the end of the war

In the hypothetical case that the Russians flee Ukraine or that Putin suffers a coup that ends the war, the economic crisis will not end.

Thomas Osborne
Thomas Osborne
26 September 2022 Monday 00:45
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the end of the war

In the hypothetical case that the Russians flee Ukraine or that Putin suffers a coup that ends the war, the economic crisis will not end. Obviously the situation would be less bad, but the high rates of inflation and the rise in rates would continue for a long period of time. The reason is that the war is not the only cause of the economic problems we have.

Until now, Putin is being used by governments and institutions as a smokescreen to justify their own mistakes. In the Spanish case it is even more evident. The growth of the deficit and indebtedness began before the Great Encierro that produced the covid. The reason was that the investiture bloc that allowed Pedro Sánchez to govern demanded an expansive policy from him in exchange for his support and then the pandemic covered everything.

The same happens with the rise in prices. It had also started months before the war because we had a very overheated economy, with strong growth rates and very expansive budgets.

But the truth is that the causes of the high inflation rates remain unresolved. On the one hand, the heavy indebtedness derived from easy and cheap money provided by central banks and, on the other, a poorly designed and poorly executed energy transition.

The European Central Bank, in line with what the Federal Reserve had done, to avoid the so-called “austericide” of the 2009 financial crisis, fell into “irrational exuberance”. Following the law of the pendulum both went from one extreme to another. To prevent the recession caused by the pandemic from turning into a depression, they decided to open the liquidity tap so that countries as indebted as Spain could continue spending as if there were no tomorrow.

All this explains why during the four years of Pedro Sánchez's government, the Spanish debt has increased by more than 400,000 million and now exceeds 1.5 trillion, with a "b" for outrageous, as if that never had to be repaid. In the opinion of some members of the Government, it was a "perpetual debt", the kind that does not have to be paid. And all this happened before Putin decided to invade Ukraine.

Now it is necessary to drain a large part of that excessive liquidity, which is what is causing the inflationary pressures. This is what largely explains the sharp rise in interest rates, which will continue until the price of money is between 4 and 6%, according to some experts. If this hypothesis is confirmed, it would lead us to a world recession scenario, as the World Bank has stated. And the same has happened with the rise in the price of fossil fuels. To the extent that it was decided to accelerate decarbonization, oil companies stopped investing in new deposits, causing shortages and rising prices.