At the end of the boom | ZEIT ONLINE

When Olaf Scholz boarded the plane in Berlin on Wednesday to travel to the International Monetary Fund's autumn meeting in Bali, he did not know where he would wake up. While the German Minister of Finance was still in the air, the earth shook again in Indonesia, and in the short term it was considered to await the further course of events in Singapore or Bangkok.
            Scholz landed in Bali, but the incident is a symbol of the state of the world economy. It jerks on the international financial markets, the stock prices have fallen, after almost ten years, had gone up virtually uninterrupted.
            At its core, what is happening on the markets is a long overdue development. The American economy has been growing rapidly for about ten years and is gradually reaching its limits. Wages are rising, labor is scarce, machines are busy. The Federal Reserve is responding with interest rate hikes that are slowing growth to prevent the economy from overheating as inflation rises. This is a completely normal process. Every upturn is followed by a downturn.
            The only problem is that the US is ruled by a president who threatens to exacerbate the impact of the economy. Because Donald Trump has lowered taxes practically at the height of the boom, giving the already hot economy an extra boost. And he has punctured the world with punitive measures whose direct effect goes in a similar direction. The trade tariffs, in particular against imports from China, make many goods sold in the US more expensive. And because of the imminent sanctions against Iran, the price of oil is rising, which is also driving up inflation.
            The US Federal Reserve is thus in a dilemma: it must raise interest rates fast enough to prevent inflation from rising. On the other hand, it must not be too harsh, because otherwise the economy will be damaged. Trump has made this already difficult balancing act even more complicated by his unprecedented attacks on the independent central bank. For now, the Federal Reserve must also take care that it does not give the impression that it is a subordinate authority of the White House.
            Dangerous debts of the emerging markets The decisions of the US Federal Reserve radiate on the whole world. Especially in emerging markets, many companies have become heavily indebted. In many places – for example in Turkey – the loans are also denominated in dollars. This makes such countries particularly vulnerable to rising interest rates in the US. After all, they usually cause investors to pull their capital out of emerging markets and invest in the United States, where there is more return and risk is lower. But then the country's currency loses value and the debt burden increases as companies raise more Turkish lira or South African rand to service their dollar credits.
            What's next? The finance ministers and central bankers assembled in Bali are confident that no real crisis is currently threatening. That is quite plausible. Growth rates around the world are still decent, even in Europe, where the controversy over the excessive Italian budget deficit causes additional turmoil in the financial markets. With luck, so it remains with a correction that would be healthy after so many years of rising prices.
                But this presupposes that the actors behave reasonably rationally in the end. In this case, this concerns above all the American president, who would have to stop his attacks on the central bank and be prepared to compromise in the trade dispute. And it concerns the Italian Prime Minister, who would have to reach an agreement with the European Commission. It can not be ruled out that it will be different.

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