If we were to look to this
previous week in general, we would see that the emerging countries’ currencies have
gained in value, the interest rates dropped and the stock markets rebounded. If
the financial markets had been able to price everything, they could have said
that the worse things are in the past now. But let’s leave these things aside
and have a look on what’s going on in the World. If we were to look into the
countries with whom there’s cooperation, we can see that uncertainty and
fragility are on the rise thus the situation is getting worse. Either what is
seen regarding the exterior is wrong or the emerging markets’ financial places
are pricing some kind of a dream. Things don’t hold together; they do not confirm
each other. As everybody says, the deflationary pressures in Europe are
mounting.
What does deflation mean?
The general price stability refers to the icon that everything goes well. It
also means that trends are sustainable, there’s no serious problem or any kind
of fragility thus there’s a price stability. But there are two types of major
deviations in the price stability. First, there is the rise in the prices which
we call inflation; once this begins, it creates serious problems and must be
dealt with before getting worse. The other deviation that destabilizes the
price is the situation where prices start to fall instead of rising. The
environment where the prices start to fall can be said to be deflationary. So
what happens in a deflationary environment? The demands weakens, the economy
stagnates and moves towards a crisis, unemployment increases, the volume of
non-performing loans climbs geometrically, thus the economy enters into an
unsolvable crisis. You cannot solve the deflation through the fine tuning of
the monetary policy by manipulating the markets. The situation of the emerging
markets is as follows: deflation is a serious danger which requires a surgery
and by taking a pain killer, you are deceiving yourself. We are taking this
pain killer, the dose is getting a bit larger and thus we dive into a world of
fantasy and we hope that we can keep our people calm. In the emerging
countries, you can keep your people calm but you cannot calm down the foreign
investors who came here. You can provide them with the opportunity to get out
of the markets without loss or even with a profit but you will hurt your people
and this will come to the surface with time.
Favourable indicators help
the foreign investor to get out of the markets. Why are the markets so
optimistic in their pricing? If they were to price the reality, the balance
sheets would deteriorate, the exit would accelerate and thus they would lose
the control. In order to delay this, they find the solution in clutching at
straws, in the intake of drugs. But this will not provide the desired result.
On the contrary, it will cause the unfavourable situation to endure more in the
medium term, thus increasing the damage. During the 2008 global crisis,
everyone was watching the USA. The investment banking was about to end. First, everybody talked about Bear Stearns, then Merill Lynch and Lehman Brothers;
Lehman Brothers went down and Merill Lynch was rescued while the panic
increased. Why? They had inflated severely the asset values. The role of the
optimistic pricing of the market was important and following the crisis,
everyone curses the capital markets as well as the investment bankers; they
said “They are the ones who created this problem”. And now, the emerging
markets’ finance people are doing the same thing. People should should not
trust them; this optimistic pricing gives to the person who is carrying the
risk the following message: “calm down, hold on onto what you have”. And to the
one who has some money, they say “do you want to earn some money? Come!” Thus
they encourage them to take risks. Its equivalent to the encouraging
prostitution. The system currently looks for people that it can push in order
to save itself.
IMF report does not expect a
significant recovery in the world. The financial markets of the emerging
countries read it but are not able to price it. If they were to price it, the
following would happen. First; you are a country that has a saving gap. First
of all, the interest rates have to increase and one has to accept the rise in
the exchange rate too. Asset values, securities and real estate will decline
because the credit volume will be rapidly shrinking; then it will become
apparent that things don’t look like they should seem to be, everyone will flee
from risk and suddenly the system will begin to collapse. They cannot find any
other option than to cling to a lie in order to delay it. Does this lie
find any support from abroad? Some parties seem to have some projects with
the south-east of Turkey and are trying to delay the collapse until they reach
their goal. In other words, not only the future of Turkey is put under a lien,
but also a political support is provided to the losses related to the country’s
territorial integrity.
The ECB is in a desperate
situation. The central banks do not have the problem-solving ability; they just
buy some time to the politicians. They provide painkillers; other than that,
they do not have any other feature. They act like anesthesiologists. Currently,
everybody hopes that the central banks will undertake quantitative easing in
order that the pain will not be felt and people will go on sedated as usual. Even
in the IMF’s report, it is mentioned how vital is the quantitative easing that
Europe and Japan are going to make. There is a need for more painkillers
because the pain is increasing. Draghi wants to provide plenty of money but
there is the brake of Germany. The repo auction has received 81 billion of
demands, roughly a quarter of what was expected; the purchases of bonds,
especially covered bonds are not good at all with being 1.7 billion in the
first week. Draghi is forcing to give the message of “we will provide you with
money, stay calm, do not give up hope” but the problem is the following. Europe’s
expertise area is the industrial production. They failed to create a new
area of expertise. Europe is ageing and its load has increased a lot. Its
service sector reached very abnormal levels; it moved to the post-industrial
society but basically it has lost its competitiveness on the elements. The
central banks’ policies will not bring a solution to the loss of competitiveness. The
coming of the favourable days in the European market is not expected any time
soon. But some parties are trying to take some advantage of Europe’s
helplessness by saying “I will take advantage of this, I’ll take some
painkillers and try to appease my people”. It is due to this that there are
abnormal prices in the market.
As far as the USA is
concerned; the chairman of the Fed had a statement. It will soon undertake
non-conventional policies because the conventional policies do not work any more. We're
talking about the traditional fiscal and monetary policies. This situation
makes it difficult to see the results of the US moves. First; it has direct
consequences in the USA. Second; it also has consequences in the world. The results upon the world have a boomerang
effect upon the USA. One is confused about the second impact for they do not
know and the uncertainty is very high. When looking at the Fed officials, some
of them say that the interest rates shouldn't be raised until the end of 2015,
others say until 2018. It is obvious that the Fed is trying to look cute to the
markets; it may be lobbying or it has something else in mind. The markets do
not want to hear about the rise on the interest rates. Because they have
inflated so much the asset values (and the biggest problem lays in the bonds),
if the interest rates were to start to rise, the system currently in place in
the world will collapse. Thus they are very uncomfortable with the
interpretation of the rise of interest in this regard. US will no longer be
making monetary expansion and the dollar will continue strengthening. The world
needs something that will counter-balance this. There are attempts trying to
handle this by softening the negative situation through the drop in the oil
prices and quantitative easing which will be undertaken by the central banks of
Europe and Japan. This is done continuously by broadcasting, there is
continuous brainwashing activities. Are these things enough? No, they are not.
You only temporarily relieve the pain with drugs, but you will fail to stop the
worsening of the problems.
Emerging countries are
countries that are overly dependent on outside sources. Monetary expansion in
the USA is over. The monetary expansions of Europe and Japan are of no use for
the emerging countries for the time being; how will the emerging countries
finance their current account deficit? The ratio of short-term debt to the
total debt is on the rise. The increase of the interest rates, the risk
aversion and the contraction of capital flows is a nightmare for the emerging
countries. One doesn't know how the need for external financing will be met and
is never spoken; in order to avoid that this comes to the people’s mind and the
markets price it, the statements related to the monetary expansion of Europe
and Japan are exaggerated. The financial
markets of the emerging countries are trying to give the impression of “we are
not afraid” but in reality, they are afraid to death. They don’t know what will
happen two months later. In all the emerging economies, with China being a
probable exception, there is a big fear. Some things are changing and they will
not be the same as it was during the last 10 years. Money will not rain from the
sky miraculously when they will get into trouble. They know this but they don’t know what to do
in order to avoid people’s panic. They just say whatever comes to their mind,
the exaggerate everything that is optimistic and they ignore all the negative
things. This also prevents the efficient use of scarce resources, activates bad
pricing and worsens the problems.
The current state of the
affairs aggravates the structural problems. IMF states that they should keep
their promise regarding these structural problems. What do you want as IMF? Do
you want to prevent the aggravation of the structural problems or are you
giving free passage to the process that causes the aggravation of the
structural problems? Which one do you want? In fact, they want to see people
being sedated.
External dependence is
growing and the emerging countries are in the debt spiral. First; they said that emerging countries’ economies have serious structural problems. Second; what will happen
to the banks if sources do not come from abroad? Would the banks’ situation
worsen? Would the cash flow in the economy get damaged? In the future, if
credits do not come from abroad to the banks, there will be serious issues due to the structural problems. Why? Because they have become too dependent to
outside. They say that there’s no problem; it’s a big lie! The emerging
countries want to grow at the rates of minimum 5% or 7% in order to avoid the
increase in unemployment. When they try to grow, the current account deficit
grows dramatically. This means that the emerging countries’ growth is very problematic. Then what needs to be
done? The emerging countries need to grow but while doing it, they must not
have a current account deficit. In order to achieve such a goal, one needs to
undertake major structural changes. Major reforms have to be undertaken in all
areas but do the global conditions allow this? No.
If there was a problem in only
one emerging country, the domestic demand would be reduced through price
adjustments, the competitiveness of the exports would be increased, the
structural changes that would make this possible could be undertaken if the
global conditions were normal. However, if we have the same problem in all emerging
countries and they all try to apply the same recipe, none have a chance of
success. Because they have to narrow the domestic market and return to the
exports and all will be doing the same. The stated structural reforms will not
work in the present circumstances and shall ensure the sedation of the masses.
And when the structural reforms are undertaken, the bill will be paid by the masses.
When the purchasing power of the large segment of the population decrease and
its debt is growing, the domestic market is being slaughtered. And without the
domestic market, one cannot do anything in the foreign markets.
Then where does come the
definition and the proposal of these structural reforms? The definition of the
structural reforms has been spoken in the latest IMF summit. One needs to give
some confidence in order to have the foreign capital coming into the emerging country.
And in order to provide such a confidence, every requested thing is done. And
the bill regarding the demands of the foreign capital is put before the masses.
Meanwhile there is a conflict of interest that is growing and one cannot correct
the economic structure by deteriorating the public’s situation. The places will
turn into a quagmire, the pool in its bottom will grow and will never get
filled; no one will invest in such a place nor live in it…
Since 1980, there is a need
for a new world order. What did the USA want? She wanted to be the sole
superpower and to define this new world order according to her interests. After
the Russian crisis of 1998, the situation changed. There is no consensus about
the new world order because the USA is no longer the only superpower. The world
is becoming multipolar and it is not possible for everyone to protect its own
interest. Some of them will be sacrificed; Russia and China are not coming to
terms. China has become a great centre of attraction and this has become
apparent in the APEC summit. USA is not a country that can content itself with
remains and the tension is escalating. Even if they come into terms among
themselves, the bill will be put before the emerging countries. Emerging
countries do not have friends, they have to take their power from their own
people but instead they are putting the bill before their people while
money comes from abroad.
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