Zerohedge reports Turkish Lira Crashes Through 7 as Erdogan Threatens To Unleash “Plan B or C…”
Following emergency bank meetings and numerous pleas by Erdogan for Turks not to “pull FX out of their banks,” blaming the country’s current economic crisis on America, the Lira has opened massively weaker – crashing below 7.00 per dollar for the first time ever.
“I’m calling out to industrialists, do not attack banks to buy FX,” said Turkish President Recep Tayyip Erdogan in a speech in Trabzon.
“It is industrialists’ duty too to keep this nation on its feet. Otherwise we will set into motion our plan B and C,” he added.
Reuters reports a low level of 7.22 – all of which implies the Turkish banking system is done.
As Goldman Sachs warned, further lira depreciation to 7.1 would erode all of Turkey’s banks’ excess capital.
Turkish Lira on Hyperinflation Path
Plan B or C
I suggest one of then is capital controls. Hyperinflation may easily set in. If you have money in Turkish banks, take it out now, if you can.
Mike “Mish” Shedlock
A big portion of their problem is that their debt is denominated in other currencies like euro’s and usd, as I understand it. Why would they borrow money denominated in currency other than their own? These currency crisis occur routinely do these emerging market economies not learn from past mistakes?
probably Turkey will become the worst default.
You might want to cancel any vacations to Turkey Mish – Ergodan is going after social media users who post negative things about the Lira – “Get your money out now” will, I speculate, fall under things Ergodan does not want spread on social media.
Banking issue + possible migrant surge = financial + social stress.
ECB may have to calm nerves in some euro banks. If they don’t tread carefully a full-on panic can ensue or Erdogan will start to point at foreign banks and consider lifting barrier on migrants into Europe as a bargaining chip for support.
The fragility of EU banks is not to be underestimated. They still apply old stress tests as they couldn’t pass the new. Fudge and sticking plasters will come undone one day.
Failure to face their weaknesses won’t make them stronger, a real world test is coming.
The Sultan will encourage the Turkish banks and companies to default on foreign currency loans, and he will welch on his migrant deal with the EU. You are right that the Eurozone banks are in a poor way and action should have been taken years ago.
Mish, don’t worry! Even if plan B and C fail, there is always the fallback plan D, and then plan E.
The problem is that Turkey allowed and cheered for many Turkish companies to borrow in foreign currencies and for Turkish banks to give loans in foreign currencies.
Once the Turkish Lira started crashing the likelihood of these companies being able to handle their debts started crashing which led to banks likelihood of getting repaid starting to crash and all this further weakened Turkish Lira creating a self-fulfilling crash.
Turkey should have NEVER cheered and encouraged this level of foreign currency borrowing because it ALWAYS leads to problems sooner or later.
In addition to the above Turkish central bank has been WASTING their currency reserves in buying Lira to prop up Lira. This is also always a FAILING policy but yet central banks still do it.
Turkey should ride the crash in Lira and let it move freely (Turkey would be in even deeper problems if it had tied Lira to a certain value in foreign currency) and concentrate in supporting Turkish citizens and Turkish companies inside Turkey.
The crash in Lira will make tourism more attractive and make Turkish exports more competitive if Erdogan can keep the situation peaceful but unfortunately Erdogan is an authoritarian buffoon who is making matters worse with his conspiracy theorist tirades against USA.
Let’s see if the ECB thinks any action needed to bolster Exposed EU banks.
Problems start at the periphery and work inwards. Turkey, Argentina etc.
$ strengthens that in turn helps increase stress, speeding up the progress/process.
But..but, Erdogan has a “plan B” and a “plan C” to implement.
I can’t wait to see how those work out.
I guess having an islamic tyrant with dictorial powers didn’t work out so well.
I have no money in Italian or Turkish banks, so nothing to take out. Have I missed out on something?
Industrialists and smart money have already pulled their money out of Turkey; either by purchasing capital equipment overseas and then expanding operation outside of Turkey, or by purchasing gold. They’ve been doing that for nearly 30 years when this exponential trend began. This is the end of the trend, so people without financial accounts having international access are left. That isn’t enough demand to move the gold market. Turkish debt collapse is what will ripple through the global financial system.
“Get your money out now”lol MS!Anyone that still has cash in Turkish banks is beyond stupid…….That money is gone (long gone)!
Anyone keeping currency accounts in Turkish banks is f*cked but for Turkish Lira accounts Erdogan would have to be a blithering idiot to not make sure that everyone gets all the Turkish Liras they have as deposits in Turkish banks.
So, when is Trump going to sanction Turkey; for manipulating their currency?
Turkey central bank has sold their currency reserves and bought Turkish Lira.
It has not helped like it will never help but still educated idiots keep doing it in central banks around the world in situations like these.
Turkish Lira will drop until the market thinks it has found a right price and this depends on what Turkish government and Central bank do policy wise.
So currencies are starting to collapse, one by one, yet the collective wisdom is to short gold????