Global struggle intensifying

Published 07.04.2017 21:12
Updated 08.04.2017 01:58

Growth performance is one of the most critical elements in the rollover of countries' domestic and foreign debts and debt sustainability. The increase in added value ensured by growth performance also boosts the ability of countries to repay debts they've incurred for investment purposes. Medium growth in the global economy and the slowdown in global trade, resulting from the recent global financial crisis, have put forward concerns over the sustainability of debts in all leading economies. As of the end of 2016, global debt size reached $215.5 trillion, corresponding to 325 percent of world gross domestic product (GDP) with $160 trillion of this debt belonging to developed countries and $56 trillion belonging to emerging economies that hold 75 percent of that amount in their national currencies.

This situation accompanies two major consequences: First, problems are deepening in banking sectors in developed countries. Second, as interest rates that emerging economies pay for debts gradually declines, the financing of the system through emerging economies becomes increasingly difficult. Thus, all "rising" emerging economies, including Brazil, Argentina, Mexico, South Africa, Russia and Turkey, which began borrowing at the lowest interest rate levels there ever has been and are still being subjected to simultaneous "perception" and "terrorist" attacks. Two weeks after the day on which the borrowing cost of the Turkish Treasury fell below the lowest percentage level in the history of the Republic, 5 percent, we were faced with the Gezi Park protests. The latest terrorist attack on Russia is part of this unpleasant and violent process.

Turkey is discovering new regions for trade and financing channels and strengthening relations. As a new world is shaping, all developed and developing countries are being repositioned. This process requires strong leadership and strong government models for countries. As the global struggle between countries deepens, Turkey will vote on an important constitutional package on April 16, which could enable it to take the best position in this struggle over the next 10 years. A presidential government system will affect Turkey's growth performance and borrowing costs positively. With a new government and growth model, Turkey will again reach 5 percent growth figures.

Trump's support for Wall Street bankers

The U.S. learned an important lesson from the Great Depression of 1929 and the concomitant wave of bankruptcy, which covered thousands of banks. As a result, thanks to the Glass-Steagall Act of 1933 that separated investment and commercial banking activities, the U.S. did not experience a systemic banking crisis from 1934 to 2007. Unfortunately, rising confidence in the banking sector in Western economies, especially the U.S., fueled pressure and debates on loosening laws that kept the banking sector within certain boundaries toward the end of the 1990s. The calm environment created by banking regulations in the 1930s was defined as "The Great Moderation" and was given various names, such as the paradox of "great alleviation" or "great calmness" in the sector, creating an impression that crises and panic in the banking sector had become a thing of the past. Unfortunately, with the extreme confidence this impression caused, banking sector regulations were stretched below the acceptable level. Thus, Paul Krugman, the U.S.'s renowned Nobel-laureate economist, considers the Garn-St Germain Depository Institutions Act of 1982, which aimed to bring financial freedom and eliminate supervision, responsible for the latest global crisis of 2008.

Moreover, the Gramm-Leach-Bliley Act (GLBA) of 1999, which is considered to be the most important cause of the global financial crisis, abolished a part of the Glass-Steagall legislation of 1933 that had reduced the devastating effects caused by the banking sector in the 1929 economic depression and allowed investment banking activities by commercial banks, such as bond trading and securities issuance. These regulations led to a development that triggered an increase in risk appetite and derivatives and the expansion of the subprime mortgage market.

With the introduction of financial regulations known as the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, bank supervision intensified again after the global financial crisis. However, former U.S. President Barack Obama and the Democrats have been lambasted by the Republicans for this regulation and supervision of the banking sector recently. U.S. President Donald Trump says he will launch a major change in banking regulations.

During the election campaign, Trump vowed to abolish this law. He says his administration will make major changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and they want strong supervision and regulations. He argues that these regulations should not make it impossible for banks to provide loans to investors who can increase employment. Meanwhile, many experts suggest that Dodd-Frank could not achieve its goals, saying that it could not ensure the division of banks, which are "too big to fail" into smaller units, above anything else.

Share on Facebook Share on Twitter
Disclaimer: All rights of the published column/article are reserved by Turkuvaz Media Group. The entire column/article cannot be used without special permission even if the source is shown.
However, quoted column/article can be partly used by providing an active link to the quoted news. Please click for details..