"What is most
important is not what happens but what
it means"...
Of
late, USA displays rare political acumen; its foreign policy
strategies are so sagacious and so quietly successful. It has tactically
withdrawn from battle fronts in Asia. It has refused to be drawn back despite
hidden and direct invitations. It has extended a hand of friendship to Cuba. It
is mending fences with a broken Venezuela and its Lat Am neighbours. It makes the right noises on Africa but does
not overtly meddle any more. It lets Israel blast its policies in its Congress even as it delays signing a treaty with Iran. In
Asia, while recognizing China as its major trade partner, it is laying out a network of potential allies ranging from India to Japan in an attempt to
contain Chinese growth ambitions. USA geo-political strategy manages contradictions so well.
Much
as the US strategists
might like (if not love) it, the middle east is split through
the centre in schism. The division between Saudi Arabia and Iran as
respective leaders has vertically split the Middle East. Heard disbeliefs are severe, unheard
discontent elements are several. The post Feb -2011 events have disturbed the
very fabric of the Arab society. Democracy
is seeking an agonizing birth.
The polity seems caught between 2 worlds, one refusing to die and the
other not bold enough to be born. Egypt
is a classic example of dilapidated nations, fast sinking to be of the status of Jordan, a dignified dependent on others. It is a self
destructive path so often seen previously in Lebanon. As the USA withdraws
tactfully in Afghanistan and Asia, there is a rush of power to fill in that
vacuum. The power brokers will see destructive engagement.
Economically,
Europe is split asunder between the haves and have-nots. Greece imbroglio has shown off the lack of leadership skills
in Germany, and the Germans are USA's economic major competitor at all times.
Any peace brokered through the acceptance of Greek proposal would be ephemeral.
It would be a humiliated, restive and
helpless Greece that accepts austerity. The mental perspective in an average
Greek mind is that Greece has been pushed into a blind alley by Germany. That
is not a perspective that would help the integration of / fusion of Europe. The other peripheral countries have already
indicated a resurgence of nationalism. Britain, which has more in cyclical
patterns in common with USA and which sulks at Teutonic dominance, would wait
to move away from a weakened Europe, with a tacit support from across Atlantic.
Bid European Banks too seem to do negatively , thanks to its non adherence to
norms of US regulators.
Any
semblance of a victory for Germany would strengthen the euro and that should
help USA exports. ( "In particular, the higher foreign
exchange value of the dollar that I mentioned, as well as weak growth in some
foreign economies, has restrained the demand for U.S. exports." - Janet
Yellen at the City Club of Cleveland, Cleveland, Ohio, July 10, 2015 Recent
Developments and the Outlook for the Economy")
Oil
is in a situation of glut. So the inventory levels take USA to a situation of comfort zone. Even though it might speak of falling investment in the petroleum
sector, it has benefited the USA
customer and left him a wealth effect as real incomes go up. There will
be consequential spending in USA which should buoy up the economy further. The
wealth effect on the Gulf countries will reduce the accelerated growth of city
states like Dubai. Football issues and labour issues have dogged the prosperous
Qatar. USA just has to keep it all simmering. With Russians licking economic
wounds, and economic bubble woes holding back China, USA does not have to worry so much. It is far too
ahead in the lead of economic strategy.
China,
the Asian giant is in a state of limbo with its asset prices falling. The
wealth effect of a $3 trillion loss incurring Chinese economy is stupendous.
There is more to it than meets the eye in the Chinese policemen enquiring as to
who all short sold. Chinese consumers will feel less prosperous after stock
market wounds and refrain from buying. It will add to social disquiet too.
Internationally, the image is of a state
intervening, fickle tock market in China. Chinese have also to encounter its
unstructured capital market products which are patently over-leveraged.
The
Japanese are still recovering from the local economic harakiri inducing inertia , nay
stupor triggered by a recession older than decades. Neither monetary policy nor
fiscal policy seems to revive confidence in a fatalistic society.
India , despite good leadership, is held back by a
splintered polity. Reforms are delayed by a difficult opposition. Thus the growth rate of 7.5 % looks great but the economy's moving
further, like its infrastructure, is on slow and often pothole ridden roads. If only its central bankers could talk less
and concentrate on banking sector's non
performing and stressed assets, and only if there was more professionalism among its civil servants!
With
commodity prices down, (from copper to coal to gold, it is a shortening
scenario) and the tigers struggling, there is nowhere to turn to except the
dollar assets. May be the Yen may hold some safe haven status being least problematic among competitors. The Swiss are on to negative interest!
Janet Yellen has indicated
that there is a fair likelihood of a
rate hike. The global markets have long factored this in. With the rate hike
quarters pruned to probable last quarter, and with just data supported evidence
of growth needed, there will be a bee line for US assets. The rest of the world
will see a compensatory sell off as the institutional investors shift to USA.
The cost burden of the rate hike will be factored in by US corporations , which are among the most
productive technologically.
USA has, it
appears, for its strategy 'Carpe noctem': 'Seize the night'
Without any risk or responsibility.
