By Mark Buckley
There is a generalised crisis of the so-called ‘Emerging Markets’ of the semi-colonial world, and the Turkish lira is only one of a number of sharply devalued currencies this year. Financial market commentators and speculators are all inclined to blame Turkish President Erdogan for the crisis affecting Turkey. In reality the main source of the wider crisis is the US President Trump.
Trump’s economic polices have created crisis in the semi-colonial world, and the Turkish lira is only one of a number of sharply devalued currencies this year. In addition, stocks and bonds have been falling across a wide range of countries.
Argentina’s currency has fallen 60 per cent in 2018, while Turkey’s currency is down over 80 per cent at the time of writing. There is selling pressure on a variety of currencies, including South Africa rand, the Russian ruble, the Iranian riyal, Indian rupee and many others. This is a symptom of an abrupt change in conditions in the world economy and world financial markets.
The source of this new economic instability is the US. The US Dollar has been rising against nearly all the world’s currencies. Trump’s huge tax giveaways to US big business have encouraged a repatriation of US capital from overseas. Alongside that, speculative capital, or ‘hot money’ that was previously encouraged into disparate countries such as Turkey, Argentina and others, has opportunistically flown back into the US Dollar to capitalise on its rise. This has left banks and large businesses in those countries dangerously exposed, with the risk that they will not be able to repay US Dollar loans at the new, much weaker domestic exchange rates.
Turkey is also part of a rapidly growing list of countries that Trump and his predecessor have imposed sanctions on, including Iran and Russia. These are in addition to the US’s other list of long-standing targets, including North Korea and Cuba. Trump uses sanctions not only as a politically aggressive weapon, as his predecessors did, but also as an overtly commercial intervention to benefit the US and damage countries or governments not wholly subservient to US interests.
In addition, there is Trump’s protectionism trade war. The centre-piece of this is the tariffs he has imposed on China and others, such as the EU in an effort to force them to copy the US’s new anti-Chinese measures. So far, the EU is resisting, as it is with renewed sanctions on Iran. But the willingness of European multinationals to continue trading with Iran at the risk of direct sanctions from the US and being barred from US markets must be highly doubtful.
Trump’s tax cuts for big business and the rich are straight out of the Reaganomics playbook. But under Reagan the US trade deficit and budget deficit that were the inevitable consequence of the tax cuts were financed by inflows of capital from Japan (which has hobbled the Japanese economy ever since). Currently, there are only two major countries in the world with large current account surpluses who could play Japan’s previous role, China and Germany. This explains Trump’s hostility to China, and his repeated attempts to undermine Chancellor Merkel.
For the time being, US economic policy is combining with US statecraft to destabilise other large countries, as their savings are sucked towards the US and their economies deliberately targeted with US sanctions. So, just as the Turkish lira was reeling last week, Trump announced the doubling of the sanctions via Twitter.
These countries will only be able to protect themselves, and protect the living standards of the population from high inflation brought on by currency crises, to the extent they are able to co-operate with each other to by-pass trade sanctions, obtain financing where necessary outside of US-controlled institutions like the IMF, introduce capital controls to prevent outflows (as Malaysia did in 1998) and reorient their economies towards productive investment.
For left forces, especially those which remain strong in Latin America, the renewed decline in living standards will fuel the growing dissatisfaction with the rightist governments that have been imposed on the population. And for now, it looks as if the turmoil is far from over.