflation at
2.3 %. This leaves the government more room to support growth . The economic
slowdown in China occurred gradually throughout 2013. In the first quarter GDP
grew 7.7 % in the second , 7.6 % , 7.1% in the third and the fourth , less than
7.5 %.
New Japanese Prime
Minister Shinzo Abe announced the goal to start a state program to stimulate
the economy in the 2013-2014 year. The Bank of Japan plans to issue for this
purpose up to 100 trillion yen ( $ 1 trillion ) . The purpose of this action is
to reduce the rate of the national currency by increasing the money yennoy
mass. Bank of Japan also plans to increase the rate of inflation with the
forecast 1.01 % to 2% in the planned year.
2.2. Austerity
policies by cutting goszatrat
In recent years the
main issue in the global economy remains spelling placement of commas in the
sentence : " Spending can not save ." In recent years, becoming more
and more supporters of measures to stimulate the economy , albeit at the
expense of growth of debt in the future. A similar trend is due to the super
soft monetary policy of several major issuers of money , which leads to an
artificial Accrued excess liquidity in the financial markets .
The last bastion of
austerity measures until recently remained Eurozone trying to reduce exorbitant
burdened national economies of the peripheral countries debt load exceeding the
total annual volume of production in these countries. In this context, the
decision of the European Central Bank (ECB) to lower the refinancing rate by 25
basis points to 0.5 % per annum should be seen as the first step to stimulate
economic growth .
For this there are a
number of prerequisites , the main of which reduce the budget deficit troubled
Eurozone countries and the need for further economic growth out of the debt
crisis.
Reducing the ECB
refinancing rate for commercial banks should give additional impetus
retsesionnoy economy by increasing the money supply. This mechanism has proven
effective as an example the U.S. is experiencing the biggest economic crisis
since the Great Depression. Compared to the U.S. rate in the euro area remain
high, which can be considered as an additional reserve, which U.S. Federal
Reserve ( Fed ) has not already .
After two years of
recession and stagnation caused by the debt crisis , which forced almost all
states take strong measures of budget savings on the continent begins the
ascent , although it is not very fast .
According to the
forecasts of the European Commission , the combined GDP of the 28 countries of
the EU will increase in 2014 by 1.4 percent , and in 18 Eurozone countries - by
1.1 percent . " It is too early to celebrate victory , but multiplying
signs that the European economy has reached a turning point ," - said in
Brussels, Commissioner for Finance Olli Rehn (Olli Rehn).
3 . EVALUATION
CRITERIA OF EFFECTIVENESS OF MONETARY POLICY
In the context of the
confrontation between two mutually exclusive models to overcome economic crises
( "German" and "American" ) discussion on the effectiveness
of monetary acquired even greater relevance . In times of the greatest threats
to the national economy regulators often resort to methods contrary to the
interests of the global economy , protectionism practiced in the most risky of
its manifestations.
In assessing the
effectiveness of central banks in different countries there are certain
objective distortion caused by inhomogeneity of the medium of their
functioning. This heterogeneity is caused as a significant imbalance of the
world economy , and national peculiarities countries. Not all financial
institutions have the same tools to perform their assigned functions . While
some countries are able to use " unconventional " methods of monetary
control to achieve priority goals , the others have to solve the problems of
traditional.
The main criterion
for the effectiveness of the central bank is its ability to respond to
challenges facing the national economy . In different countries and groups of
countries, these challenges are different, and the successes and failures in
priority areas should be evaluated in a double size .
As a result the
indicator used in the calculation of the deviation index for 2013 to the
average value for a number of years (10 years) , calculated by the formula:
O = ( Pn / ( ( n1 +
n2 + ... + Pn ) / n) -1) x100
where:
About - deviation of
the current index to the annual average for a number of years , expressed as a
percentage
n1 - the figure for
the first year
n2 - the figure for the
second year
n- number of years (
the period under review in years)
Pn - the current
value of the index ( 2013. )
This approach allows
us to consider the dynamics of the priority tasks and give the most objective
assessment of the monetary authorities . Object of comparison are the four main
interrelated macroeconomic indicators: growth in gross domestic product (GDP )
growth rate of consumer prices , the ratio of total public debt to GDP ,
expressed in percent, and the unemployment rate .
Notes
3.
G.M.
Keynes Obshchaja the theory of employment, percent and money
1936