The last few months have been quite a nightmare for the Federal Reserve’s pursuits to increase interest rates. Every time there seems to be a sign of hope on economic recovery and the possibility for the FED to raise interest rates without fearing to damage the U.S. economy becomes plausible, new figures on U.S. jobs growth rates are reported and all confidence is lost in a moment. Not incorrectly assuming that the FED does not feels comfortable increasing interest rates, given the current state of the economy, then the question to ask here is, what is the FED’s idea of the ideal moment to increase interest rates? Regardless of what this might be, they might probably want to consider taking into account the effect of their decisions on other economies, especially developing economies.
Take for example the case of the Mexican economy and its susceptibility to changes in U.S. monetary policy. Figure 1 is a plot of the exchange rate between the U.S. dollar and the Mexican peso. In the last months the Mexican peso has depreciated around 13%, thus, reaching the highest exchange rate in decades. Might this be a sign that the global economic environment has significantly changed within the last few years and the decisions taken by major economies have now a bigger impact in other economies?
Up to the present day, the Mexican peso as well as other Latin American currencies continue being subservient to the FED’s ability to postpone decisions, loosing strength within the process. With the region’s economic outlook deteriorating rapidly, expectations that Latin America’s economy will recuperate this year are not on the table. Lets hope the FED sets these currencies free in a near future and, once being free, they have still the strength to walk the right way home.
The decision of the Federal Reserve of when to increase the interest rate is defining the path to follow by many economies around the globe. This holds for developing as well as developed economies, as it is the case of Europe. With an average growth of around 0.25% for the second quarter of 2015 within the Euro area, an increase in interest rates by the FED might prevent European countries to continue their way to recovery. Out of any clear sign of global economic recovery the only thing that remains is to hope the FED’s shoot will hit in the right place and in the right moment, without causing too much damage on its way, and to remember her that with a great power comes a great responsibility.
BP and Iraq Sign Development Deal for Kirkuk Oil Fields
Iraqi Government and British energy giant BP have signed an agreement for the future development of the Kirkuk oil fields in Northern Iraq.
A statement on the Iraqi Oil Ministry’s website said the “memorandum of understanding” between the government and the London-based oil company would enable further development of the oil fields as well as “to open a new page of work” for the North Oil Company, a subsidiary of the Oil Ministry, on “solid foundations”.
BP Director, Michael Townsend, said the company would conduct the necessary surveys and prepare the required statistics. He claims the company will increase production by 750,000 barrels of oil a day.
The Kirkuk Oil Field, discovered in 1927, is one of the largest oil fields in the world, producing half of Iraq’s oil exports, a reported million barrels a day. However, it has also been a wellspring for local instability: the fields had been seized in 2014 by the Kurdistan Regional Government, who piped oil across the Turkish border, a few hundred kilometres to the north. The fields were only retaken by government forces in October 2017.
Baghdad is attempting to reassert its authority throughout its provinces and according to Iraq’s Minister for Oil, Jahbar Ali al-Allaibi, Thursday’s announcement will “speed up the rehabilitation process”.
During the Saddam Hussein era, the fields suffered irrecoverable damage due to poor management. Excess production was reinjected back into the ground making Kirkuk’s oil thicker and therefore harder to extract.
On Wednesday al-Allaibi met with Britain’s ambassador, John Wilkes, where according to the ministry’s website, they talked about joint cooperation between the two countries in the oil and gas industry.
Trump’s Presidency and Russian Relationship: The Future
Much has been said about Donald J. Trump’s love affair with Russia. Questions deserve a thorough and honest investigation. As distasteful and risky it may be, the best outcome of the enquiry is accusations continue to swirl, Trump limps through three more years, and in 2020, he is crushed at the ballot box. The world moves on. If removed from office, odds are Trump whips his base into a frenzy. Only the height and duration of civil unrest is in question. A worse case is that Trump emerges emboldened, eager to settle Putin’s longstanding challenge.
Putin Mocks Trump
The competition is real. Putin’s economic and political dominance gnaws Trump. Putin knows this. So, he taunts the President and dares Trump to employ the same ruthless tactics he exploited to consolidate power and possibly become the world’s richest man. Since Trump only sees green, he took the bait. The race is on to be the world’s first trillionaire.
Russia’s population is 142 million. Its $3.86trn translates into a measly $26,900 per capita GDP. In contrast, the 326 million people of the United States generate $18.62trn in GDP, nearly five times Russia’s total. The US per capita GDP of $57,600 more than doubles Russia’s. Despite Russia’s meek economy and reports that Putin has embezzled up to $200bn in assets, Putin remains incredibly popular in Russia.
The apathy regarding this unparalleled heist makes Trump and Putin salivate over what they could jointly pilfer from the world economy. To advance their contest, the pair will identify a common threat. US-Russia relations will warm. Under the guise of “Peace through strength,” Russian sanctions will be lifted, and the Magnitsky Act repealed.
The administrative state in retreat, animal spirits will run wild. Trump’s name will be emblazoned across the globe. Countries desperate for jobs will be compelled to forge deals sponsored by Putin and Trump. Ethics be damned, the race to the bottom of the $120trn global economy will prompt a wave of corruption never seen before. Every facet of human decency will be compromised: environmental regulations, free and fair-trade by-laws, intellectual property, and human rights protections. The collusion is real.
In time, complicity will turn to double-crossing. It’s the Trump-Putin way. Makeshift “me-first” trade deals will collapse. Boycotts, divestitures and sanctions will be commonplace. Cooperation will evaporate. New political boundaries will be drawn with little world condemnation.
It doesn’t have to happen this way. Patience is a virtue. The checks and balances of the three branches of government are powerful mechanisms to thwart overt corruption.
Yet, for the impatient who seek Trump’s impeachment or removal via the 25th Amendment, be careful what you wish for. Only Trump can tame his army. To assume Trump will plead mercy at the feet of the administrative state contradicts Trump’s lifelong persona. He will relentlessly counterpunch and encourage his followers to do likewise. The short and long-term political and social risks are astronomical.
If Trump stems the tide, consolidates power and aggressively partakes in Putin’s race for two terms, the risks outstrip his forced removal. The consequences will be multi-generational.
Rope-a-Dope Is the Key to Containing Trump
The only path that possibly prevents extensive collateral damage is to check Trump into policy oblivion. Legislators must play rope-a-dope for as long as it takes, even three years if necessary. If Democrats take back both houses in 2018, the tactic will not set up Trump and his base for a final knock-out punch in 2020. For that to occur, numerous members of the GOP must join the effort. They too must throw periodic jabs at Trump then absorb a barrage Trump’s counterpunches.
With foes in every corner, even Trump – the self-proclaimed greatest counterpuncher in history—and his base will wear themselves out well before 2020. Then the decisive knockout punch can be delivered at the ballot box—without collateral damage.
Trump is severely wounded. If he gracefully and peacefully surrenders the Presidency, great. But don’t expect it. Rope-a-dope deployed by both parties is the countries best hope for a peaceful end to the Trump Presidency. Any other scenario risks the once unthinkable; an ‘American Spring’.
May Meets Macron
The UK prime minister agreed to pay £44.5m towards tighter border security at Calais.
Editor’s Remarks: The French president arrived in the UK for the Anglo-French summit amid widespread complaints from the Tory party about just why Britain is paying another £44.5m for tighter security in France. One Tory MP pointed out that this addition brings the total figure the UK has paid to France in recent years up to £170m. France, meanwhile, says that the amount is necessary because the migrants in Calais are trying to get to the UK, who must, therefore, contribute towards their costs. The talks were also consumed by the imminent task of reaching consensus over the UK’s trade deal with the UK after Brexit goes through.
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