Crises of this type are characterized by a profound (double-digit) drop in GDP followed by extended periods of economic depression. Most importantly, unlike a recession, a CCE does not automatically end when a new cycle of growth starts. Instead, a crisis of capital effectiveness can be addressed only through market expansion — the sole mechanism that significantly lowers manufacturing risks. At its core, Khazin's concept of crisis is based on the writings of Adam Smith, who recognized that in closed economic systems, labor division eventually stalls.
According to the author, humanity has gone through three CCEs: the 1900s crisis of banking liquidity, the Great Depression of the 1930s, and the stagflation of the 1970s. Each time, the crisis ended only when access to new markets was achieved. On the first two occasions, it was accomplished through major wars. The 1970s crisis was eased by Reaganomics, yet its ultimate resolution came from the 1991 defeat of the USSR in the Cold War; this enabled the West to dismantle and integrate the Soviet economic zone, expanding the markets one final time — this time to encompass the entire world.
The last CCE erupted in 2008. Although the economic catastrophe was prevented by utilizing tremendous financial resources, the crisis itself never ended and became "frozen in time." The time, however, is running out. Moreover, since the markets are already global, the principal resolution of the current crisis within the framework of the existing economic model is impossible. Therefore, global consumer demand will continue to decline, rendering today's global economy (first and foremost its financial infrastructure) unsustainable.
The situation is further exacerbated by an intense internal conflict in the country that holds the world's reserve currency — the United States. Khazin explains that establishing the US dollar as the global currency in 1944 had one profoundly negative effect: It diverted investments away from domestic manufacturing, leading to the de-industrialization of the United States itself to a degree no one could have anticipated. Specifically, in 1944, the United States' economic output accounted for over 50% of the global GDP, meaning that the US produced more goods than the rest of the world combined. By 2014, the United States' share of the global GDP had dropped to approximately 20%. By that time, this process had already started to threaten vital US sectors such as the military-industrial complex.
Khazin's book showcases the author's notable speech at the Dartmouth Conference in Dayton, OH, on November 5, 2014, when he pointed out that considering its economic situation, America would have to choose between two fateful scenarios of the future.
The first would be to continue supporting the global dollar-based financial system at the expense of completely losing the rest of its domestic manufacturing. If this scenario were to be played out, it would lead to the complete demise of the American industrial base, along with its vital technologies, causing an inevitable collapse of the United States itself. This was not directly stated at the Dartmouth Conference, but was explained in the book and emphasized in the author's subsequent video presentations. The second option would be to recover the domestic real sector and save the nation, but dissolve the global financial system.
Based on this economic analysis, Khazin explained the seemingly unexpected results of the 2014 midterm elections (his speech was delivered the day after the election results were announced). Although the American public may not have articulated these two scenarios explicitly, they instinctively sensed them. The majority of Americans associated the first scenario with the Democratic Party (led by the Clinton clan, who were closely tied to the financiers), and the second scenario with the Republican Party. Therefore, the Republicans' surprising victory in the 2014 midterms clearly demonstrated which future the American public preferred. Khazin concluded his Dartmouth speech by saying that the conservative movement was growing strong enough to put forward a candidate for the upcoming 2016 Presidential elections and that such a candidate (the name was not yet known at the time) would have a high chance of winning.
Recollections of the Future covers topics beyond the economy. Chapters 13, 14 and 15 introduce readers to the theory of global projects — a complementary concept developed by Khazin in tandem with Sergei Gavrilenkov. The global projects are major supranational ideological movements that profoundly influence economies and societies. For example, this concept explains why, despite having access to similar natural resources, the Habsburg Empire and Medieval Spain failed to repeat the economic success of Ancient Rome. Here is another example: Tsarist Russia faced serious challenges building its own industrial economy, yet the USSR under Stalin's leadership succeeded in solving this task. The short answer is the following: It all has to do with the respective societies' systems of values.
At the same time, it is not just that cultural values influence the economy; the converse is also true: A specific economic model transforms society's values according to the model's goals. Here comes what Western readers are likely to find the most intriguing. The alarmingly fast pace at which liberal ideology has been imposed on us has made many people consider that there must be a powerful driving force behind this process. Remarkably, the theory of global projects identified a link between financial capitalism and the liberalization of Western society.
First, Mikhail Khazin explains how and why classical capitalism based on manufacturing was incrementally replaced with financial capitalism dominated by banks. For instance, in the US, the financial sector's share of profits grew from 5% in the mid-1940s to nearly 50% today. Due to this growth pattern, the banking sector eventually prevailed over what it was originally meant to support — the productive economy. As a result, financiers amassed enormous wealth and ascended to the heights of political power. The author proves that this transition to financial capitalism did not occur because of a successful conspiracy of bankers seeking world power, but resulted from a natural evolution of capitalism itself.
Second, it turns out that financiers have been the main proponents of completely abolishing the values of traditional conservative society and replacing them with the ideas of modern liberalism. Khazin warns us not to confuse modern liberalism with classical liberalism — the philosophy of the Enlightenment. He states that "the core element of modern liberalism is the idea of freedom, according to which any individual is free to choose what values to adhere to or ignore, as well as arbitrarily change his or her system of values at any moment."
But why would financiers promote liberalism? First, from a doctrinal standpoint, usury and conservatism are not compatible. That is why as soon as financiers become the richest and most powerful people, they insist that society must become liberal.
Second, from a rational standpoint, under financial capitalism, the greatest share of wealth is no longer built by making material goods or extracting resources from Earth, but increasingly by multiplication of purely financial assets. For instance, Khazin mentions that an enormous number of energy derivatives — options, swaps, and futures — has been created, all based on oil as an underlying asset. The total value of these financial contracts is hundreds or even thousands of times greater than the value of all physical oil available on our planet. Although such a method of asset creation led to a phenomenon of super-consumption and dramatically raised living standards in Western countries, common sense suggests that this economic model cannot be sustained in the long term.
Evidently, based on both the doctrinal and the rational grounds, traditional Western society has long objected to building wealth by purely financial mechanisms — methods not involving productive labor. Therefore, for the financiers to keep their wealth and power, traditional society has to be deconstructed. To achieve this goal, the proponents of liberalism push their agenda forward on many fronts, yet the main attack has been launched against the society's most fundamental institution — the family. Traditional family has always been founded on conservative principles because children are expected to obey their parents, learn what is right and what is wrong, respect the elderly, etc. Additionally, Christian morals remind them that "you shall not charge interest to your brother." That is why, as Khazin wisely observed, "juvenile courts, gay-pride events, same-sex marriages and other initiatives have been deployed to weaken family structures and other conservative institutions. These actions have a conceptual goal: to create a society in which dominance of the financial elite and their wealth-generating methods would face no opposition." Last, but not least, as the author pointed out, "the technology known as Overton windows became instrumental in shaking the foundations of social norms, and then step-by-step altering the public perception of what's right and wrong."
Between the two previously mentioned scenarios of the future, the one that calls for saving America by recovering domestic manufacturing, obviously, looks very appealing to US patriots (or we can even call some of them "nationalists"). What does this scenario mean to them? It means making the US dollar serve its primary purpose: support American industries. Ultimately, this will allow the patriots to reclaim their country. However, the same scenario also requires dissolution of the global financial system, as a result of which, according to the author, the financial sector will shrink by 10 times or more; therefore, for the transnational bankers or, as Khazin calls them, the "Western Global Project elite," this future looks bleak. Ideally, the bankers' goal is to make sure the scenario of America's national economy resurgence is never enacted, or is at least delayed for as long as possible. This explains why liberalism — the ideology of financiers — is so hostile to patriotism and nationalism. The Western education system and the media have been working hard to paint patriotism as "racist," replace national pride with guilt and undermine citizens' unity with "identity politics." Above all, love for one's nation, respect for its past, present and future come from traditional family upbringing, which, as we already discussed has been under attack as well.
As you remember, we started by acknowledging that the current economic model is in severe crisis. Here, naturally, comes a question: As a result of this crisis, what would happen to the economy, to society and the liberal ideology? What would happen after the crisis is over? The book addresses these questions as well.
Written with a strategic focus, Recollections of the Future summarizes 20+ years of macroeconomic research by the author and his colleagues; it covers the history of capitalism from its inception in the 16th century to the present day. It also explores political and social developments at an angle very few, if any, other books do. This book by Mikhail Khazin is intended for a general audience — anyone interested in the economic, political, and social future of the world, particularly the West. The book can be found here.
Reader Comments
Trump was raised on financial capital and interest on money - he is certainly not an industrialist - so how will he play both nationalist and financial capitalist?
I agree that at some point the current economic system based on the U.S. dollar will fail but the fallout from that will be disastrous for holders of derivatives and for those economies still joined at the U.S. hip.
Something wicked this way comes.