A GLOBAL VIEW OF THE WORLD ECONOMY
The stock markets’ transaction volumes have fallen and
are still weak; there was a heightened volatility. Emerging countries are
having fluctuations in their currencies. We are seeing zigzags in the stock
markets. We have fluctuations in a band but the volume looked shallow. Everyone
is looking at the same place: what will the Fed do?
There are problems that have resurfaced in Europe. Let’s
start with the example of Spain; Spain’s debt is high; because it has not been
restructured like Greece’s debt and a portion of it has not been deleted, the
problem is still not solved. It has been ignored for a while but the debt is
there. The problems that Spain had 5 years ago are still present and one has to
take into account that it got a bit worse. Currently, because the problem has
spread across the continent, Spain stayed in the background; actually, the
European baking system is ill. They cannot find the formula for recapitalizing
them, the central bank’s efforts are not sufficient in meeting the demand. Let’s
suppose that they’re enough; as long as the emerging economies are stagnating, it
will look like turning the wheel with borrowed energy. You're correcting
something, but the problem continues to grow; due to this, it’s going to
nowhere, it carries on regressing. Europe is very problematic…
In the United States, the Fed is about to lose its mind. Obviously
they saw something. In 2013, they
determined a calendar for the application of the interest rate increase in
order to get away with the least damage; they aimed at reducing the overseas
risks and to avoid the ballooning of the assets in the domestic market. They
did not succeed in both objectives.
The minutes state the reasons why there no rise in the
interest rate and why they cannot lower it. But the problem is: central banks
are becoming ineffective, the Fed is no exception. That is, it wanted to stay
the sole power but it will no longer have the chance for this. Currently, the
Fed cannot raise the interest rate; so be it! If things get worse, a new
monetary expansion could be undertaken, interest rate could be lowered; so be it!
But the problem is the following: first; USA will not be able to reduce its
risks with minimum damage; second, even if the Fed lowers the interest rate, the
trend of taking risks across the globe will not come back in force. The pyramid
is crumbling. In this game, the play makers took a risk and will suffer the
consequences. Another information ca be derived from this picture. The West is
losing its ability to direct the capital. It was the West’s most powerful
weapon. The other strong elements were derived from there. If it loses this
power, we can say that the current days are the better days of the West. Let’s
combine them: the tendency to stagnation in the world is continuing, the growth
forecasts will be reduced gradually; the global employment will shrink;
nonperforming loans’ volume will increase across the globe. Things are not
going well and the horizon is dark. The persons who are seeing this will try to
reduce their risks while everyone is asleep; the markets will be choppy and
everyone’s primary objective will not be to run for a win but make others try
to do it. They will try to limit their losses. This is the main strategy and
the picture points to this.
This is valid for the individuals as well as for the
State. As an economic system, the West is collapsing; the East is rising but no
one will come out alive from a world economic crisis. More precisely, there can
be some who can come out alive. Imagine two boxers who punch each other at the
same time; whoever survives will be declared as the winner. But both will be
worn out. Wars are the same; currently the world economy is worn out, the wear
rate will vary in some regions, but all the world will be losing.
Stieglitz is talking about two currencies. What was
Europe's trouble? In 1957, EU which was the EEC since then, had taken the path of
homogenization. For this purpose, it determined some standards; it is obvious
that it didn’t go the way they wanted it to go; they could not provide
homogenization and the application of a single currency has aggravated these
problems because the homogenization was not achieved. 15 years ago, Europe had
a design; after 9/11, a multi-speed Europe. The activated the Convention poll;
it is obvious that some are saying that the currency should be two-speed, but
as long as how this subject is going to be becomes complex, it will create a
problem. One thing is clear; with this current structure, Europe will be
overwhelmed by problems and will not be able to solve them either.
After 9/11, the capital poured into the emerging
economies. There was an abnormal increase in capacity in the emerging
countries; the consumption and the employment increased rapidly as well as the
investment capacity increased abnormally with the inflow of the said capital.
When we look at the current situation, we can see that there’s stagnation in
demand but a terrible supply has been created. If there is an excess supply, what
can be done? First; one will work to increase the demand but the consumption is
problematic and it cannot increase permanently. Then, the supply will shrink. At
the moment, the financial markets are pricing the demand side and are ignoring
the problems of the supply; but the economic balances are forcing the necessity
of the urgent liquidation of the excess supply. This chaos is also an element
that reinforces risk aversion. Due to this, the ones who think that today’s
balances will be permanent and will go for the better are simply dreaming and
cannot get rid of the wrong strategies; more serious problems may be
encountered, everybody must be careful. There is an excess supply in the
emerging economies. Their common feature is the following: there is a large
increase in employment and the service sector has come to the fore. One creates
an employment; if this is 50% in the emerging countries in the past, today this
stands at 60%-70%. The increase in the domestic demand has fed from here and
there’s no chance to protect this demand. What will happen then? Service sector
employment will contract. In order to prevent this contraction, one can adopt public
spending, loose fiscal and monetary policies and these will not solve the
problem. Second; they will eliminate one way or the other the excess supply;
this cannot go on forever. This imbalance will not only batter the banking
sector in the emerging economies but also, it will increase the volume of
non-performing loans. What do we have in the world? Economic growth will lose
momentum, the employment will not increase, contractions will happen (it may
differ by regions), prices will not stabilize, there will be widespread
fluctuations, some of which could be devastating. The more the volume of
non-performing loans increases, the more the banking system will become
fragile; public deficits will grow and to hide them will not solve any problem.
The world is moving towards an emerging countries’ based new global credit
crisis and there’s no solution to it.
