As Erdogan tightens his grip on finance and the central bank, Investors Fear Turkish Currency Crisis.
The Turkish lira fell around 4% against the dollar late Monday after Mr. Erdogan appointed his son-in-law as finance minister and put in place measures that could curb the independence of the country’s central bank. Investors also sold Turkish shares and debt, with yields on its dollar bond maturing in October 2028 rising from around 6.8% last week to about 7.15% recently, according to Tradeweb. Yields rise as prices fall.
“There’s a real risk that this spirals into a full-blown currency crisis,” said Paul McNamara, a portfolio manager at GAM Holding . “It’s got so many red flags that we’ve associated with economic crises…in the past.”
In such a crisis, a sharp slide in a currency threatens the government and local companies’ ability to pay foreign debt. Turkey has one of the highest levels of external debt for a developing country, at 53.4% of gross domestic product, according to data from the International Monetary Fund. Local companies have raised billions of dollars, leaving them and the wider economy vulnerable to a slide in the lira, which would make paying off that debt more expensive.
The lira has lost a fifth of its value this year as investors sold ahead of Mr. Erdogan’s June re-election, concerned he would erode the central bank’s independence and usher in looser monetary and fiscal policies. Mr. Erdogan has described high interest rates as “the mother and father of all evils,” stoking fears that his preference for lower rates could prevent the central bank from supporting the currency and tackling inflationary pressure.
Mr. Erdogan fanned those fears on Monday. After taking the oath of office for a new five-year term, the government issued a decree that stipulated that the president would appoint the central bank governor, deputies and monetary policy committee members for four-year mandates.
Just a Start
Al-Monitor reports Erdogan Son-in-Law Takes Finance Ministry Post with Promises, Hush Orders
Just when you thought he couldn’t get any more audacious, Turkey’s President Recep Tayyip Erdogan put his son-in-law in charge of the country’s finances and issued new decrees that will radically reshape the way the country is run within hours of being sworn in on July 9 for a second term.
An emergency decree scrapping a five-year term limit on the Central Bank governor issued prior to Erdogan’s inauguration had already signaled his determination to continue to meddle in the bank’s affairs. A new decree announced on June 10 allows the president to appoint the Central Bank governor and his deputies along with the body’s monetary policy committee for a period of four years.
One of Albayrak’s first moves, was apparently to secure the censoring of several tweets by Turkish journalist Pelin Unker of the opposition daily Cumhuriyet. “
Pressure on Turkey’s beleaguered media is unlikely to ease. The Press and Information Directorate, which issued press credentials to Turkish and foreign reporters, has been abolished and its authority transferred directly to the president.
Hyperinflation, a Political Event
Hyperinflation is primarily a political event, not a monetary one. More accurately, the first leads to the second, not the other way around.
Studies
- Weimar Germany: Demands for war reparations following WWI set in motion finances that could not be repaid. Germany turned to the printing press.
- Zimbabwe: Prime Minister, Robert Mugabe confiscated land to give to the people. The result was white flight and capital flight. The country collapsed as did the currency.
- Venezuela: To fight poverty, presidents Hugo Chávez and Nicolás Maduro took over the oil industry and gave cheap gasoline to the people. In US dollar terms, gasoline is now a penny a liter. But you will not find any at that price.
Turkey on Venezuela’s Path
- Erdogan jailed political opponents
- Parliament effectively made Erdogan prime minister for life
- Erdogan took over the press
- Erdogan took over the courts
- Erdogan took over finance
- Erdogan about to take over the central bank
Hyperinflation Nearly Inevitable
Venezuela did not hop straight into hyperinflation and Turkey likely won’t either.
However, if Turkey remains on the same path, which seems highly likely, hyperinflation is the inevitable outcome.
Another Mass-Migration Crisis Coming
When hyperinflation or extreme enough inflation does happen, million of Turkish citizens and refugees will flood into Greece.
The EU is not remotely prepared for such an event.
Related Articles
- Fighting Poverty, Ending Up With Hyperinflation: Wealth Redistribution Madness
- More Give Everybody “Free Money” Idiocy
Mike “Mish” Shedlock
Ya think?
I will pardon your ad hominem stupidity. And unfortunately I’m sure Mish will also over look it.
True that Turkey took almost 4 million Syrians and Lebanon almost 1 million and Jordan about 1 million and about 1 millions Syrians came to Europe.
However Saudi Arabia took ZERO, Kuwait took ZERO, Qatar took ZERO, Dubai took ZERO, Egypt took ZERO, Bahrain took ZERO, Pakistan took ZERO, Bangladesh took ZERO, United Arab Emirates took ZERO etc. etc.
I don’t want to rain on your xenophobic rant but the last migration crisis, Syria, muslim countries took in more refugees than the entire “west” combined times 5.
Ask yourself two questions.
“Why am I posting crackpot theories on someone else’s blog?”
“Why is no one contesting them?”
The unexamined life is not worth living, said Socrates.
You’re correct, but it’s a minor point. What’s important is Mish asserts in his original post that Turkey will have a mass immigration which is not a fait accompli merely a possibility. And of course none of this invalidates anything regarding the dual policies I advocate to right ourselves from our inherent economic and monetary instability. You’re good at spotting inconsistencies. Are you just as good at looking at temporal universe policy effects?
Of course! Making it easy for foreign doctors to move here and practice medicine would help reduce health care costs, but that’s never been the intent of any politician.
Riiiiiiggght …. but the lack of German emigration had absolutely zero to do with alleged Nazi economic success that occurred no earlier than 13 years after the hyperinflation, which was your original point. Glad we now agree on that salient fact.
Don’t you know the rule? It’s only western democracies that must have open borders, take migrants in mass quantities forever and give them all free stuff. Everyone else in the world is of course allowed to repel them at their borders. Silly you!
Who I am is irrelevant to the truth that a 50% discount/rebate policy at the point of retail sale would double everyone’s purchasing power while also absolutely ending inflation and in fact miraculously integrating price deflation into profit making systems and just as a “kicker” implement the new monetary paradigm while ending the rule of the current one that has afflicted human civilization for like 5000 years. Look at the temporal universe effects of the policy Mish instead of not looking at it. Realize that the discount/rebate policy is in the intersts of both the individual (increased purchasing power) and enterprise (twice the demand for their product) and is an offer they cannot refuse….unless they want to make their customers pay the full price for their products and services while their competition will only be charging 50%. They can not participate….right up until they go out of business in like a couple of months.
Yes, along with riots in the street and the formation of the Nazi party, however, Germany still retained its productive capabilities and the Weimar Republic DID inflate its way out of the onerousness of the Versaille treaty which was the point of the hyperinflation. The point of positive if temporary effects of government economic stimulus also remains the same.
Erdogan said during the presidential election campaign that the almost 4 million syrians currently living in Turkey should go back home to Syria since Syria is now mostly peaceful thanks to Assad winning ISIS and other extremist-islamist groups almost everywere.
Erdogan was forced to make this statement because the 2nd most popular presidential candidate Ince had previously said that Syrians should go back home from Turkey.
There was probably massive election fraud in Turkey and Erdogan would have only won 51%-49% or something really close without the election fraud. With the election fraud it was a clear win for Erdogan the cheating only coming to light through the crash of car full of election voting documents on their way to voting place already filled out.
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Greece (Alexis Tsipras and Syriza government, the same people who in 2015 PUSHED over a million people north while only registering 11 000 as asylum seekers in Greece and this way Greece was the one who CAUSED the rush of over a million people to Germany and other European welfare countries by failing to register them in Greece, stopping detention, stopping border control, giving ferry rides to Greek mainland from Greek islands near Turkey etc.) has been demanding that there should be AUTOMATIC and MANDATORY burden sharing where asylum seekers coming to Greece should be immediately forwarded to other EU countries through EU relocation system of asylum seekers.
The new populist government of League and 5 stars in Italy has also demanded AUTOMATIC and MANDATORY burden sharing of asylum seekers coming to Italy to around Europe.
(The previous Letta/Renzi governments in Italy started giving boat rides from the Libyan coast to Italy since 2013 enabling smugglers to send people on crowded dinghies only able to go about 10-20 nautical miles from Libya until being picked up first by Italian ships in Operation Mare Nostrum, then EU countries ships through EU agency Frontex in operation Sophia and also assisted by NGO ships which go even nearer Libyan coast and turn of their transponders regularly to hide what they do. This sea taxi from Libyan coast to Italy of course multiplied the numbers of people coming from Africa through Libya to Italy and Italy “solved” this by NOT registering most of the people coming as asylum seekers and just pushing them toward northern Europe. In 2014 Italy saved 170 000 people from the sea but only registered 70 000 as asylum seekers and “lost” over 100 000 which they in effect pushed to northern Europe to seek asylum)
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EU commission took this demand by Italy and Greece and tried to make it an official policy but luckily EU council (heads of all EU countries) only opted for voluntary relocation of asylum seekers and only from disembarkation platforms from which economic migrants should be screened out.
If the AUTOMATIC and MANDATORY burden sharing would have gone through at least 1 million Syrians out of the almost 4 million currently in Turkey would have gone to Greece (because EU burden sharing would have given most of them rides from Greece to Germany and Sweden and other EU welfare countries) instead of going back to Syria like Erdogan wants so EU as a whole just avoided another 2015 style catastrophe.
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However Merkel and Seehofer in their stupidity opened a new route from Greece to Germany by promising to take ALL asylum seekers from Greece to Germany who already have RELATIVES in Germany in exchange for Greece promising to take back Asylum Seekers REGISTERED in Greece who have gone to Germany.
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This is the most incompetent political deal ever because:
1.
Currently there are only 2900 asylum seekers in Greece who have relatives in Germany but this is because Greece LET everyone go through in 2015 and early 2016 until Austria, Slovenia, Croatia, Serbia and Macedonia all closed their borders and thereby closed the Balkan route from Greece to Austria/Germany/Sweden etc. and news that borders were closed CRASHED the numbers of arrivals to Greece by 90% and the rest of 10% was taken care of by EU-Turkey deal that Merkel gave to Turkey as a giveaway behind EU leaders backs to save Merkel’s own face and make it seem Turkey deal stopped the rush to Europe when in fact CLOSED BORDERS had stopped the rush to Europe (remember Merkel wanted borders to stay OPEN because “We can manage”, “borders must be open”, “There is NO LIMIT on how many asylum seekers Germany takes”, “refugees welcome” etc.).
2.
Once news spreads to Turkey and Syria that IF one has relatives in Germany then getting to Greece will ENSURE they get to Germany and can enjoy German Welfare and get free apartment etc. there will be hundreds of thousands or millions getting from Turkey (about 4 million syrians) or Syria (tens of millions of syrians in Syria) to Greece expecting to go to Germany because since Germany has gotten almost 1 million asylum seekers from Syria there must be at least 10 million syrians in Turkey and Syria who are related to syrians in Germany.
3.
Since Greece did NOT register 99% of people coming in 2015 and early 2016 they have almost NOBODY to take back under this deal. Greece has only started registering asylum seekers once BORDERS WERE CLOSED so the ones Greece registered should be in Greece so there is almost no benefit to Germany.
4.
Why is Germany making a deal that is STUPID and creates a NEW WAY from Greece to Germany to potentially MILLIONS of Syrians in Turkey and Syria who already have relatives in Germany among the about 1 million syrians in Germany that gives Germany NO BENEFIT since everyone was let go through Greece by Greek government without registration and Greece promised to take back only people already REGISTERED in Greece?
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Because Germany has FAILED in making Dublin returns and BAMF the german immigration/asylum agency has only Dublin returned 17% of the people who were registered in some other EU country before coming to Germany to seek asylum and making one-on-one deals with individual countries was sold as a solution to this by Merkel. Not surprisingly Greece jumped at the deal (almost nobody will be sent back since Greece registered almost nobody) and also just as NOT surprisingly Italy REFUSED this one-on-one deal (because Italy has registered almost 50% of people as asylum seekers).
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Why has German government and BAMF FAILED in making Dublin returns leading to only 17% being returned to the first country they were registered in and 83% of asylum seekers who were registered in some other country first getting to stay in Germany?
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Most of these people who were registered by another EU country but then came to seek asylum from Germany were registered by Italy since Italy only left over 50% unregistered while Greece left 99% unregistered.
Dublin agreement has a timetable for Dublin returns so if a country does NOT inform the other country that they have to take a person as a Dublin return within the timetable set by Dublin agreement the responsibility shifts from the first country where they were registered to the country that did NOT ask for a Dublin return to the first country in a timely manner.
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BAMF had and still has a totally incompetent system for Dublin returns where they check if people have been registered in some other EU country through the asylum seeker fingerprint database ONLY at the asylum seeker interview and since getting the interview took months and months or even over a year since the huge rush of people in 2015-2016 this INCOMPETENT internal policy at BAMF led to the timetables in Dublin agreement being missed in 83% of cases that Germany could have Dublin returned to the first EU country they were registered in so these became the responsibility of Germany and Germany only Dublin returned 17% of previously registered asylum seekers to the first country.
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Most other EU countries and even Sweden have a system where they check the asylum seeker EU fingerprint database immediately after asylum seeker submits their asylum application and if a match is found an asylum seeker interview is NOT even scheduled but EU Dublin agreement return procedure is immediately started.
So Germany had and still has a completely INCOMPETENT system of making Dublin returns where BAMF internal policy FAILURE led to German authorities only checking EU asylum seeker fingerprint database whether the asylum seekers was registered in some other EU country first ONLY at the asylum seeker interview months and months or over a year AFTER they made the asylum application.
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Why did Merkel ask for HELP from other EU countries by making one-on-one deals with them on asylum seeker returns instead of FIXING the INCOMPETENT BAMF internal procedure and starting to make Dublin returns quickly after asylum application has been received and BEFORE even scheduling an interview like most other EU countries are doing?
That is a mystery.
The only logical reason I can think of is that Merkel is trying to HIDE the fact that she herself is the one who told BAMF to use an INCOMPETENT way of doing Dublin returns which led to HUNDREDS of THOUSANDS EXTRA asylum seekers staying in Germany and getting their asylum from Germany over the years instead of being Dublin returned to Italy.
Maybe this was a decision Merkel made herself without telling anybody in EU or then Merkel made this decision as a personal favour to Italian prime ministers Enrico Letta and Matteo Renzi who started and continued ferrying asylum seekers from near Libyan coast to Italy since 2013 and by doing that exploded the numbers arriving to Italy to hundreds of thousands a year 2013-2014-2015-2016-2017.
This search and rescue from near Libyan coast that is being called taxi rides to Europe by populists allowed massive profits to smugglers and led to hundreds of thousands a year coming to Italy starting in 2013 of which Italy pushed OVER 50% to northern Europe without registration while Merkel and EU turned a blind eye since 2013.
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The other option is that BAMF leadership used their incompetent way of doing Dublin returns on their own initiative to keep as many people in Germany as possible which would mean they were activists for more immigrants instead of being bureaucrats doing their job and Merkel was too INCOMPETENT herself to notice what BAMF was doing and the same can be said of the whole German political elite.
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Third option is that BAMF leadership, German interior Ministry as a whole, previous interior ministers and Merkel herself and even the current interior minister Seehofer are ALL totally and completely incompetent and have no clue what they are doing.
Of course word spread that even if one was registered in Italy one could go to Germany and end up getting asylum or subsidiary protection there with the free welfare money and free apartment paid by welfare that this includes since German procedure for Dublin returns is INCOMPETENT beyond INCOMPETENCY.
This for sure beats getting ZERO euros in Italy and sleeping in Italian streets unless one works and can pay their own rental apartment.
So Germany made only 17% of possible Dublin returns and 83% got to stay in Germany.
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If Germany is this INCOMPETENT in asylum policy and immigration policy that it does NOT even manage to make Dublin returns to the first EU country asylum seekers were registered in then how can one have any faith in German bureaucrats and German government when it comes to economic policy and EU policy and solving another EURO crisis that will surely start sooner or later?
There was at least a 10-year gap between the Weimar hyperinflation of 1923 and the Nazi ascension to power in 1933, let alone any measurable economic effect of NSDAP policies.
Funny how no one expects muslims to emigrate to other muslim and much richer islamic countries….
Why is that? What are they doing so that doesn’t happen?
The “WindowCleaner” seems like a resurrection of “Mr. Give the people a dividend” What was the name? I forgot.
The reason Germans didn’t emigrate was because Hitler spent money into the economy and built infrastructure and a military and so made things good for Germans. If Hitler hadn’t been a homocidal maniac he probably would have been the greatest German leader of all time. Of course his reich wouldn’t have survived any longer than Keynesianism has because he didn’t know how to implement the new economic paradigm of Direct and Reciprocal Monetary Gifting at the point of retail sale.
Over 1.2 million people emigrated from Zimbabwe in 2010 alone, out of a population of 12.5 million. 9.9% of the population according to the World Bank. Desperate people will go looking for food regardless of pride.
A compliant central bank that simply throws money into the economy willy-nilly and also funds speculators who short the currency is indeed the route to hyperinflation. However, if they INTELLIGENTLY distributed it directly to the individual and reciprocally back to enterprise with a high percentage discount/rebate policy at the quintissential expression point of any and all inflation , that is at retail sale….they’d become one of the most prosperous and free flowing economies in the world.
There are several doctors that work at the Chobani Plant in Twin Falls, Idaho. They couldn’t get licensed in the US.
Turkey currently has a markedly higher migration rate than Venezuela, assuming the statistics are accurate. Also unknown is if refugees are included in the totals.
Yep. There are at least a million migrants who would like a chance to move on. And out of a population of 80 million, at least 1 million citizens will want to move. Sellers isn’t thinking
Venezuela mass exodus underway – Recently blocked by bordering countries. In Zimbabwe, there absolutely was mass flight by those with resources to leave. It was precisely white flight and capital flight that led to hyperinflation. Little flight in Weimar as people had property to protect.
Erdogan could continue and increase the extortion to release large numbers of refugees into the EU. And they are a member of NATO.
Foreign entanglements indeed.
“When hyperinflation or extreme enough inflation does happen, million of Turkish citizens and refugees will flood into Greece.”
Nope. Weimar Germans didn’t mass immigrate, nor did Zimbabweans and Venezuelans haven’t either. Turks absolutely won’t. They are a proud people . More likely they will protest, throw Erdogan out, put in a new government, reform the economy and introduce a new currency. You only get mass immigration if the US military becomes involved.