You Can't Fool All The People All The Time

 

Turkish President Tayyip Erdoğan would do well to remember that he came to power more than 20 years ago on the back of a total economic collapse – complete with 1,000% interest rates, disappearing currency, and failing banks – generated by the sheer incompetence, corruption and economic illiteracy of the governing politicians at the time.  Technocrats in the Treasury and Central Bank at the time, in contrast, were extremely well educated and capable. They knew exactly what was happening but no one in power wanted to hear their warnings. After the political leaders had destroyed the economy these same technocrats designed a program to pull Turkey out of its economic and financial morass. The IMF adopted this program and the country enjoyed a few years of rational economic behaviour.

Unfortunately, as Erdoğan grew stronger he threw away these training wheels and thought he and his cronies could manage things themselves. As one very experienced analyst put it, ‘he replaced this high quality group with sycophants who know nothing and are proud of their ignorance.’

So far this year the Turkish Lira has lost more than 56% in value. Most analysts estimate real annual inflation is well over 30% and promises to climb higher. This brought back memories of the hyper-inflation and sky-high interest rates of the 1990s when I was managing money in Turkey.

Will the captain go down with the ship?

At least some senior bankers and a few politicians in the ‘bad old days’ knew the country’s financial situation with hyper-inflation and high interest rates was unsustainable – or so they said after a couple of drinks. But they were making so much money dealing in super-high-yielding short term government debt that they had no motivation to change anything. They all knew the music would end one day and hoped they were nimble enough to bail out before the inevitable crash. A few were that nimble. Most weren’t.

The major difference now is that instead of letting interest rates rise to counter currency weakness and dampen inflation Erdoğan has forced them lower in the bizarre belief that these lower rates will help reduce inflation instead of pouring gasoline on the fire. He points to Turkey’s relatively high growth rate as proof of his theory but forgets that even in the disastrous 1990s the country’s high growth rate didn’t stop the collapse. One observer likened the situation to building a sky-scraper on an extremely weak foundation. At the slightest tremor it will all come crashing down. Erdoğan fantasizes about copying the Chinese economic model, but, as one financial analyst put it, all he is doing is re-creating the Zimbabwe meltdown.

Erdoğan claims his policies will lead to Turkey’s economic independence and freedom from the pernicious influence of global economic and financial trends. A few brutal home truths strip the gloss off this rhetoric.

1.     With few natural resources Turkey is one of the least independent, most dependent, vulnerable economies in the world. The vast majority of its energy and industrial raw material and intermediate goods is imported. Once basically self-sufficient in food the country now has to import substantial amounts of basic food. Covering your eyes and ears to these global realities isn’t going to change the situation.

2.     The much vaunted export boom is made up largely of imported parts merely assembled and re-packaged in Turkey. The Turkish value-added in these exports is somewhere around 10%.

3.     The Treasury, banks, and most companies rely heavily on massive hard currency inflows to stay afloat. Any effort to curtail these flows for the sake of so-called ‘independence’ would be catastrophic.

On top of this the Central Bank is nearly broke and would have trouble coming up with money for a decent cup of coffee let alone serious support for the ailing state banks. The Central Bank is also wasting billions of scarce US dollars by selling them in hopes of stopping the erosion of the Turkish Lira. It’s not working. One of the geniuses in the ruling party even called for Turkish businessmen to become the new national martyrs in gaining the country’s economic ‘independence’ by defending the lira by dumping all foreign currency. Not surprisingly this call to self-sacrifice was unheeded.

Life is getting very expensive for her

One can understand Erdoğan’s frustration. His poll numbers are dropping fast and none of the old strategies to rally his supporters seems to work. The days of vast, expensive infrastructure programs are over. In fact it’s worse than that. Some economists and bankers put the country’s hidden liabilities related to some of these projects at more than $40 billion. The government guaranteed foreign currency loans used by favoured contractors but these are never seen on national accounts because they are buried deep in the budgets of various ministries.

So there’s not much left to hand out to his circle of crony contractors. Erdoğan recently approved a large increase in the minimum wage. But with inflation roaring ahead this won’t bring much relief to the struggling workers.

Erdoğan has very few cards left to play and maybe he thought this last, desperate throw of the dice would re-create some of the magic that has kept him in power for so long.  But all it’s proving is that you can’t fool all the people all the time. He is desperately trying to distract attention from the economic collapse with foreign policy manoeuvres like opening talks with Armenia or aggressive behaviour in the Eastern Mediterranean. Recent polls, however, show clearly that the public is not distracted at all and focuses mainly on the deteriorating economic realities of  daily life.

Elections aren’t scheduled until 2023, but an economic collapse could bring them forward. If, by some chance, Erdoğan loses then the more interesting question is what type of government will follow him. I desperately hope it is more than a re-creation of the failed pre-Erdoğan governments. The Turkish people deserve something new, something that reflects the rapidly changing world rather than re-hash the stale old models.

Donald Trump Is Merely The Symptom Of Serious Underlying Issues In America

 From time to time this blog invites contributions from readers who often bring a fresh approach to the issues we discuss. Peter E. Gumpel is an American management consultant and lawyer who has been based in Vienna for several years. Here he encourages us to focus more on the underlying problems that created Donald Trump rather than on the behavior of the man himself.

 

I always expected that Donald Trump would have the character arc (to use screenplay terminology) of a Greek tragedy, reaching for the utmost heights and then flaming out to utter ignominy, both by reason of his own hubris and helped by the opponents who wanted him to fail from the start. But I hadn’t expected that the tragedy would turn into farce – with the U.S. Congress being invaded by a mob of hooligans looking straight out of the Star Wars stage set or a gay Halloween gala.

Upfront I should make the obligatory disclaimer that I didn't vote for Mr. Trump, given his tubthumping against Mexicans and Muslims and lack of qualifications for the job, remembering him from the 1980s New York media scene and having flown on the Trump Shuttle. 

On the other hand, it is important to understand why many Americans - not necessarily "deplorable" - voted for him. They were not sharing in the expanding national wealth, their children or brothers or sisters were being sent to fight in never-ending wars, and the powers that be"  were demonstrably not serving the people's interest but rather those of their donors.

Indeed, many people who put their faith in Trump were acting on similar motivations to those who had voted for Obama - looking for "hope and change" and a different direction for the country - including voters disappointed by Obama for having followed much of the same policies as the G.W. Bush administration, not only in foreign policy but also domestically.  Trump didn't actually help these people much, but as a skillful populist he had a visceral understanding of their desires and gave them hope.

In many ways Trump can be regarded as a symptom of those underlying problems rather than the problem itself. If the Biden Administration simply restores the ancien régime without trying to solve those underlying issues issues facing the broad American population a new and more virulent Trump could emerge in several years.

This includes addressing the wealth disparities that have been reaching almost Ancient Egyptian proportions, mainly by reason of the massive quantitative easing and loose monetary policy under Jerome Powell (and earlier Janet Yellen), which are boosting asset prices (stocks, real estate) to stratospheric heights, combined with the Covid relief programs which are funneling huge sums to the largest corporations while handing out chump change to the broad population, at the same time as small businesses are being forced to shut down.

Two of the main problems are, of course, the inordinately expensive medical and higher education systems, which have spiraled out of control in the last decades.  For young people starting out today, entering the workforce saddled with student debt, not being able to buy a house and start a family, the situation is especially tough – no longer is the young generation expecting to be more successful than the prior one.

The two solutions are either on the right - going back to the purer market economy of the Herbert Hoover era - or on the left - adopting social support systems as in Europe. The latter appears more feasible as no one wants to lose entitlements. Indeed, German Chancellor Otto von Bismarck – certainly no left-winger - realized already 150 years ago that such programs can be essential to preserve social cohesion. But, unfortunately, it doesn't look like today’s mainstream Democrats or Republicans have the will to tackle – let alone solve -- these problems. They would much rather take political pot-shots at each other rather than do some real work.

One of these urgent national issues is the increasing power of Big Tech, which has just proved it can even shut down an American president, albeit an unpopular one in his last days, with attendant risks to free speech and democracy. Not content to hoover up virtually all private data of citizens, who insouciantly permit this to happen, Big Tech is setting itself up as the final inquisitor and arbiter of “truth” and permitted speech.  Controlling Big Tech will be a Herculean task and needs someone with the forceful personality and trust-busting inclinations of a Theodore Roosevelt.

After the fall of the populist disrupter Napoleon Bonaparte and restoration of the French ancien régime in 1815, the Bourbons were accused of “learning nothing and forgetting nothing,” putting the old bureaucrats back in charge while not addressing the root causes of the revolution that had overthrown them. It is imperative that the restored Biden team not fall into this trap but rather deal directly with the issues that created Trump in the first place. 

Why Would Anyone Really Want This Job?

 

I had a terrible nightmare last night that I was going to be inaugurated president of the United States today.  My wife was terrified when I woke up screaming, ‘No, No, No. I demand a recount! There’s no way I could have won!’

            My breathing gradually returned to normal and I calmed down with the ‘nice cup of tea’ that my wife insists is the cure for everything – probably even Covid-19. ‘There, there. Don’t worry. You’re nowhere near Washington. That nice Mr. Biden is set to take the oath of office.’

Now he will take the oath as President, not VP

            ‘What did he do to deserve this,’ I ask. ‘It’s the worst job in the world. There he was in comfortable retirement - minding his own business, making a few speeches, playing with the grandchildren. Probably asking himself exactly who the hell it was that suggested he run for president in the first place. Now look at the poor guy. He can’t even go out and get a decent hamburger without locking down half of Washington. God forbid he is ever seen happily licking the spoon after an ice cream Sundae with three scoops of vanilla ice cream, hot chocolate, whipped cream and bananas! The media from California to New York and beyond will be yelling about the bad example he is setting and how he should be happy with roasted lettuce leaves and quinoa. If I were him I would quickly make a deal with the White House chef to keep his mouth shut and leave the camera home. The chef could take Air Force 1 wherever he wants. Pretty soon Biden will probably want to  substitute Can’t Get No Satisfaction for Hail To The Chief.

Poor Biden. This is now likely to be forbidden fruit.

            Keep plenty of aspirin handy, Mr. President. The world and its mother keeps yelling at you about what you must do or should do. You absolutely must sign this piece of paper, that piece of paper or the world is going to go to hell. There’s very little in the job description about what you might actually want to do. Oh, and while you're not saving the world from multiple crises you must make time to meet groups like the peach farmers from Georgia – now a very important state with 16 key electoral votes. You can be sure that Mrs. Biden will guarantee that every White House breakfast, lunch and dinner is well stocked with peaches and peanuts. After all, Georgia is known as the Peach State and former President Jimmy Carter was peanut farmer there.

            Instead of tossing soft toys to the grandchildren now you have to deal with a snarling congress whose members threaten to derail everything your administration wants to accomplish unless you throw a few billion dollars into their favorite projects – like the hotly contested Miss Soybean contest. Sadly, it’s probably true that the right outcome for this contest has more vote potential than any public health, education or infrastructure program.

            In many ways the president has the ultimate Home Office. All he has to do is walk downstairs, and on top of that the internet probably works – once his grandchildren set it up. The downside is that everybody wants to crowd into that fairly small Oval Office and take up his time with this problem or that problem when all he really wants to do is put his feet up and catch a good film on Netflix.

At least the office is close to home

            And those are just the domestic aggravations. Most foreign leaders have your phone number on speed dial and seem to forget about time differences when they want to reach you. Or there can be a development in some far-off land that an official at the State Department thinks demands your immediate attention at 3 am. You can just see a weary Biden wiping the sleep from his eyes and telling the hyper-ventilating official, ‘Tell me again where this place is and just how to pronounce the prime minister’s name. What do you want me to do – send the 101^st Airborne or invite him to the White House?’

            If you have ever moved house you know it’s a real pain cleaning up after the former owners have left. There’s always a huge amount of accumulated junk left over that you have to throw away or take to the local charity shop. The White House staff have worked hard these last few days but there is bound to be something left behind. Just what, for example, is Biden going to do with a hair-dying machine set permanently to orange? And what is he going to do with a warehouse full of MAGA hats and pins?

            All things considered it seems like a terrible job with nothing but serious problems that you are supposed to solve. And you don’t even make that much money. Any half-way decent bond trader at Goldman Sachs makes multiples of what you take home every month. The perks are admittedly pretty good, but when do you have time to enjoy them? But someone has got to do it, and we should be grateful that at least this president will spend more time on the job than on Twitter.

Where Do We Go From Here?

 

By now we’ve all seen the horrific pictures of mobs charging into the US Capitol building in a vain attempt to stop the final nail in their hero’s political coffin – congressional certification of Joe Biden’s victory over the Toddler-In-Chief Donald Trump.

            The question is what happens now? How do the Democrats react to this unexpected gift from their favorite hate figure? Where do the Republicans, in particular the Republican Party, go from here? How far can the party disassociate itself from its disgraced leader? Does it even want to disassociate itself from him? And what of Trump himself and the rest of his family? Do they fade into the darkness of swamp they brought to Washington? Or do they carry on with their delusions of power and popularity?

This is Trump's so-called base?!

            First things first. The country will heal and prosper as it always has after major shocks like Pearl Harbor, the assassinations and convulsions of the 1960s, 9/11, and now this mayhem. In this task Biden is the perfect Anti-Trump non-drama leader. No ranting, no raving. Just a calm, experienced voice telling us all to take a deep breath and calm down.

The perfect antidote to the lunatics

            The Democrats, of course, are jubilant at the prospect of jamming through their favorite legislation now that they control the White House and both branches of Congress – albeit by the narrowest of margins. After Wednesday’s riot many congressional Republicans – not all by any means – are in shock and in no mood to vigorously oppose Biden. He could probably get Che Guevara confirmed as Secretary of Defence at this point. But the Democrats need to be careful not to make the same mistake the Republicans made by overplaying their partisan dominance. They could play a much stronger long game by showing a little of Biden’s most popular word – bipartisanship. Giving a little now will gain them the moral high ground for a long time as unifiers and healers instead of mere partisan warriors out for blood. That gets old very fast.

            As for the Republican Party itself, well, one has to ask what Republican Party? Will it continue to be party of Trump and his acolytes or will it rebuild itself along the Reagan/Bush axis? Will Trump try to form his own party? I doubt that very much. For one thing it is a very expensive process and Trump has an aversion to spending his own money. Second, and more important, third parties have a very difficult time in the American election system. All he would do is split the Republican vote and ensure Democratic domination for a long time. The only reason I could see him doing it is to spite the Republicans for failing to go along with his lies about the election.

            His family is now so politically toxic it’s extremely doubtful that his two loudmouthed sons have much of a future in democratic (small ‘d’) politics. Maybe in places like Belarus or North Korea but not so much in the United States. His daughter Ivanka may have had visions of representing major luxury brands but now she has about as much chance of doing that as I do of becoming the next James Bond. It’s amazing to see how fast corporations that once fawned over Trump and his family are now back-peddling. ‘Trump? Trump who? Never heard of the guy.’

Rapid trip from First Family to Forgotten Family

            The same goes for the two senators, Ted Cruz of Texas and Josh Hawley of Missouri, who led the anti-certification charge. These are by no means stupid men. Cruz went to Harvard Law School and Hawley went to Yale Law School. Both served as clerks to Supreme Court justices. But both are – or were – consumed by presidential ambitions and probably practiced Hail To The Chief  in front of the bathroom mirror. They hoped to capture Trump’s ‘base’ by challenging congressional certification of Biden’s victory in the name of ‘protecting the integrity of elections’ – as if numerous judicial decisions and recounts had not already accomplished this. They watched their presidential ambitions crumble as the mobs assaulted the Capitol. They may get elected again in their respective states but their national aspirations are over.

            And what about the media organizations who lavished such praise on Trump for the past four years? Rupert Murdoch’s Wall Street Journal and the New York Post – to their credit – repudiated Trump’s election fantasies and are now calling for him to resign. Even Fox News is no longer merely a Trump mouthpiece. Many conservative websites like City Journal have columns that sound like third-rate Mafioso in their back-handed criticism of Trump. ‘The schmuck was worse than criminal. He was stupid.’ They are furious at Trump’s meddling in Georgia – not because it verged on the criminal but because it backfired and resulted in two Democrats winning and giving Democrats control of the Senate. According to these columns this opens the floodgates for hated ‘liberal’ legislation like tax hikes, health care, and – God forbid! – easier immigration. The hysteria of these, and other conservative commentators, is misplaced. With a 50/50 Senate split it would be extremely difficult for the far left to push through much of its desired legislation. More important is that Biden has not expressed the slightest interest in the extreme legislation favored by the far left wing of the party. And he has chosen a cabinet that reflects his own moderate views. Janet Yellen as Treasury Secretary. Merrick Garland as Attorney General. Pete Buttigieg at Transportation. Boston Mayor Marty Walsh as Labor Secretary. The extremely capable Rhode Island governor Gina Raimondo as Commerce Secretary. Anthony Blinken as Secretary of State. No flame throwers there.

            Maybe the upside of the mess that Trump left behind is that the grown-ups now have a chance to get down to the business of actually legislating and getting something done without the Master of Disaster bombarding everyone with his school-yard tirades all day, every day.