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Dave Bloke

Are the wheels about to fall off the Turkish economy?

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For years, investors have doubted the independence of the central bank, as President Recep Tayyip Erdogan railed against high interest rates and an ill-defined interest rate lobby. Such fears deepened in May when Mr Erdogan, on a visit to London when he was expected to reassure markets, vowed to take greater control of monetary policy and declared that high interest rates caused inflation rather than cured it.

 

https://www.ft.com/content/914e3be8-9bc1-11e8-ab77-f854c65a4465

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To be fair, real wages in the UK rose significantly in the 20 years before the bank of England was 'independent'. In the 20 years since real wages have essentially gone nowhere, and the basic neccessity of housing is prohibitively expensive. 

No such thing as independent, really, is there? It just means independent of politicians (and thus wholly in the pocket of banksters/goldman sachs)

Politicians like 'independent' central banks for the same reason they like the EU.

"oh, we'd love to cut immigration, we really would, but its out of our hands. Its up to the EU"

"oh, we'd love to increase interest rates, we really would, but its out of our hands. Its the MPC's decision"

Making everything 'independent" means central govt dodges responsibility. Probably why they want these devolved powers. So they can f*ck up the NHS or whatever, like in Wales, and blame 'regional' govt. So long as all is fine within the M25, rest of the country can go to hell. 

Edited by PatronizingGit

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Yes, read a piece in the Mail on it this morning.  It wasn't this one but this is going to be equally worrying for anyone holding Turkish bonds or shares:

 

Financial shockwave rips through Turkey sending lira into a nosedive as Trump promises to double tariffs – but Erdogan declares ‘They have the dollar, we have Allah’

 

 

http://www.dailymail.co.uk/news/article-6047441/Turkeys-President-Erdogan-claims-currency-crisis-national-battle-against-economic-enemies.html


 

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Its Allahs will that the Turkish Lira is toast, how does that toss pot Erdogan explain that.

Worth 25% of what it was 4 years ago and wants Turks to sell dollars and euros to support the national currency.

“If there are dollars under your pillow, take these out,” he told supporters in Ünye.

“If there are euros, take these out … immediately give these to the banks and convert to Turkish lira and, by doing this, we fight this war of independence and the future. Because this is the language they understand.”

Wonder how much materialised from under the proverbial mattress.

The EU really needs to militarise its southern borders ASAP.

302848900_Screenshot-2018-8-11TRYUSDExchangeRate.png.32b4576a580e6c4cf503fe3e1e5326ef.png

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11 hours ago, Frank Hovis said:

Financial shockwave rips through Turkey sending lira into a nosedive as Trump promises to double tariffs – but Erdogan declares ‘They have the dollar, we have Allah’

Allah 

the Flying Spaghetti Monster will save us! 

😂😂😂😂

4000 religions present and past.. hows that worked out for the world so far!

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2 hours ago, BurntBread said:

What's being done right now to support the Turkish Lira? Have they introduced capital controls, or some such? The USD/TRY ratio looks absolutely fixed (not even trading in a narrow band).

FX is closed between Fri 10pm - Sun 10pm.

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3 minutes ago, BearyBear said:

FX is closed between Fri 10pm - Sun 10pm.

It's probably more accurate to state that all markets are closed over the weekend. 

They start at 9am Monday in New Zealand and then move across the world until 5pm Friday in New York.

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Capital flight is an interesting thing.  The people getting rid of their Lira and swapping for <other currencies> are balanced by people swapping other currencies for Lira.  Sure, it is going down because there's different demand, but the sheer numbers are going to be balanced. 

The problem isn't capital flight -- the problem is the sheer amount of debt that the country owes in foreign currency, and the requirement to keep on funding more debt in foreign currency.  This leads to a constant need for foreign currency that isn't balanced by inward flow of funds into Lira (over the last 10 years there's been loads of inward investment into Turkey, which essentially means people converting foreign currency into Lira -- that inward investment has dried up but the debt repayments remain).

I suppose the question everyone cares about is how it ends.  It certainly looks like a Russia type inflation situation, not a Cyprus type (capital appropriation and deflation) or Zimbabwe (hyperinflation).  Just how serious will Erdogan get?  Well, his entire 'success' to date has been entirely about foreign investment into the country, so I'm not sure he's just going to nationalise everything.  My guess is he'll capitulate and allow interest rates to rise again, satisfying international money somewhat, but mainly I think he'll attract money from China (not sure of the details, though).  Bit of a Faustian pact, of course, but it'll keep him in power.
.

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I'd add that the reason that there's a crisis is Turkey is the same as the reason for the majority of other crises around at the moment -- Western countries have printed like bonkers in 2001-2008 and then doubled up on the printing since 2008.  That money has ended up in the growth countries, like Greece and Turkey.   So I have a certain sympathy for their plight.  Sure, Erdogan hasn't managed things well (and is a dictator, albeit nowhere near a Tito level one (yet)), but the problem is the money sloshing around, picking on places to boom then crash.  

[IMO China is the end-game.  When that blows we've all had it.]

Edited by dgul

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8 hours ago, dgul said:

I'd add that the reason that there's a crisis is Turkey is the same as the reason for the majority of other crises around at the moment -- Western countries have printed like bonkers in 2001-2008 and then doubled up on the printing since 2008. 

Erdogan has also been involved in funding a war in Syria which hasn't worked out as he hoped and is bleeding the country white.

On 11/08/2018 at 13:15, PatronizingGit said:

 

Making everything 'independent" means central govt dodges responsibility. Probably why they want these devolved powers. So they can f*ck up the NHS or whatever, like in Wales, and blame 'regional' govt. So long as all is fine within the M25, rest of the country can go to hell. 

I know Ken Clarke has somewhat tarnished his record of late but i think he probably did a better job then Eddie George on interest rates as he had a political hinterland to answer to.

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