Investors Stuck Between Two Central Banks

The Federal Reserve will tighten as the Bank of Japan loosens, potentially disrupting markets

By Justin Lahart and Anjani Trivedi

The Bank of Japan in Tokyo opened its monetary spigots further Wednesday. Photo: Reuters

The Bank of Japan 8301 12.79 % took new steps to revive Japan’s economy while the Federal Reserve prepared the ground for tighter U.S. policy. With two of the world’s most powerful central banks moving in the opposite directions, investors will be caught in the middle.

The risks include big shifts in global money flows that could drive U.S. interest rates higher or lower and cause financial disruptions that undo both central banks’ efforts.

The BOJ on Wednesday opened the monetary spigots further, essentially saying it would try to control the market for long-term bonds that is normally ruled by investors. That is a switch from its previous strategy of buying a fixed amount of government bonds at any price.

It also amped up its rhetoric about inflation, which it has failed to ignite. The BOJ said that it now aims to overshoot rather than just meet its 2% target.

Specifically, the BOJ’s move to  target the yield on 10-year bonds at around 0%—above where the debt has traded recently—alters the calculus for investors and could further distort bond, stock and foreign-exchange markets. There is no longer a willing buyer, but a price setter.

The aim here is to keep even longer-term rates in positive territory, providing relief for pension funds, banks and insurers from low long-term rates. That wasn’t lost on investors Wednesday, with shares of Japanese financial institutions rising 6% on average.

Yet the consequences of this foray deeper into experimental territory remain unknown and the goal of reviving inflation as distant as ever. Particularly in the context of a global economy that, as the Organization for Economic Cooperation and Development put it on Wednesday, remains in a “low-growth trap.”

But the bigger risks may stem from two of the world’s major central banks trying to do very different things at the same time.

The BOJ’s targeting of long-term Japanese government bond yields, for example, will alter Japanese investors’ appetite for U.S. Treasurys — and will therefore influence long-term interest rates in the U.S. The Fed’s plan to raise short-term rates at the same time that the BOJ, through its commitment to overshoot its inflation target, is signaling it will keep short-term rates negative for a very long time, could shift global money flows in other ways.

Both the Fed’s caution and the BOJ’s modest shift in strategy show how central banks have become humbled in markets that they used to rule. Investors seem to have more confidence, driving stock and bond markets to new highs.

If the lenders of last resort are worried, investors should be too.

Prepare for a power shift after Germany’s general election

Wolfgang Münchau

At the moment the executive is strong, the legislature is weak. This is going to reverse

Angela Merkel has poured cold water on Boris Johnson's vision of Britain's relations with the EU

The Brexit vote was the ultimate electoral upset this year. The US elections and the Italian constitutional referendum may be next, followed by the Dutch and French elections next year.

What about Germany, where elections are due in the autumn of 2017? Is an electoral upset there possible as well?

Yes and no. The interesting question is not who will win. The answer is: very likely Chancellor Angela Merkel if she decides to run. It is quite possible that the same “grand coalition” government will emerge, less grand perhaps, but with mostly the same ministers. What makes this election so interesting and important for the rest of Europe is a likely power shift within the Bundestag.

We caught a whiff of the pending power shift at last week’s elections in Ms Merkel’s home state of Mecklenburg-Vorpommern, north-east Germany. The chancellor’s Christian Democrats suffered one of their worst results in the party’s history, ending up with less than 20 per cent of the vote. It came third behind the Alternative for Germany (AfD), which started life as an anti-euro party and has now morphed into a nationalist anti-immigrant party.
The AfD is not represented in the Bundestag. Nor are the liberal Free Democrats. Right now, the grand coalition parties — the CDU, its Bavarian sister party, CSU, and the Social Democrats — hold 80 per cent of the seats. The Greens and the Left party hold the rest.

All this will change next year. The latest opinion poll by Insa puts the AfD at 15 per cent of the vote nationwide. The FDP has recovered from its defeat in 2013 and is on course to clear the 5 per cent threshold required for entry to the Bundestag. That alone will ensure that the majority of the grand coalition parties will shrink as Germany adjusts to a seven-party parliament. In addition, both the CDU/CSU and the SPD have lost support since the last election. The CDU is down by 10 percentage points. The polls put the two coalition partners at barely over 50 per cent.
One of the reasons any change in the composition of parliament matters is the internal division between the CDU and the CSU on Europe and immigration. Ms Merkel has no problem organising majorities at present. But if the polls are borne out at the ballot box next year, the Bundestag will be able to constrain her on matters ranging from Brexit to the debate on the future of the EU and the eurozone. Today the executive is strong and the legislature is weak. This is going to reverse.

One area where this could be reflected in policy is Germany’s approach towards Greece. I cannot see how a Bundestag composed as foreshadowed in the current polls could agree to a Greek debt restructuring. During negotiations on the Greek programme this year, Wolfgang Schäuble, German finance minister, persuaded Brussels and Washington that there is no political room for manoeuvre in Germany in favour of a Greek debt writedown before the 2017 elections. He failed to mention that there will be even less room afterwards.
Previously, Ms Merkel was able to agree to eurozone rescue operations as well as bailout programmes for Greece, Ireland, Portugal and Spain because there was no effective opposition.

That will change from 2017 because the government’s majority is likely to shrink, and the opposition will be hostile.

What about Brexit? Of all political parties in Europe, the CDU is among the least concerned about the precise form a British departure will take, and would probably accept some trade-off between immigration control and single market access. But after next year, the CDU’s ability to press for a soft Brexit will be diminished. The SPD does not want it. Nor do the Greens. The AfD will be hostile, not least because the British Conservatives expelled them from their grouping in the European Parliament. The Left party can be relied on to be against, and if the FDP is in opposition, they might also reject it.
Then there are the implications of a changed composition of the Bundestag for Germany’s contribution to the debate on the future of Europe. EU leaders are scheduled to meet this Friday for a summit in Bratislava, Slovakia, to brainstorm ideas for a post-Brexit Europe.

Nothing much will come of this meeting, but a discussion about the future of Europe will have to start in earnest after next year’s round of elections. With the AfD as the main opposition party, flanked by the FDP, and a divided CDU/CSU, I cannot see any serious progress towards further integration.

Germany’s elections thus matter a great deal. And, to paraphrase Mario Draghi, president of the European Central Bank, the risks are firmly tilted to the downside.

Silver Will Be A Top Performing Asset In The Next Financial Crisis

By Chris Vermeulen

The much awaited Jackson Hole speech by the Fed Chair Janet Yellen - and the subsequent nonfarm payrolls data failed to ignite the prospects of a rate hike this September of 2016. The market now forecasts only a 21% probability of a rate hike in this month, according to the CME FedWatch Tool. The probability of a rate hike in December of 2016 stands at just above 50%.

Time and again, I have explained why the Fed cannot hike rates in 2016. Contrary many market experts, my view has stood the test of time and has come to fruition. According to my research, the chances of a rate hike in December of 2016 are also very bleak. Nonetheless, the Fed speakers will continue to “jawbone” the dollar, the way they have been doing for the whole year.

The coming week has a number of Central Banks competing with each other to unleash their monetary easing plan as if that is the only solution to all the economic problems plaguing the world. Even the failure of the past seven years has not deterred them from printing more money from thin air.

$180 Billion Of Bond Buying - Even Larger Than 2009

The European Central Bank and the Bank of Japan combined are purchasing a whopping $180 billion of bonds monthly, as shown in the chart below. Add to it, the new bond buying program announced by the Bank of England, and the number rises even higher. All three are expected to recommend either adding to their existing bond purchases or extend their duration in their next policy meetings.

This has led the Bond King Bill Gross to warn investors of the dangerous consequences. In a letter to clients, he wrote: "Investors should know that they are treading on thin ice".

"This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies. Sooner rather than later, Yellen's smooth shot from the fairway will find the deep rough," reports CNBC.

Silver Is On The Cusp Of A Massive Rally

When investors realize that they are holding worthless currencies, the big money will rush into the precious metals. Consider this: The total world’s investment holdings in silver are a paltry $50.8 billion, compared to $3.04 trillion in gold, as shown in the chart below.

Did you know that the hedge funds alone manage around $2.7 trillion, according to Barclay Hedge data? Even if a small portion of the trillions sloshing around out there decides to enter into silver, the white metal will shoot through the roof.

Traders Are Finally Recognizing The Importance Of Silver

Following the poor jobs report last Friday, traders jumped into silver, thus driving it higher, as shown in the chart below.

As explained in our earlier articles, investors should not only look to buy into the “white metal”, they should also explore options of investing in the silver miners.

What Are The Silver’s Technicals Suggesting?

Silver had a massive run from the lows of $15.83 to $21.22. No markets rise vertically, a 50% Fibonacci correction is a healthy and accepted norm. As seen in the charts below, silver too has corrected 50% of the recent rise.

The weaker hands are out of silver, whereas, the stronger hands have bought the white metal at lower levels. Silver is currently trading above both the 20 - day and the 50-day exponential moving average. This is a sign that it has resumed its uptrend, and is set to rally higher.

Once silver crosses above the highs of $21/oz, it should reach its target of $25/oz.


As Bill Gross says, the world markets are being manipulated by the Central Banks.

Consequently, investing is becoming a difficult proposition. You need the help and support of an expert with an edge to invest at the right time and to be positioned propertly for when high volatility strikes.

15 Years in Something They Call War

George Friedman
Editor, This Week in Geopolitics

In every battle, whenever the enemy achieves surprise—from Pearl Harbor to the Bulge, Chosin Reservoir to Tet—everyone is stunned. But within a decade, the number of those who were stunned drops off, and the world is filled with people who knew it was coming. In every intelligence service, there are bits of information pointing at the absolutely obvious fact that an attack was coming. But they only point to anything after it happens.

So too with September 11, 2001.

I know of two classes of people. There are those who knew all along that this was coming. And there are those who are convinced that the government knew or should have known. There is a guy at a mobile hot-dog stand on K Street in DC. He will swear that he passed on conclusive warning of the attack and was ignored.

Retrospective genius or expectation of genius is part of our culture.

What Happened That Day

When I reconstruct my own experience of the day, I recall being appalled and terrified. I was appalled that al-Qaida seemed to be superb at covert operations. The attackers entered the United States, received instructions and money, communicated with each other, and carried off the attack without detection. They seized aircraft to serve as their air force and their weapon.

I was also terrified. Many covert operatives are willing to risk their lives, even at great peril. The al-Qaida team was prepared to go to its certain death. I had read of the Japanese kamikaze and the manner in which they had wreaked havoc on the US fleet at Okinawa.

It is very difficult to defeat someone who has decided to die. The most important question to me was how many other trained and suicidal operatives there were. For me, a team that was able to evade US intelligence and counterintelligence in the United States for over a year, while being trained in flying aircraft, all the while aware that they would die, represented a profound threat to everything I loved (including my own body parts).

A Country at War

This is the point where the US went to war. A group had attacked the United States. We did not know how large the group was. We did not know how many more were in training in the US or elsewhere. We did not know what kind of weapons they had (though it was possible they could have had nuclear weapons from the former Soviet Union black market, or perhaps, the Pakistanis).

It is one thing to miss a surprise attack. But US intelligence had failed more fundamentally. It seemed not to know too much about the enemy.

The war began with a fundamental lack of definition. Were we in a state of war? Or were we involved in a criminal investigation? The difference is fundamental. In wars, you kill members of enemy armies regardless of what they did. In a criminal investigation, you bring criminals to court.
The president kept talking about both—fighting al-Qaida and bringing people to justice.

The argument was made that you can’t make war on a non-state actor. Of course you can. Thomas Jefferson did this with the Barbary pirates. Not anticipating this situation was a defect in international law (one of many).

President George W. Bush, following the precedent of Korea and Vietnam, failed to declare war. He then compounded the problem by talking about criminal law. The war started in fundamental confusion.

Working with Limited Intel

We knew that al-Qaida’s home base (al-Qaida means “the base”) was in Afghanistan. Not knowing al-Qaida’s capabilities or intentions, it was logical to strike at its home base to decapitate, or at least, destabilize it.

The problem was that it takes the US months to mount an invasion, and the US didn’t have months. So it adopted an alternative strategy.

The US had good relations with those Afghans it didn’t betray after the fall of the Soviet Union.

By good relations, I mean they would take money and, in return, strike at who the US told them to. There was never a full-scale invasion of Afghanistan. A handful of Army Special Forces, the US Air Force, and about 500 marines rushed into a place called Camp Rhino. The Special Forces were identifying targets for airstrikes and hunting for al-Qaida, and the Air Force was blowing things up.

The Taliban were never defeated. They withdrew under heavy bombardment in the cities and dispersed. Over the years, they regrouped. In Afghanistan, the power is in the countryside… not in the cities. The Taliban knew that. The US failed to capture the al-Qaida senior staff for lack of sufficient forces. They evaded the US at Tora Bora and slipped into Pakistan. They were destabilized but not destroyed.

Undefined War and Mission Creep

The problem the US faced in Afghanistan defined everything that came after. The strategic purpose of the attack was not to create a new, democratic government in Afghanistan (lying about doing it is OK, but actually thinking you will do it is troubling). The strategic purpose was the disruption of al-Qaida. The US had a few choices.

It could follow al-Qaida into Pakistan, but war with a country of 150 million people is tough. It could try to force Pakistan to destroy al-Qaida, but that would lead to a civil war. The Pakistanis weren’t about to do that, and the US didn’t have the force to compel them. Or the US could withdraw forces from Afghanistan, accepting the mission had failed, and focus on covert operations against al-Qaida’s leadership as well as finding and destroying cells in the United States.

The choice the US made would set the stage for everything that came later. Rather than withdraw, Washington decided to remain and build up forces in Afghanistan. The mission was unclear. If it was to create a pro-American government in Kabul, that was only possible if the US surrounded the city and protected the government. If it was to destroy the Taliban, there were two problems. The Taliban lacked the skill and interest to attack the United States. They were not al-Qaida, and their interest was Afghanistan. Plus, an extended guerrilla war had nothing to do with the primary mission, destroying al-Qaida.

But the decision was made to remain in Afghanistan. That meant that the US waged an ineffective war against the Taliban and that the government it created would be regarded as a US puppet. The decision to remain in Afghanistan with significant force turned the war from a war against al-Qaida to a war of occupation.

A war of occupation is the hardest kind to fight. It is easier to defeat an enemy force than to occupy a country with a hostile population. The rationale for occupying Afghanistan was to prevent the return of al-Qaida’s leadership there. This was a complete misunderstanding of the nature of the war.

Where It Went Wrong

A covert force was operating against the US. Its connection to Afghanistan was pure political convenience. It was at home in Pakistan or anywhere in the Islamic world. By committing to a war of occupation, the US lost sight of the purpose of the war… making it about Afghanistan. It also committed the US to waging a war in what may well be the most inhospitable environment for occupation in the world. The British and the Russians were unable to pacify Afghanistan.

The United States would do no better.

Al-Qaida was a global, sparse, and covert network. It could operate anywhere, as the 9/11 attack showed. It had very few members, which meant detection was difficult. It was covert, in that it was trained to blend into the population. Fighting al-Qaida required a global and highly mobile capability with the means of identifying operatives like needles in a haystack and the military to disrupt their covert flows of information, money, personnel, and all the rest. This was a hugely difficult mission that required an utterly different analysis of war, and it was needed in 2002.

From my point of view, and this is not entirely retrospective, the war against jihadist forces did not go wrong in Iraq as most people say, and it did not go wrong because al-Qaida did not need to be fought. It went wrong in Afghanistan. The first failure was at Tora Bora where Osama bin Laden and his staff escaped. But that happens in war.

The biggest mistake was in shifting from a war against al-Qaida to a simultaneous war against al-Qaida and an occupation of Afghanistan. Beating al-Qaida was a very tough mission, but necessary. Occupying Afghanistan kept al-Qaida out of Afghanistan, but it didn’t need Afghanistan. Neither did the United States.

The True Nature of the War

The mixed model of warfare, in which one part focuses on finding and defeating the enemy, suffers from a deep misunderstanding of the enemy. The enemy is not a particular organization. It is that strand of Islam, however large or small, that wages jihad. The occupation of various countries simply increases the size of the jihadist strand and overburdens the covert force.

This was a covert operation from the start, and it is one that international law does not account for. As I said, that is a defect in international law because al-Qaida launched a war. The 9/11 attack was an act of war, not a criminal act, and had to be treated as a legitimate form of warfighting. The confusion over the nature of al-Qaida's covert operation—criminal or warfare—made everyone more comfortable with the occupation of countries.

And so today, the network remains—global, sparse, and covert—but it has a new name. We are still trying to build countries—from Libya to Syria and on. And we still do not have a handle on the jihadists or even a name for the war. The beginning of the war was frightening. After 15 years, the situation has simply gotten more confused. And it all began 30 days after 9/11, with the first airstrikes in Afghanistan. By the time we went to Iraq, the confusion had been institutionalized.

jueves, septiembre 22, 2016



The Middle East Since 9/11

The region has changed significantly following the attacks 15 years ago.

By Jacob L. Shapiro

Yesterday marked 15 years since Sept. 11, 2001. Since then, the U.S. and other forces have waged almost constant war in the Middle East, the birthplace of Islam and civilization itself. On Sept. 11, we pause and remember where we were that day and what we were thinking. That is altogether appropriate. However, it is also appropriate to consider how the map of the Middle East has changed since 9/11. Maps are useful tools, but they can be dangerous because they lock patterns into your mind that may not be accurate. The only way to counter this is to force yourself to look at things from a different perspective. To do this, we have created two maps of the Middle East: one of the region on Sept. 11, 2001 and another of the region on Sept. 11, 2016. 

The Middle East Region
Click here to enlarge:
Osama bin Laden had one great goal in mind for al-Qaida, and it wasn’t simply to kill Americans. For bin Laden, attacks like 9/11 were a means to an end. Bin Laden really sought to transform the Islamic world from within by insurrection.

He came from a wealthy Saudi family, and when he looked at this map, he saw sclerotic regimes, indulgent dictators and a society in a general state of collapse. The once-proud heirs of the Prophet Muhammed’s revelation had been turned into pawns in the Cold War and had imbibed foreign ideals – first nationalism, then socialism, then petty authoritarianism. And now they were weak and ignorant of their own traditions, and bin Laden hoped to change this.

Al-Qaida didn’t have the power to do this single handedly. And so al-Qaida attacked the United States, hoping to create a rallying cry in the Muslim world not just against the West but against the Western-sympathizing dictators who had steered the
Arab Muslim world to this disastrous place. In total, 2,977 people died on 9/11 – but from al-Qaida’s point of view, 9/11 was initially a failure. The U.S. punished Afghanistan and the Taliban, but Afghanistan was on the periphery of al-Qaida’s fight. Al-Qaida hoped to draw the U.S. into the heart of the Middle East, and at first the U.S. didn’t take the bait.

But 9/11 also showed that bin Laden understood something the U.S. and others did not. And that was that most Middle Eastern states were in fact weak, their borders artificial. The 9/11 attacks may not have immediately set off the chain reaction bin Laden hoped for, but his diagnosis of the situation proved to be accurate. Eventually, the tinder ignited, sparked by the U.S. invasion of Iraq and the U.S. attempt to install a liberal democracy in Baghdad. Since then, because of war, popular unrest (most notably the 2011
so-called Arab Spring), economic frailty and various other dynamics, the map of the Middle East has changed dramatically.

A New Map of the Middle East
Click here to enlarge:

This is a map of the Middle East on Sept. 11, 2016. The map does not show official political borders. It shows the forces that exert power over certain territory. It is a very different map than the first and represents the realization of at least some of bin Laden’s objectives.

Libya, for instance, is no longer a country. The old Libya was the 16th largest country in the world by area but only had a population of 6 million split between two population centers – Tripoli and Benghazi. The distance between Tripoli and Benghazi is over 600 miles, which is mostly desert. The hinterlands support small populations of various tribal groups and the Tuareg, many of whom now exert control over regions and battle each other for position and territory.

Yemen has fallen apart again, with fresh civil war kicking off in 2014, a few years after
Arab Spring protests shook the country. The Saudis and their allies support what is still recognized internationally as Yemen. The Houthis and their supporters have a stronghold in the north. Al-Qaida has found enough space to operate its own little fiefdom in the country, and the Islamic State is there too. It is the perfect example of jihadist groups taking advantage of popular disillusionment with the old order of things.

Lebanon remains as it has been since the 1960s: hopelessly divided and deadlocked. Only now, Hezbollah has become both a political party and a fifth-column military force in the small Levantine country. Hezbollah has in recent years traded the occasional skirmish with Israel for supporting Bashar al-Assad’s Syrian Arab Republic, but remains dominant in stretches of land that is for all intents and purposes Hezbollah’s sovereign territory.

Egypt looks relatively stable despite its unrest and the 2013 coup d'état, but
Egypt is under significant strain. The economy is in shambles, its military is dealing with an insurgency in the Sinai Peninsula and other jihadist terrorist threats at home, and its 80 million plus people live in an area roughly the size of the state of Kentucky, clustered on either bank of the Nile River.

Jordan is under similar strain – the fact that Jordan has been able to hold together amid the chaos surrounding it is a minor miracle. Almost 20 percent of the people living in Jordan are Syrian refugees.

Syria and Iraq have been destroyed and will not recover, at least not in their previous form. At the heart of this is the Islamic State, a splinter of al-Qaida, which took advantage of both the power vacuum in Iraq after the U.S. invasion and the sectarian rivalries embedded within the region. Bin Laden hoped to begin the process of building a caliphate by overthrowing Middle Eastern dictators. The Islamic State is building that caliphate by conquering territory and ruling it and has thus far met with success beyond what could have been imagined for such a group in 2001.

Syria has splintered into at least three different segments. First is the Islamic State. Second is the small, partially disconnected statelet the
Syrian Kurds have carved out for themselves, which they call Rojava, on the Jazira Plain. Third is the remnants of the Syrian Arab Republic led by Assad’s regime – exactly the type of regime Bin Laden hoped al-Qaida would help break apart. Assad’s regime is a shadow of its former self, though it has solidified control over the Alawite coast as well as most of Syria’s major metropolitan areas: Homs, Hama and Damascus.

Iraq has split into at least four different segments. The Islamic State is under severe pressure there but remains a formidable force. Iraq’s Kurds in the north enjoy autonomy through the Kurdistan Regional Government – independence is a fait accompli at this point. Shiite Arab Iraq oscillates between being an Iranian vassal state and attempting to assert its own writ. Sunni Arab Iraqis, with the least physical control over their territory than any other entity on this map, remain something of a wildcard. IS could not have grown into what it is today without them, but that tacit support has waned in the last year.

Sitting atop this chaotic situation are the Middle East’s four regional powers: Turkey, Iran, Saudi Arabia and Israel. This map reveals that these countries face grave challenges and potential opportunities. Turkey must fear spillover from the chaos raging to the south, the result of both Syria’s civil war and the rise of the Islamic State – but that also means Turkey has a chance to reclaim its influence in some of the old Ottoman territories. Iran has to deal with Sunni Arabs, the Islamic State and the Kurds, all claiming land within territory that used to belong to its mortal enemy. These are all threats – but they also present a chance for Iran to gain a base of operations in the heart of the Middle East from which it can project power.

Saudi Arabia, a vast, oil-rich desert
whose economy is under severe strain, faces a war on two fronts, and there are limits to the amount of treasure it can use to protect itself. Israel is surrounded by general chaos, but its two most important strategic partnerships – with Egypt and Jordan – remain in place. Israel’s would-be enemies are also too fractured and too busy fighting each other to give Israel a hard time. Despite the unease Israel feels looking at this map, ironically Israel is more secure today than at any other point in its modern history. As for the Palestinians, they have never been more divided, and Israeli military and economic dominance of the Palestinian territories is at this point a simple, if controversial, fact.

Looking at the old map of the Middle East is like traveling back in time. It is an echo of a past long gone. Comparing that old map to the new reveals the thinking of those who live there and gives a sense of the direction in which events have developed since 9/11. It’s not how bin Laden drew it up or planned it, but 15 years after 9/11, the map looks a lot more like he would have wanted, despite a massive expenditure of American (and Russian, French and various other foreign) resources in the region to stop those very developments. Bin Laden had a deep understanding of his part of the world in 2001. Looking at these maps bears that out – and points towards an inexorable conclusion: These new borders will change too, and that will necessitate more new maps.

Erdoğan’s Tragic Choice

Dani Rodrik

CAMBRIDGE – Ever since Turkish President Recep Tayyip Erdoğan won his first general election in late 2002, he has been obsessed with the idea that power would be wrested from him through a coup. He had good reason to worry even then. Turkey’s ultra-secularist establishment, ensconced in the upper echelons of the judiciary and the military at the time, made no secret of its antipathy toward Erdoğan and his political allies.
Erdoğan himself had been jailed for reciting religion-laced poetry, which prevented him from taking office immediately when his Justice and Development Party (AKP) assumed office in November 2002. In 2007, the military issued a statement opposing the AKP’s candidate for president – then largely a figurehead. And in 2008, the party narrowly escaped being shut down by the country’s top court for “anti-secular activities.”
The old guard’s efforts largely backfired and served only to augment Erdoğan’s popularity. His strengthening grip on power might have mollified him and led to a less confrontational political style. Instead, in the ensuing years, his then-allies the Gülenists – followers of the cleric-in-exile Fethullah Gülen – managed to whip Erdoğan’s obsession into paranoia.
From 2008 to 2013, Gülenists in the police, judiciary, and media concocted a series of fictitious conspiracies and plots against Erdoğan, each more gory than the last. They ran sensational show trials targeting military officers, journalists, NGOs, professors, and Kurdish politicians.
Erdoğan may not have believed all of the charges – a military chief with whom he had worked closely was among those jailed – but the prosecutions served their purpose. They fed Erdoğan’s fear of being toppled, and eliminated the remaining vestiges of the secularist regime from the military and civilian bureaucracy.
The Gülenists had another motive as well. They were able to place their own sympathizers in the senior ranks vacated by the military officers targeted by their sham trials. The Gülenists had spent decades infiltrating the military; but the commanding heights had remained out of reach. This was their opportunity. The ultimate irony of July’s failed coup is that it was engineered not by Turkey’s secularists, but by the Gülenist officers Erdoğan had allowed to be promoted in their stead.
By the end of 2013, Erdoğan’s alliance with the Gülenists had turned into open warfare. With the common enemy – the secularist old guard – defeated, there was little to hold the alliance together. Erdoğan had begun closing Gülenist schools and businesses and purging them from the state bureaucracy. A major purge of the military was on the way, which apparently prompted Gülenist officers to move pre-emptively.
In any case, the coup attempt has fully validated Erdoğan’s paranoia, which helps explain why the crackdown on Gülenists and other government opponents has been so ruthless and extensive. In addition to the discharge of nearly 4,000 officers, 85,000 public officials have been dismissed from their jobs since July 15, and 17,000 have been jailed. Scores of journalists have been detained, including many with no links to the Gülen movement. Any semblance of the rule of law and due process has disappeared.
A great leader would have responded differently. The failed putsch created a rare opportunity for national unity. All political parties, including the Kurdish People’s Democratic Party (HDP), condemned the coup attempt, as did the vast majority of ordinary people, regardless of their political orientation. Erdoğan could have used the opportunity to rise beyond Islamist, liberal, secularist, and Kurdish identities to establish a new political consensus around democratic norms. He had a chance to become a democratic unifier.
Instead, he has chosen to deepen Turkey’s divisions and erode the rule of law even more. The dismissal and jailing of opponents has gone far beyond those who may have had a role in the putsch.
Marxist academics, Kurdish journalists, and liberal commentators have been swept up alongside Gülenists. Erdoğan continues to treat the HDP as a pariah. And, far from contemplating peace with the Kurdish rebels, he seems to relish the resumption of war with them.
Unfortunately, this is a winning strategy. Keeping the country on high alert against perceived enemies and inflaming nationalist-religious passions serves to keep Erdoğan’s base mobilized.
And it neutralizes the two main opposition parties; both are highly nationalistic and therefore constitute reliable allies in the war against the Kurdish rebels.
Similarly, Erdoğan’s offensive against Gülen and his movement seems driven more by political opportunism than by a desire to bring the coup’s organizers to justice. Erdoğan and his ministers have endlessly griped about the United States’ reluctance to extradite Gülen to Turkey. Yet, nearly two months after the coup, Turkey has not formally submitted to the US any evidence of Gülen’s culpability. Anti-American rhetoric plays well in Turkey, and Erdoğan is not beneath exploiting it.
In his testimony to the prosecutors investigating the coup, the army’s top general has said that the putschists who took him hostage offered to put him in contact that night with Gülen. This remains the strongest evidence that Gülen himself was directly involved. A leader intent on convincing the world of Gülen’s culpability would have paraded his military chief in front of the media to elaborate on what happened that night. Yet the general has not been asked – or allowed – to speak in public, fueling speculation about his own role in the attempted coup.
And so Turkey’s never-ending cycle of victimization – of Islamists, communists, secularists, Kurds perennially, and now the Gülenists – has gained velocity. Erdoğan is making the same tragic mistake he made in 2009-2010: using his vast popularity to undermine democracy and the rule of law rather than restoring them – and thus rendering moderation and political reconciliation all the more difficult in the future.
Erdoğan has twice had the chance to be a great leader. At considerable cost to his legacy – and even greater cost to Turkey – he spurned it both times.