On the eve of the Second World War, although ten years had passed, the Depression of 1929 still had not come to an end. Most likely this business will continue; it would be wise to remain cautious.

This happened here in the past as well. It happened in the US again in the middle of the crisis.  During the 2000-2001 banking crisis, the Central Bank of Turkey (CBT) declared the amount of financial support in the form of overnight debt it had provided to which bank . This time  it was Federal Reserve's (Fed) turn. The news was first announced the other day by Bloomberg. It was when I was thinking, "What will Fed President Bernanke do? Will he execute the third quantitative easing?" Economic decisions are more political than ever now. This development made me think that a hard task awaits us. Let me tell you why.

According to Bloomberg, "the Fed protected the Wall Street aristocracy." The total amount of public bailouts to banks at US$ 1.2 trillion equaled the sum of delinquent or foreclosed loans. The financial institutions that received bailout money included not only American institutions like Citibank and the Bank of America, but also European institutions such as UBS and Dexia. As in the case with the CBT, the crisis had ended when the bailout figures were announced. The American case appears to be a more populist tantrum and is more dangerous at the same time. Let me draw some conclusions here.

The primary responsibility of a central bank is to ensure that the financial system works in a stable manner. If interbank operations are halted, even solid banks might face difficulty in making daily payments. The deposits they receive are not held in the bank vault downstairs. If the bank cannot find the money required for its daily payments, you will fail to pay your electricity bill although you have deposits in your account and go in default. Your electricity might be cut. This is what you might face if the bank at which you have deposited your money is considered to be risky by others and if it hence fails to find the liquidity required to meet its daily payments. Banks that normally lend their excess liquidity at hand on an overnight basis to other banks in need cease interbank transactions in some cases, which can lead to a crisis that can have repercussions for the real sector as well. This is what we call a crisis of confidence. In such cases, the central bank steps in and carries out transactions with individual banks. This is what the Fed did, too. The CBT did this during the 2001 crisis for the sake of the payments system. Therefore, everything was normal considering the economic course of the system. This is the first point to state.

Second, the fact that the news was announced in a populist language implies that the present economic crisis also involves a profound political crisis. Take the European Union (EU), for instance.  Banks and bond markets ask for the acceleration of the EU project, an economic and political integration project. This is the core of the debates regarding the issuance of Eurobonds and fiscal union. The main objective of the European elite is to deepen the integration. However, regular EU citizens, that is, the public, do not want sovereignty to be handed to Brussels. Hence,  a gap emerges between possible resolutions and what is politically attainable, which does nothing but deepen the economic crisis. The president of Germany, Angela Merkel, appears to have made too little progress too late for a solution since the resolutions are not politically convenient.

So let me move to the third point: Nowadays, what is economically correct tends to be politically incorrect. Slow growth and high unemployment lead to a profound contradiction at the core of the world, let alone developing countries like Turkey. We must read the lootings in London from this perspective. The riots and lootings emerged at a period when the share the workers at the core received from the GDP had hit a historic low. Was this just a coincidence? Maybe not.

A new note by George Magnus of the UBS begins with a quotation from Uncle Karl: "At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production." At this point then it is necessary to consider production relations from a legal perspective. Let me repeat: If the politics find it difficult to do what is politically "correct," this does not mean necessarily  that it is reading the situation "incorrectly." I think central politics has become paralyzed, stuck between the system and the people.

On the eve of the Second World War, although ten years had passed, the Depression of 1929 still had not finished.

Most likely this business will continue, it would be wise to remain cautious.

This commentary was published in Radikal daily on 23.08.2011