The U.S. economy, at this very moment, blatantly reflects the diseases and dynamics of capitalism, which are considerably uncloaked with the crisis. We have two Americas now: One is the U.S. represented by Silicon Valley and the other is Detroit. In Detroit, the center of the automotive industry, the condition before the crisis is very far from being reached again. On the other hand, the IT sector improved in the U.S. thanks to Silicon Valley and the economic cycle it created shoulders the economic recovery in the U.S.That is why the data about the U.S. are highly contradictory; hence the path of the Federal Reserve is foggy for now. This uncertainty retards global recovery from the crisis and especially the central banks of developed countries do not know what to do.
This is the very situation of the European Central Bank. The fact that the data of the gross domestic product (GDP) in the U.S. increased by 0.1 percent, which is lower than what was expected (1.2 percent) in the first quarter, and that consumer expenses and the growth of the service sector reached the highest increase of the last 14 years are results of this main contradiction.
In other words, the IT sector that has a high added value and the corresponding finance and services areas are going through a rapid recovery, which results in an outflow in consumer expenses. However, conventional sectors like automotive, construction and housing have yet to reach the stage of recovery, which shows itself in the form of stagnation in the increase of GDP. The recent meeting of the Federal Open Market Committee (FOMC) reflects this duality.The Fed's FOMC decreased the amount of bond purchases to $45 billion (TL 94.8 billion), a reduction of $10 billion within the frame of a tapering strategy. Still, they reached consensus about keeping the interest rates as they are.
The FOMC made a statement after the decision stressing that the indicators of the employment market are complicated and the rate of employment is still high. The committee stressed that asset purchasing is not bound to a certain calendar and until the full employment target is achieved, unless the long-term inflation rate exceeds 2 percent, it will not change the targeted interest rates from the level of zero. I consider this the most important point as what the Fed calls "full employment" is actually the "nonaccelerating inflation rate of unemployment" (NAIRU). In current circumstances, it is very difficult for the U.S. or any developed economy to achieve this balance. In other words, the determination of NAIRU in the U.S. economy is difficult. This rate is mainly expressed to be 5 percent. However, the fact that long-standing unemployment rates raised NAIRU and created rigidity is now proven.
The most significant contributors are unemployment benefits, the resistance of trade unions and the long process of substitution of new economies with the old sector that provide employment, which created nearly permanent unemployment. That is why the current rate of unemployment of nearly 7 percent in the U.S. is not easy to pull down. This rate can only be decreased with policies that will boost inflation at a very high speed, which would multiply the deficits of the U.S. economy. Consequently, even if the Fed comes to the end of the tapering process, will it not hurry to increase interest, rather than apply an interest rate of nearly zero for a time longer than expected? This question is not only an economic one, rather it is a political question at the same time and has a political answer. We can also say that the Fed is desperate now as the essential requirement for the Fed is not about decreasing bond purchases or not, but about what to do with the interest rates in the medium and long term. The current monetary system cannot handle interest rates of nearly zero or null. The continuation of such application may cause very serious problems also outside the U.S. However, the Fed cannot make any decisions about the interest in the near future because if it does, it has to be prepared to face a crisis even bigger than the one of 2008. Moreover, it cannot have itself financed by the developing Asia anymore with such rates of interest. Under these circumstances, here is what we advise for the U.S., which is actually the only way out: For the U.S. economy to achieve the NAIRU in unemployment and correspondingly to reach a stage of healthy recovery, Bretton-Woods monetary system which ensures the countries that give trade surplus, mainly China, and the reserve money system based on unrequited dollar, should come to an end. To that end, the U.S. should first take initiative in the regions of developing countries and let them enter into a path of new, independent growth. U.S. President Barack Obama's government makes this a bit shyly. However, this has yet to come into focus and become the official foreign policy of the U.S.
What we want to point out is that in the regions of countries like Turkey, which reaches from Eastern Europe to Asia Minor up to the Chinese border, a new trade and economy cycle should be established where the free market will prevail and this cycle should be connected to the Transatlantic Trade and Investment Partnership (TTIP) that will be built soon. This, undoubtedly, means a new global order. A new trade regulation and new customs unions will be formed under this system. In the first stage of the system, trade and clearing agreements will be made among countries through local currencies. However, this may convert into a new monetary union later on.
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