I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
Turkey ranked number six in 2017 as a supplier of steel to the U.S., and number 11 in aluminum, according to the Commerce Department.
Trump Turkey Flashback Timeline
Feud Over Detained US Pastor Escalates
Today, the WSJ reports Trump Vows to Double Metals Tariffs on Turkey as Dispute Escalates Over Detained American
President Trump said Friday he would double steel and aluminum tariffs on Turkey, more than a week after he imposed sanctions against two top Turkish officials over the country’s refusal to free an American pastor held for nearly two years.
The Turkish lira fell nearly 14% against the dollar on Friday, amid concerns about Turkey’s foreign debts. Turkey’s external debt to gross domestic product is above 50%, one of the highest among developing economies.
The Treasury Department last week moved to prevent Americans from doing business with Turkey’s ministers of justice and interior, both of whom the U.S. accused of “serious human rights abuses” for their roles in detaining Pastor Andrew Brunson, a 50-year-old North Carolina native who was arrested three months after a failed July 2016 military coup.
Background
The US wants Turkey to release protestant minister Andrew Brunson who is charged with “acting on behalf of two groups deemed by Turkey to be terrorists.” Brunson has been under house arrest in Turkey since October 7, 2016.
Erdogan demands the US return Turkish cleric Fethullah Gülen who is in exile in the US. Turkey accuses Gülen of terrorism. Charges of terrorism are ridiculous. Edrogan refuses to give the US evidence.
In a nutshell, Erdogan arrested Brunson hoping to force the US to release Gulen in exchange.
For further background discussion, please see Trump Sanctions NATO ALLY Turkey, Lira Dives 2.1% to Record Low.
Turkey Blames US for Crisis
US Equities Hit
Reuters reports Turkey Trouble Rattles Wall St., Banks Worst Hit.
U.S stocks slid on Friday, with banks taking the biggest hit, as concerns over Turkey’s economy and its deepening rift with the United States roiled stock markets around the world.
“The currency crisis is actually a banking crisis as Turkey owes so much money to so many different banks, that they risk a potential contagion,” said David McKnight, adviser at David McKnight & Co in Puerto Rico.
“As long as Trump is going to be willy-nilly with tariffs, there’s going to be a lot of uncertainty and markets thrive on certainty.”
Turkish Lira Daily Chart
Turkish Lira Monthly Chart
Erdogan Dismisses Lira Fears, Says ‘We Have Our God’
Here’s a hoot: Turkey’s Erdogan Dismisses Lira Fears, Says ‘We Have Our God’
“There are various campaigns being carried out. Don’t heed them,” Erdogan said.
“Don’t forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now,” he said.
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 Path
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.
For discussion, please see Spotlight Turkey: Hyperinflation and Mass-Migration Crisis Inevitable.
Mike “Mish” Shedlock
Hi Mish! I think the whole issue with Turkey will blow up on Monday. Turkey will permanently default on all of its western currency denominated debt. For years Turkey has been running an enormous current accounts deficit in order to keep the economy from collapsing. Now, there will be no more bank or foreign treasury money. The IMF probably doesn’t have the resources to keep Turkey afloat, and Turkey will never agree to the required IMF restrictions.
What will happen to the Dollar and the Euro when it is confirmed that there are loans that will always be nonperforming?
The Lira/USD chart has been on an exponential path for 10 years. And even though President Obama was in office for the first 8 years of the trend, I still wouldn’t blame him. Erdogan was not in office the first 5-6 years of the trend, so he can’t be blamed for starting it. The general conclusion has to be a currency crisis is a vote of no-confidence against the country, which is its citizens and leadership.
A currency crisis is a vote of no confidence against those who control the money supply. Citizens, including Turkish ones, have precious little to do with it.
The hard reality about dictators in rough and tumble countries, is they are just “barely” managing to surf the underling political waves. Erdogan has no time nor resources for plotting evil, nor for much else, aside from simply trying to stay alive. Literally.
Like everywhere else, debasing money, is a quick way out of an immediate crises. But one that also, without exception, simply allows the underlying problems that led to the crises, to continue growing. Until, eventually, more money no longer works. And you have a currency crises.
The “problem” in Turkey, is that the controlling, secular, Western focused elite, is losing control. There simply isn’t enough of them, as they, true to secular form, have no kids. While the tradition focused, supposed-to-be-grateful-to-be-led-by-their-betters peons, have 14 for every woman. Keep that up for a few generations, and the latter eventually realize they are holding most of the cards, even if the rules, and increasingly hollow propaganda, are stacked against them. The Turkish central bank have been attempting to bribe both sides into calming down by handing them freshly printed money. While that may work for awhile, it’s a strategy that eventually runs out of room. The end point is a Turkey less European, and more Middle Eastern. With all this means for the desirability of holding Lira.
Trump is a chucklehead, but tuck Furkey. Edrogan is a massive creep.
The Bizarre Power Struggle in Turkey (2014):
“Markets thrive on certainty” – no, they don’t…
Anti Christ Trump marches on….Divide and Conquer…too stupid to notice what is amassing on HIS DOORSTEP…AMERICA is toast!
Not before the EU and Japan
At this pace, the US will have to continually increase tariffs as sanctioned economy’s currency falls, ad infinitum. This is not a war the USA will win. War with the whole world will in hindsight be revealed as the last wheezing of a dying empire instead of rejuvenation on the way to becoming the greatest again. These are not tokens of strength but symptoms of weakness.
“Erdogan demands the US return Turkish cleric Fethullah Gülen who is in exile in the US. Turkey accuses Gülen of terrorism. Charges of terrorism are ridiculous. Edrogan refuses to give the US evidence.”
Hi Mish, I agree with most of your comments except the above.
There is ample evidence about Gulen, he created the most sophisticated attack to Turkish Republic starting 30 years ago, his followers infiltrated into Judiciary system, Police and Army. Gulen is Enemy Number 1 for Turkish people, and his followers did the Coup, that was their plan , it is crystal clear from overwhelming evidence which Generals did the Coup and their affiliation with this group. Turkish government provided many dossiers about Gulen and his followers but US Government refused to accept it and even though there is mutual agreement between two states to exchange fugitives, US government refused to extradite him from US. Gulen followers also used Erdogan to gain more power in Turkey, he was very close once with this group, Gulenists are like a cult and they do whatever their leader( Gulen) ask them to do, never do any move without his consent, Gulen is protected by the Secret service in US now, when his green card application is denied by an immigration judge, it was a CIA agent who gave testimony supporting him as an important religious leader even though he has no formal education. It is clear that Gulen is a CIA asset and they are using him and will never give him back otherwise he may spell the beans.
All Turks suspect that the CIA was behind the Coup.Turkish secret service believe Pastor Brunson is also a CIA asset communicating with Gulen followers.
I’m not convinced anyone understands all the linkages here.
It could feed through to EU banks etc, then EU economy, then the globe.
If the Lira stays in the dirt, someone, somewhere, won’t get paid what they are owed.
Turkey had the largest standing army in NATO not so long ago.
When they go looking for someone to blame I think the military will play a role.
You won’t want to be a neighbour in the crosshairs as they try to deflect attention from a failing economy and especially if they become more radical/extreme.
Erdogan might be the best of a bad bunch.
That’s right I think Erdo is playing the TBTF card
Hyperinflation is both a monetary and political event. You can’t have hyperinflation if the country is running a surplus. You also can’t have hyperinflation if the countries debt is denominated in their own currency. I’m sure that Turkey’s debt is not denominated in Lira, and is denominated in some mix of Euro and USD.
Yes. Everybody always repeats that hyperinflation comes from printing too much money, but this reverses the causality. The money printing takes place because the money supply cannot keep up with prices (people lack the money to complete transactions), usually as a result of impossible to service external debt or too great a trade deficit (often because of war or other catastrophic developments). If it was just the money printing that moves the prices, the recipe would be easy. But constricting the money supply does not help when the value of the whole economy is falling against external factors, and the whole economy stagnates for lack of inputs.
“But constricting the money supply does not help when the value of the whole economy is falling against external factors, and the whole economy stagnates for lack of inputs.”
If what that was strictly true, somehow even the corner case constriction of rounding up every dollar then burning it, would somehow still allow people to pay 2 wheelbarrows full of dollars for what they paid only 1 yesterday…..
And, more practically, how in the heck do you expect hyperinflation in proper money, meaning Gold, would unfold? Have you ever heard of it happening? Ever-increasing numbers of wheelbarrows of bullion being carted around in exchange for a breadloaf?
Inflation, and particularly so the hyper variety, really is, as Friedman said in one of his lucid moments, always and everywhere a monetary phenomenon. Don’t print money, and whatever inflation you may have, will be very self limiting.
coup in 3 2 ……1,junta will take him out,that’s what trump (jeruselam) wants Erdogan gone