Turkish financial crisis: Lira hits record low

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[Green Line]

Turkey is lost to the West at this point.  They’ll be out of NATO by the end of Trump’s term, and I don’t blame the White House on this one.  Time to cut the cord, ramp up sanctions!

[2952-0-0]

This is a textbook example of a financial crisis that was caused by too much foreign debt and an overvalued currency. It didn't help that Turkey's president has a big mouth.

It appears the big Turkish companies had previously borrowed vastly in dollars or euros to take advantage of lower interest rates. They had been struggling to repay these debts, and this had led to fears of bankruptcy that would threaten Turkish banks, which caused a run on the currency. This, in turn, would cause the foreign debts to explode in terms of Turkish currency, which would turn into a self-fulfilling prophecy. It doesn't help that Erdogan appointed his son in law to be finance minister and made some bizarre outbursts which reveal his financial illiteracy.

What Erdogan "should" do is what Mahathir in Malaysia did in 1998: blame "foreign capital" (i.e. Jews) for domestic consumption (not that he actually should), impose capital controls, and seize the banks to prevent a complete failure. The European banks who had lent to the Turkish companies will have to eat losses. The Turkish Lira will stabilize at a much lower rate, which would eventually lead to an export and tourism boom. But not before plenty of grief within the country.

[mvd10]

Turkey's economy is too reliant on consumption anyway thanks to Erdogan. In the past few years he has been massively propping up consumer spending which led to an overheating economy and runaway inflation (and Turkey's low savings rate and huge current account deficit means the entire boom was financed by foreign capital). He also refused to increase interest rates even though attracting foreign capital through higher interest rates was the obvious option a few months ago (tbh I think it's too late now, investors have lost all faith in Erdogan). And the failure of the Lira also has political reasons, you just don't want to invest your capital in a country that's about to be taken over by a mentally unstable autocrat.

I'm not sure whether this will have a huge effect on the rest of the world. European banks have some exposure to this, but I don't think their assets in Turkey are significant enough to really threaten financial stability. I could be wrong though.

Tbh it's still ironic to realize that Erdogan was very successful in his first years as president (ffs, The Economist endorsed him in 2007). Now he's just ruining the entire Turkish economy.

[Obama-Biden Democrat]

Turkey is lost to the West at this point.  They’ll be out of NATO by the end of Trump’s term, and I don’t blame the White House on this one.  Time to cut the cord, ramp up sanctions!

How things change. I remember back in the early 2000's Turkey had applied for EU membership. It wasn't considered a joke at the time, people though Turkey had a 50/50 chance of being admitted back then. It made sense to let the southern flank of NATO join in the EU.

[Landslide Lyndon]

We should send Varoufakis to help them, but I don't think we hate them that much.

[🦀🎂🦀🎂]

Turkey is lost to the West at this point.  They’ll be out of NATO by the end of Trump’s term, and I don’t blame the White House on this one.  Time to cut the cord, ramp up sanctions!

I suppose the impoverishment of one of the biggest countries in Europe, and the subsequent doubling down on nationalism and Erdogan (very notable that all the opposition parties in Turkey are following his line) means nothing to you?

This could genuine spiral into a crisis in a lot of emerging markets (the rand, peso, real and rupee are also suffering) along the lines of the 90s Asian financial crisis, except possibly in a much more destructive manner given the emergence of economic nationalism amongst the ruling elite; very much an indictment of the post-scarcity crunch policies of big central banks, which only seemed to be able to stave off the crisis rather than permanently fix it.

[jaichind]

Business Insider is reporting that "Turkish diplomats are reportedly close to releasing a US pastor at the center of a diplomatic spat between Turkey and the US." 

If so this is Erdoğan yielding to Trump to get relief from the crisis.