Ashok Dhillon
Sep 8, 201911 min
There are enough troubles roiling the major economies today to set one’s teeth on edge. This is a time of regressive leaders, and their disruptive policies, masquerading as efforts to make their respective countries ‘great again’ at the cost of all others. The fact that such policies don’t actually work and have not worked in modern times does not seem to faze these leaders, or their followers.
Additionally, in an ever-shrinking World, with the greater and faster movement of people, information, goods and services, and with the ever increasing thrust of technology further boosting change, at light-speed, these throwbacks of the past don’t seem to realize that they are trying to turn back the tides of time.
And with their ultimately doomed efforts, these evolutionary dinosaurs will end-up causing unnecessary and costly damage to the evolving, cooperative global social, political, business and financial systems that are necessary for the safe and productive advancement of the ever burgeoning humanity, on a shrinking and increasingly damaged planet.
By playing the outdated games of heightened ‘Nationalism’, ‘Militarism’ and ‘protective isolationism’, with overtones of racial and religious purity thrown in for good measure, today’s most aggressive leaders are yanking their countries, and the rest of humanity, back to the dark ages of ‘Fascism’, ‘Neo-Nazism‘ ‘Cold-Wars’, ‘Arms-Races’, ‘Protectionism,’ and ‘Trade and Currency Wars’, and national and ideological confrontations. They want to play zero-sum games at a time when collective winning is required, for humanity, and the planet to survive and thrive.
There is of course Donald J. Trump in the US who has led off the collective race to the bottom. With his divisive rhetoric, his disruptive tweets, his tariff and trade wars, his all-out attack on co-operation between nations for the protection of the environment, and the urgent need for a united global effort to tackle climate change – he is the ‘Neanderthal-in-Chief’, and the ‘Great Regressor’ of our times.
Plus his policies are simply uninformed and damaging to societies and economies.
Trump has broken international agreements, treated America’s allies as foes, and traditional and ideological enemies as his most favoured friends.
He has up-turned the global trading system, and disrupted established supply chains, and more importantly, Trump’s words and actions as a World leader opened the door to all the demons of the worst of humanity, which we thought we had fought, defeated, and collectively buried after WWII.
Trump had inherited an 8 year solidly growing economic trajectory, and within 2 years has undermined it with his ‘easy to win’ tariff and trade wars.
Now, as the signs of an approaching global recession grow, and the US economy shows signs of weakening, he is screaming abuse at the Fed Chairman, Jerome Powell, while daily exhorting him to drastically lower interest rates to boost economic growth, and to maintain the high flying stock markets that are addicted to low interest rates. Being the man he is, on the one hand he cannot stop boasting how strong ‘his economy’ is, and on the other hand as the economy shows signs of faltering from the effects of the global slowdown and his trade and tariff wars which are directly responsible for exacerbating the slowdown, he demands the Fed intervene by drastically cutting interest rates.
Then there is Trump’s scuffed and ruffled model in the UK, PM Boris Johnson, equally insane, ill-disciplined, irresponsible, untruthful and disruptive, and adding to the global turmoil through his irresponsible and suicidal commitment to tear the United Kingdom from the European Union with a ‘No Deal Brexit’ (regardless of cost). Boris’s actions and rhetoric are adding greatly to the current global angst.
His and his cabal’s determined efforts to wrench the UK are threatening to cause a possibly catastrophic trade and financial disruption between the UK and the EU - collectively the World’s biggest trading block.
Fortunately, so far, Boris has encountered determined opposition to his brand of insanity by the opposition members of Parliament, who were joined by 21 members of his own Tory Party to try and stop him from triggering Brexit without a formal negotiated ‘Deal’ with the EU.
But, the uncertainty being created by such political brinkmanship is making money run for safety, globally, into long-term bonds (inverting the yield curve), gold, and the US dollar, which has been steadily strengthening - further adding to the grief of other countries; the UD dollar being the global ‘reserve-currency’, and thus the required currency for most international transactions and payments.
Unfortunately Trump’s election was followed by the election of equally divisive and destructive Right-Wing leaders in other countries, who instead of fixing old problems are busy creating new ones, for economies, societies and the global environment, leading to uncertainty in investments and economies, and adding to the growing ramifications of unchecked Climate Change.
In Brazil, Trump admirer President Jair Bolsonaro, is heading a sinking economy wracked with scandals, crime, corruption and more recently, the criminal conflagration of the great Amazon rainforest. Brazilians, desperate for a leader who could bring Brazil’s rampant crime and corruption under control elected Bolsonaro, but unfortunately his early actions have given rise to greater concerns as his family and close advisors got embroiled in scandals of their own, and his own actions have led to outrage in the Country and the World, as he declared the destruction of the Amazon forest and its indigenous people, a ‘Brazilian Right’. There is little of value one can expect from a leader that short-sighted and callous.
In Turkey, the prickly Recep Tayyip Erdogan, whose country is struggling on all fronts, including a stagnant economy, is now given to musing about Turkey having nuclear weapons, as if that is what the country and the World need most of.
In Italy the recently departed neo-fascist Matteo Salivini who did nothing to economically stabilize his country or worry about its growing debt and its fragile Banks, but rather spent his time in power blocking migrants escaping the awful conditions of their countries in Africa, some of which were mercilessly exploited by former colonial European Powers, including Italy. But there is little sense of guilt or reparations in Europe as these desperate former ‘Colonial subjects’ try to escape their ravaged countries to their former master’s countries just to survive. It is unlikely that under the new patched-up coalition, Italy’s chronic economic problems will be resolved anytime soon, further adding to EU’s growing woes.
But in a poetic comeuppance, Salivini’s self-engineered ouster (by political miscalculation) is a step in the right direction for Italy and the EU, even if it does not exactly translate into the reforming of a perennially struggling country, and economy, by yet another patched together coalition-government, whose ability to stay the course is questionable, let-alone their policies and ability to right what’s been wrong in Italy for decades. But at least they may be more co-operative in trying to solve problems within the country, and within the EU.
In Hungary, the authoritarian Viktor Orban is a kindred spirit of Salivini’s, worrying more about maintaining racial purity of Hungary and Europe, from the darker skinned migrant hordes that are threatening White Supremacy by breeding more effectively than their White counterparts (he was holding a Demography Conference on the subject in Hungary).
In all that he is focused on, the economic integrity and strength of the EU and the challenges it’s facing now, and Hungary’s role in it, are low on his list of high priorities. The EU can expect little from Orban, economically or politically.
In India, Narendra Modi had won an overwhelming majority for his second term in Office as the Prime Minister. And, because of his exemplary performance as Chief Minister of the State of Gujarat, there had been high hopes that his skills as an effective administrator would allow him to transform the sluggish behemoth that India usually is, into a vibrant developing nation (possibly as a second China).
India has always had tremendous potential, but has somehow always managed to evade it, by sabotaging itself with rancorous political infighting, rampant and unchecked corruption, a stultifying and mostly self-serving bureaucracy, and generally an incompetent, corrupt and ill-informed leadership. Modi was supposed to be different. And to some degree he has been, but his major economic policy initiatives to-date have been unimpressive, and one in particular, overnight ‘demonetization’, was by all measures an unmitigated disaster.
Instead of economic renaissance, India is now mired in political and social nationalism, where Modi’s support base of Right-Wing Hindu Nationalists have hijacked his development agenda, and are busy trying to transform the country to some form of its mythical glorious past as a pure ‘Hindu Nation’.
India is a land of 1.3 Billion people (and growing towards being the most populated country in the World, the one goal it is sure to achieve), the vast majority of which are ‘Hindus’ (approximately 80%), the biggest minority is Muslim (India has the second largest Muslim population of the World), and the rest are a myriad of other religious, racial, and ethnic minorities.
Modi’s hard-core support base, primarily the Right-Wing Hindu Nationalists, are committed to the cause of ‘Hindutva’ (Hinduness, in all things in the country), and are seriously detracting the country from the critically vital economic and social development that it needs. In pursuing their divisive pogroms and purges they are opening multiple cans of worms that are now festering, and should not have been opened. India’s increasing social tensions and declining economic performance are the result of its regressive ‘Hindu Nationalist’ agenda being followed under Modi, which ignores the fact that most of its energy needs are supplied by Muslim countries, and its ‘global trade’ is with the rest of the World, with is not Hindu.
Russia under ex-KGB Vladimir Putin, the alleged handler of Trump, has become a notorious disrupter of elections of western democracies, and a foil to the control of the Middle East by the US. His intervention in Syria restored Assad to power from the brink of total defeat by the US led coalitions. His siding with Syria and Iran has prevented the US, Israel and Saudi Arabia from being supreme in influence in the Middle East. This has had serious ramification for their ambitions to totally control all spheres of influence there.
More recently, Putin’s strengthening ties with China, economically as well militarily, is giving the US and its Asian allies additional heartburn as the struggle for the control of South China Sea, and Eastern-Asia continues. In facing down an aggressive and expansionist China, the US and its allies in Asia now face a re-strengthened alliance of Russia and China and the still nuclear-armed North Korea.
But on the domestic front, Putin’s successes have been spotty to say the least. He excelled in engineering absolute control of the country as an incoming Dictator, under the guise of a democratically elected leader. Under his leadership Russia became a pseudo democracy with mostly sham elections that bar genuine opposition candidates from running against him.
On the economic front, Russia has stagnated as a primarily resource dependent economy; and while Putin and friends have looted the Country of tremendous wealth for themselves, and have become extraordinarily rich because of it, the average Russian’s life has been difficult under Putin, with no real hope of significant change, as there has been no appreciable economic development.
In the global economy, Russia is a marginal player with its greatest significance as energy supplier to Europe, particularly Germany. If the prices of oil and gas go down in the near future, as they most likely will with the slowing demand and rising supply, globally, Russia’s economy will shrink further to be an even more insignificant contributor to the global economy.
China is the second largest economy after the US and is currently beset with a host of problems. Its ‘President for Life’, the true autocrat, President Xi has consolidated almost total power under himself and believes in the righteousness of total control of the Communist Party over the Chinese people, and in the rightness of his total control over the Party, thereby making himself the most powerful Chinese Leader since Chairman Mao.
Being an old-fashioned big ‘C’ Communist leader, President Xi exerts complete control over the Chinese people, the Military, and the economy.
And while he accepts that China’s extraordinary advancement in the past decades came from the adoption of ‘Western-Capitalist’ business methodologies, he is not willing to change China’s internal State controlled Communist structure of total control and the power of the Party, over the rights of its citizens and all business.
Xi is determined to exploit the ‘soft-decadent West’ for what China can get from it, without compromising any of China’s ‘values’ or advantages, or its controls over its own people, it’s industry, or the leverage it has over any outside country or people, or business conducted in China by foreign entities. This has led to the current struggle between Trump and Xi, and the uncertain outcome of the battle of wills with the US demanding change, and Xi resisting it totally (so far), is undermining global relationships in trade and the general rules of engagement.
Therefore the protracted trade war with Trump’s US is lingering as Xi will not give up any real ground, regardless of the demands for radical change as to how it conducts business, even if it is unfair and illegal in terms of global trading and business practices, which means Trump will have to soften. Xi is counting on it.
After the financial crisis of 2008, China has struggled to maintain its torrid pace of economic growth, and failed. Today, the growth rate is officially declared as 6 plus percent, but it is estimated by independent sources that monitor China’s economy very closely, that the real growth rate is considerably lower, perhaps even in the range of 3 some odd percent, or lower.
It is not possible to say accurately what China’s real economic growth rate is, but it is obvious that China is trying to keep its economy growing by repeated rounds of aggressive QE, and increasing regulatory support. And even though Trump’s infamous tariffs are not being ‘paid for by China’, nevertheless they are putting increasing pressure on a weakening economy that President Xi and the government are battling to support at all costs. China, the last of the famous BRICS, will not be an engine for global economic growth anytime soon.
If all these autocratic leaders had been beneficial for their countries, since they came to power, then today, there would have been a better World. But they haven’t been beneficial, and it isn’t a better World, and it shows in all the turmoil.
Instead, they have proven to be very disruptive to their own countries and their individual economies, as the current state of the US, UK, Brazil, Turkey, Italy, Hungry, India, Russia and China all show. Additionally, Argentina and Venezuela today are complete write-offs, due to chronically bad leadership and governance.
All these economies and countries today are struggling to maintain economic growth and are generally failing, including the US, in spite of the best efforts of most of their Central Banks to keep their economies growing with repeated rounds of Quantitative Easing, with infusions of cash, and unprecedentedly low interest rates. Still, the economies grind ever lower, and the sounds of an on-coming global recession grow ever louder by the day, exacerbated by trade disruptions.
Globally, there has been a rush to safety. Bond’s prices have climbed and yields have sunk (and famously, the yield curve has inverted time and again, ringing the alarm bell loud and clear to an approaching recession). And lately, precious metals came out of their long slumber, and have climbed to new highs.
Corporate earnings growth rates in the US have slumped, with estimates for 2019 going from 7.6% to 2.3% now, in spite of continuing massive share buybacks with the readily available cheap money, made available courtesy of the Fed and the other global Central Banks, accompanied with historic low interest rates that are declining, and widely assumed to decline further, even in the United States.
Major economies like Japan and the European Union are now accustomed to the strange economic environment of negative interest rates, and the ‘Maestro’, former Chairman of the Federal Reserve, the now infamous and largely debunked Alan Greenspan, has been going around talking about the likely arrival of negative interest rates to the United States, and the normality of it all. It is not normal. To underscore the bizarre nature of the no-man’s-land economic scenario that the World now finds itself in, some junk bonds now are also sporting negative yields.
The collective proliferation of all the undesirable developments now underway in the World, boosted by a proliferation of undesirable World leaders, is creating a maelstrom of potential damage for the global economy that is on the one hand initiating a rush for ‘safe assets’ such as Bonds and gold, and on the other hand is maintaining the new-highs of the stock markets with the anticipation of strong and bold support from the Federal Reserve, and the other major Central Banks, in the form of ‘zero-bound’ interest rates.
As political adventurism and the accompanying potential economic damage roil ever more darkly, uncertainty crackles as lightening before a storm.