CONCERNS ABOUT THE FUTURE

CONCERNS ABOUT THE FUTURE

Developed or emerging economies are all problematic; they are also unable to produce solutions based on compromise. They were obliged to create and market optimistic scenarios from the trade volume that rose by 2.4% based on the rise of commodity prices due to oil with its reduced supply in the last quarter of 2016 and on the concerns of protectionism. Naturally, the lifespan of this kind of constraints is limited, and those who are caught up in dreams and confuse the danger with the opportunity can not escape from becoming a prey. As the systemic risk rises to new records, to elaborate optimistically upon the dollar interest’s rise does not solve the problems. 

The political developments in developed countries and the geopolitical risks in the emerging ones should be seen as the pitfalls of these negativities. In the first quarter of this year, we partially consumed the remaining painkillers, and we managed to content ourselves by exploiting the shadows of the somehow temporary and optimistic scenarios. We gave a pause to the tendencies towards increasing destabilization for a while. We have to prepare for the fact that the next set of negativities will not be overcome in this way. The present structure can not overcome the problems that it produces, the unexpressed solutions seem to start to impose large and long-term self-sacrifices.

THE U.S. DOLLAR AND THE WORLD ECONOMY

The medium-term realities at global level and the expectations that take them into account and the conditions that make it possible to meet short-term needs are not compatible; while the first one feeds the tendency to avoid risk, the other requires precisely the opposite. When one of them comes to the forefront, it causes the other to be ignored! As such, price volatility is inevitably increasing, and the likelihood that the fluctuations become more and more destructive is getting stronger.

The rhetoric and actions of the new US administration point out that protectionism in the medium term can become increasingly strengthened. It is worth noting that ignoring this and other influences on all other trends means that you will have to face much more serious costs in the future and that nothing will remain the same. This fact disturbs those who are responsible for the frailties created by globalization and those who are at risk beyond normal; they are forced to admit that fear will not change their fate!

The strengthening of protectionism in the medium term means the strengthening of risk aversion and the increase in the systemic fragility. Global trade volume will start to shrink very sharply; the highly corrupted financial structure will start to disintegrate due to the uncontrolled increases in non-performing loans. Global problems that can not be solved by consensus will be tried to be overcome with cold or hot conflicts. All priorities and strategies will have to change, capital movements will shrink. Price volatility will increase and balance sheets will be worn out; the negativity in economic expectations will become chronic. The interventions in favor of the planning but against the market will increase and will become diversified. The ones who got into deep relation with the lawlessness called globalization or those who depend on taking big risks will the ones who will be the most worn out.

The tendencies that are briefly summarized above and the pricing the trade battles that the new US administration has ignited mean that the market is cutting it's own throat. Because of this, they are ignored and the overthrow of the complaint about the overvalued dollar is used as a justification to turn the agenda into their own favor and create opportunities to reduce their risk! They try to market the depreciation of the dollar with the interpretation that the risk appetite has begun to return; in order to gain some time and to save themselves, they cannot find anything else other than trapping those who do not understand what's going on!

The argument over the value of the dollar is not very meaningful for an understanding that is seeking the solution in protectionism. As the strengthening of the dollar will cause the inflation and the rise in interest rates to become more limited, those who embrace conservatism will not sincerely oppose it; it is of a tactical nature to speak of it, it is used as justification for some new initiatives, and is nothing more than a compulsion to compromise the other side. Through the rhetoric of the value of the dollar, it may be nothing less than a blissful appreciation to say that the new administration has distanced itself from the protectionist understanding!

Medium term trends indicate that protectionism will be strengthened, the tendency to avoid risk will be more decisive and the dollar will continue to appreciate for a while, even if it fluctuates wildly. This picture does not say good things to the emerging economies and the financial markets, especially to the countries that have serious levels of saving gaps.

RISING PROTECTIONISM AND EXTREMISM

RISING PROTECTIONISM AND EXTREMISM

The global trends that are unsustainable and pushing the extremes have long begun to create their own opposite. As the irrationality called globalization became monolithic and monetary authorities became ineffective, protectionist tendencies began to strengthen; the strengthening of risk aversion was inevitable. Trying to save the financial system during the global crisis,  shifting the political center to the right and anti-immigration policies especially in developed economies, were the footsteps of rising protectionism. Through the shift of production and the feeding of the perception of the systematic risk by affecting global trade volume was inevitable. From this point of evaluation, the results stemming from the UK's EU referendum or US presidential election cannot be considered as a surprise. The results of failing to produce global solutions and based on consensus to the global problems were obvious.

Protectionist tendencies that have begun to come to the forefront mean that their perspective is rapidly shifting to the medium term, and the tendency to avoid risk is likely to continue to grow in a fluctuating way. It is not time to pursue dreams!