Raising the interest rate of the Fed - an attack on the geopolitical rivals

The Board of Governors of the US Federal Reserve has decided to raise the interest rate for the first time in more than 10 years. The most likely consequences of this decision for the global economy will include a reduction of the dollar supply, and hence a strengthening of the dollar, and an outflow of capital from other economies to the US. This will lead to serious problems for economies around the world.

Dollar dependence

Despite the increase in value of other currencies, the global economy continues to depend entirely on the dollar, which remains the world’s largest reserve currency. The decisions of the Federal Reserve, the private company that manages the issuing of the US dollar and the interest rate at which dollars are issued to commercial banks, affect the entire global system.

Possible economic effects

Increasing the exchange rate for the dollar will decrease the value other currencies. It can be expected that bankruptcies among debtors who are unable to make payments on foreign currency liabilities will increase. The Federal Reserve’s decision, first and foremost, will hit the economies of BRICS and developing countries. The export of capital from countries with unfavorable economic conditions will accelerate. For some countries, primarily Russia, some positive affects might possibly come about. With a decrease in oil prices and a weakening of the national currency, the state will be forced to keep to budgetary commitments.

A number of countries will now try to introduce new restrictions on cross-border capital flows in response to the Fed’s actions.

Federal Reserve rates and the oil market

According to analysts from Morgan Stanley, raising the key interest rate will result in a strengthening of the dollar and a fall in oil prices. Together with the planned lifting of the embargo on oil exports from the United States, both measures could derail global oil prices.

Economics as a geopolitical weapon

Both such actions (raising the Federal Reserve’s interest rate and the abolition of the oil embargo) demonstrate that the US and global financial elite are ready to suffer through serious costs in order to satisfy their geopolitical interests. After all, a systematic increase in interest rates will drive up the expenses of loans and therefore hurt the US economy itself. The economies of the US’ competitors on the world stage, such as the BRICS countries, face serious challenges. If the Chinese system will be able to merely survive, then the other countries of the bloc will have more than serious problems.

In Brazil, it is very probable that President Dilma Rousseff will be removed from her post in view of economic difficulties and replaced with a pro-US figure. In India, Narendra Modi will face great difficulties in reforming the country.

The most serious target of the American economic weapon is hitting the Russian economy. Against a background of economic difficulties, the US will attempt to exploit the discontent of the majority of the population over the worsening socio-economic situation, as well as manipulate the ranks of the Sixth Column which surround the Russian president.

A combination of economic and political pressure and offensive operations by US proxies in Syria, Ukraine, Central Asia, and the North Caucasus, is to be expected.

You are here

Raising the interest rate of the Fed - an attack on the geopolitical rivals