US and Russian Financial Markets: Comparative Analysis

ISSN 1019-3316, Herald of the Russian Academy of Sciences, 2022, Vol. 92, Suppl. 15, pp. S1430–S1434. © Pleiades Publishing, Ltd., 2022. Russian Text © The Author(s), 2022, published in Rossiya i Amerika v XXI Veke (electronic resource), 2022, No. 5. US and Russian Financial Markets: Comparative Analysis A. Yu. Davydov# (ORCID: 0000-0002-3953-884x) Center for Economic Studies, Arbatov Institute for US and Canada Studies, Russian Academy of Sciences, Moscow, 121069 Russia e-mail: Received July 28, 2022; revised July 28, 2022; accepted July 28, 2022 Abstract—This article provides an analytic interpretation of development of the US financial market and identifies an important mechanism of this market. Debt securities can spur economic growth but may also pose risks to financial stability and macroeconomic performance. US private financial sector debt increased during the COVID-19 pandemic, highlighting the role of debt in supporting economic activity as well as the associated risks. This article covers the major trends and institutions of the modern US financial market. The current operating system of the American money market is analyzed. The primary instruments of the US financial market are corporate and government debt securities. The major participants in the American financial market are commercial and investment banks, securities firms, asset-management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit-rating agencies as well as regulatory and other public authorities. Over the last decade, the volume of the US debt securities market has increased and the structure of this market has transformed. Pension funds play a leading role in the US financial sector, and the positions of commercial banks are decreasing. The position of the US in global financial markets is analyzed. Section 2 reviews the major effects of western sanctions on the Russian financial market. Most foreign investors left the Russian market in 2022. The major result of western sanctions was depreciation of Russian corporate debt securities. But when the special military operation is finished the situation is likely to improve, because Russian debt securities have the potential to grow. This work covers theoretical approaches to the problem of the development of financial markets. The major economic drawbacks of current financial systems are discussed. Keywords: US economy, financial market, debt securities, pension funds, commercial banks, Russian economy, Western sanctions DOI: 10.1134/S1019331622210080 INTRODUCTION In the coming years, due to the great number of sanctions imposed on the Russian Federation by the West, the Russian Federation will have to solve the difficult problem of financing national capital investments. Instead of prioritizing the development of export industries, which were created largely thanks to foreign direct investment, it is necessary to solve rather complex issues of import replacement in a number of areas, independently develop and implement new innovative technological processes, create modern equipment and information products, and change the existing transport infrastructure and established logistics schemes. Solving these problems requires the mobilization of colossal financial resources. It is necessary to find and appropriately use these resources within the framework of the Russian economy, without counting on # Andrey Yur'evich Davydov is a Leading Researcher at the Cen- ter for Economic Research, the Arbatov Institute for US and Canada Studies, Russian Academy of Sciences. the support of foreign investors who have left Russia in recent years. Will Russia be able to solve this difficult task? Our position in the future world economy will depend on successful solution to this problem. To solve modern financial problems, Russia can take into account the experience of other states that have learned to quite successfully use national financial resources. In this work, I attempt to assess the positive and negative experience of the United States in the use of financial leverage for economic growth. MAIN ELEMENTS OF THE MODERN FINANCIAL MARKET IN THE UNITED STATES Unlike most European and Asian states, the United States has historically been forced to use a purely market-based business financing model with all its advantages and disadvantages. After the country gained independence, it turned out that European (primarily British) banks were in no hurry to invest in the development of the former colony. The American S1430 US AND RUSSIAN FINANCIAL MARKETS S1431 state barely had its own budget revenues. Small regional commercial banks were created in large numbers in the country. They could finance the day-to-day expenses of enterprises and the population, but they did not have significant financial resources to ensure economic growth. In 1933, during the Great Depression, the US Congress passed the Glass-Steagall Act,1 which separated investment and banking activities and limited the speculation of credit institutions in the financial market. In subsequent years, the importance of banking capital in the economic development of the United States increased, but up to now, banks have not been able to gain leading positions in the national economy. The essence of the modern American financial model is to mobilize temporarily free cash balances by issuing debt securities and selling them to the public and various financial institutions (banks, insurance and investment companies, etc.). The money received in this way can be invested in the construction and development of industrial and service enterprises, trade, the recreation industry, etc. Over a long historical period, this financial model has allowed the United States to achieve fairly high rates of economic growth. US administrations have been able to successfully use the national financial market to finance deficits in the federal and municipal budgets by issuing government debt securities, which have been in steady demand in the domestic market. Moreover, at the end of the 20th–beginning of the 21st century, American transnational corporations and the state managed to introduce their debt securities to world financial markets, where they took a leading position. Many large states (China, Russia, Japan) began to actively buy American government liabilities to accumulate in their own national foreign exchange reserves. Until recently, long-term US Treasury bonds were considered a safe investment, because their backing was guaranteed by the economic potential of the world’s largest economy. The role of financial markets in economic development should not be overly idealized. The dynamics of listings of debt securities is greatly influenced by average- and long-term economic cycles. In some periods, these cycles coincide, which leads to the depreciation of debt securities. Confirmation of this is the “Great Depression” of 1929–1933 and the mortgage crisis of 2008 (...truncated)