The Fed's interest rate hike: Not a crisis, but an opportunity

The U.S. Federal Reserve's (Fed) interest rate hike, literally speaking, has been purchased by emerging markets where national currencies are rapidly losing their value against the dollar. There is a common argument that developing countries, particularly those which export commodities such as Brazil and Russia, will be engulfed in a serious crisis in this process. However, I think such a possibility should not be taken too seriously as an argument. The Fed's interest rate hikes cannot disturb developing countries as much as before; quite the contrary, a constantly overvalued dollar will relegate the U.S. in global competition and highlight Europe and Asia. Countries should abandon using the dollar in their trades and should form trade unions where their own currencies will take effect. This will be the core of a new monetary and trade system.

This is a crisis about economic policies that date back to the 20th century. Apart from this, the Fed's interest rate hike will not be a radical one. In other words, one cannot expect that the Fed will switch to a new strategy with an interest rate hike and the U.S. will return to an economic policy, which is based on an overvalued dollar and high interest rates, unlike former U.S. President Bill Clinton and former Fed Chair Alan Greenspan did in 1995. The material ground required for this has already disappeared, considering that China and other developing countries in Asia do not demand the dollar and U.S. treasury bills as much as before, regardless of how valuable the dollar is. So, the U.S. is facing problems in financing its foreign trade, budget and saving deficits, which has turned into an overall economic problem. Also, the crisis, which emerged in the U.S. in 2008 and still persists, is not a financial crisis, but an economic and political one that will be more intense and longer than the Great Depression of 1929. This crisis will not end unless resources and wealth in the world are shared again and "old" sectors that gave rise to this crisis are replaced by new ones. During his address to the Republican-dominated United States House of Representatives in January 2012, U.S. President Barack Obama touched on both the causes and solutions of the crisis. He said, "We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules." Obama's statements were endorsed by protests by unemployed young black people in a number of American cities, particularly the Ferguson unrest in 2014.

As Thomas Piketty puts forward in his "Capital in the Twenty-First Century" the "r>g" pattern (where r stands for the average annual rate of return on capital, including profits, dividends, interest, rents, and other income from capital, expressed as a percentage of its total value, and g stands for the rate of growth of the economy, that is, the annual increase in income or output) was the true cause of the crisis and the crisis would not be overcome unless this formula was reversed. This was also the reason why the U.S. and other developed countries failed to switch to a true growth and a sustainable economic cycle. It is a futile attempt for the Fed to seek a remedy for this crisis by increasing balance sheets and to create a new balance by launching an interest rate hike. Although circumstances do not allow it and the U.S. has not achieved its main objectives, we insistently envision a scenario where the Fed's interest rate increase will lead to financial crises in developing countries as it did in the 1990s. This, beyond any doubt, is the U.S.'s attempt to kill two birds with one stone. First, it does not want to allow countries, such as Turkey and Brazil, to leave the framework of the Washington Consensus. It aims to make such countries' central banks increase interest rates in order to achieve inflation targets and wants to deter these countries from their investment-oriented and industry-oriented paths and to make them pursue the path of global financial oligarchy. Second, the U.S. wants to maintain its self-financing system by pushing up the demand for the dollar in the short term, as the fall in the growth of China and Asian countries brings down these countries' demand for dollars and U.S. treasury bills. It also aims to make up for the falling profit rates in traditional, war-based sectors such as iron-steel and petrochemical industries and to extend the lifespan of these sectors.

In brief, even if the Fed unveils an interest rate hike this month, this will not be a new situation or a new normalcy. The struggle between the old and the new at the top of the global economy and global financial system will continue and this will appear as a crisis to us. Also, the struggle between developed countries and developing countries, which were poor in the past, will continue. So, the Fed's interest rate hike is an opportunity for developing countries. Furthermore, it can be an opportunity for leaders such as Russian President Vladimir Putin, who is gradually being confined to an economy that is based on the export of carbon fuels; who attempts to incite a war when oil prices fall and who regards all methods, even annexation, permissible. This is because such countries will question economic policies that are imposed upon them and adopt a new growth and development strategy.

Let us reiterate that the current crisis is also a crisis about the monetary system, global trade regime and neo-liberal economic policies. In such a period, developing countries have to find a new monetary and trade system and an anti-monopolistic path of inclusive growth and development.