So the financial community again leads the world to a potential domino games of knock-on effects that could trigger a repeat of 2008.
Did lenders learn nothing from the Celtic Tiger debacle when Ireland had to form NAMA just to rid the banks of their bad assets as a result of greedy deals.
The greatest robbers and gamblers in this world have/had fountain pens and now mountains of servers/data, all for naught because their own hubris and greed always trip them up. Combine that with a delusional strong-man not smart enough and too arrogant to take necessary steps, and we might as well say...”Hello 2008.”
5
The financial community does not look beyond the immediate profit. They trust they will be bail out like last time if the gamble fails. Anyway, the little guy in Turkey, Greece, or the USA will pay for it. The swindling and gambling goes on sponsored by the largesse of those who add zeroes to the electronic minting of dollars.
3
Erdogan’s dispute with the Financial Sector is long standing going back to the 2007-8 Financial Crisis that had a devastating effect on Turkey’s economy and following effects in Turkish currency in May 2013, when Erdoğan was struggling with a dramatic domestic challenge as protesters clashed with riot police in Istanbul’s Gezi Park.
In his mind this is the world elite’s efforts to punish and control countries falling out of line. Trying to rule over the domestic banking powers on issues e.g. interest rates is part of a larger war.
If Turkey’s problems become the problem of the financial world Erdogan may feel ‘rewarded’.
Recently published Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze a good reference to all those issues. The interlocking of the international banking apparatus frightening.
2
Not unlike Venezuela, an autocratic ruler who thinks he knows best, rarely does. While the US sanctions are having a minor negative impact on the Turkish economy, the majority of Turkey's problems are Erdogan's doing.
(Trump should pay close attention as he plays with our own economic levers that he doesn't understand.)
25
Turkey's gross external debt is 52.9 percent of its GDP.
US's gross external debt is 97.6 % of its GDP
I.e. the US is far more indebted to foreigners than Turkey
The difference is that the US owns (and can manipulate to its advantage) the world's reserve currency: the US dollar
But this can only last so long. At some point, the US will share the fate of Turkey, Argentina, and many other countries that lived beyond their means by borrowing money.
19
If China calls our bonds?
@Talesofgenji...Japan's debt to GDP is 250%. No, the US will not share the fate of Turkey and Argentina.
Comparing US debt to Turkey is like comparing my debt to a hedge funder. If I borrow a million dollars I am in big trouble and my lenders in bigger trouble. If a hedgie boy borrows a hundred million dollars it is likely arbitrage. It just doesn't mean that much.
1
Blame for the proto-fascist state under Erdogan and the subsequent collapse of the lira can be blamed on the racism of the European Union for refusing Turkey, a Muslim nation, entry into the European Union.
7
@Stephen Reichard: It's not racism. In Germany for instance, there are living millions of Turkish people. Many of them have both nationalities.
But Turkey is far from complying with the EU's democratic principles. Would you like to welcome Turkey as 51. State of the United States? If so, go ahead. The opportunity is favorable.
7
Turkey was not denied EU membership and they are still an applicant for EU accession despite the fact that under Erdogan they violate all the basic norms for human rights and democratic principles. Given the terrible human rights record under Erdogan, the anti-democratic and despotic governance, along with the disastrous economics, it is unlikely Turkey’s application will proceed. Frankly, the EU dodged, not a bullet, but a artillery shell. Racism was not a factor!
5
Turkey carries about $5.5 trillion in debt that must be repaid in Turkish Lira. At a 7.2 exchange rate, a lot of corporate bond holders will start defaulting. The USA also has a debt bomb. About $6.3 trillion in corporate debt that is under-priced with respect to risk, as pointed out by William D. Cohan in his excellent Times Op-Ed yesterday. The mis-perception of risk is in part based on the corporate cash reserves of $2.3 trillion but to a great extent the companies with the cash are not the companies with the debt. For example, AT&T has currently about $13.5 billion in cash and short-term investments but carries about $180 billion in debt and it is far from the only such firm.
6
Just so you are aware Turkey has always been a protofascist regime. Before, it was a military dictatorship now its a quasireligious one. Same difference though the military junta was a little easier to deal with.
7
@Ed The Peoples Republican Party (CHP) who has ruled Turkey the longest is fascist?
No it is leftist.
Our new national pastime could be trying to figure out why Trump does what he does. Just months ago he was singing Erdogan's praises, now he slams him with tariffs at the worst possible time for Turkey. Is it really about that pastor? Orders from Putin? A complex game of of Middle East strategy? Shutting out imports to boost jobs? Or just Trump using the only tool he can think of (tariffs and more tariffs)?
What I know for sure is that Trump hasn't thought through any of the ramifications. His administration doesn't even know if they want a strong dollar or weak; they recently called for both on the same day! He appears to have no comprehension of Turkey's strategic importance. I would love for someone to hold up a map of the world and challenge Trump to point to Turkey. Ten bucks says he couldn't do it.
20
I think you nailed it when you said it was Trump following Putin's orders.
5
Re a possible Putin connection, was this economic undermining of Turkey discussed in the secret meeting in Helsinki? Nothing should surprise us about Russia's probable asset/agent Trump. Incredibly, he has yet to give an accounting to the American people of his time spent privately with his dear friend Vlad.
3
@Jomo
Turkey's strategic importance has caused lots of excuses for Islamic-ledTurkey's aggressive regional moves and her self-destruction of her ecomony in line with similar downward moves by Erdogan's pals, the mullahs and 'little rocket man".
Mr Trump actually has it right. Blaming him or Putin won't cut it.
Tayyip Erdogan is NOT as bad as the United States President Don Trump. Trump wants to kill the planet's atmosphere by burning dirty coal.
Ergodan made an agreement with GE in March that supports Turkey's target of 20 GW of wind power capacity and 30% renewable energy generation by 2023.
https://renewablesnow.com/news/ge-signs-deal-for-up-to-410-mw-of-wind-pr...
And when it comes to democracy and women's rights there s not comparison with Trump's buddy in Saudi Arabia.
6
That is faint praise and it doesn't excuse Erdogan from what he has done to his people and country.
2
@loco73
It is not faint praise loco73.
Erdogan's contract with GE created Great American jobs that Job Killer Con in the White House is trying to destroy. Trump is making disease causing Fossil Fuels Great again. Do I like journalists harassed in Turkey?
No!
but did Erdogan call the press the enemy of the people?
No he did not.
It was the moral weakling in the White House that called the press enemies of the people. Trump's harm is not just to the people in his country. Trump is a scourge to the planet.
1
So I guess you missed he news that the US is actually the only industrialized country that cut gas emissions. That is without being part of the Paris Agreements. You want to see polluters look to Asia and Africa. 90 of pollution comes from those 2 continents.
1
Just goes to show......economies managed by dictators and/or religious fervents usually fail. Religious fervor produces stupidity because a dictators main goal is to stay in power, not to better the citizens of his country.
9
Whether it will be as a result of Turkey, or not, the house of cards constructed by the international masters of the universe is going to collapse, sooner than later.
8
@Myron Jaworsky
That's your expert opinion is it? LOL
1
@Myron Jaworsky but only the little people who pay the taxes will be adversely impacted...
8
@John
Could be wrong. But I was right about “dot.com” bubble and 2008/2009 derivatives. All it will take is a “black swan” event.
A couple of years ago Turkey‘s EU membership was seriously discussed and considered. Things changed dramatically when Erdogan took over the reins. He build an authoritarian state and undermined remaining democratic principles. I am not surprised to see the currency tumbling and I do hope that also Turkish citizens will realize Erdogan’s populist and damaging political vision. Unfortunately, Trump‘s intelligent comments provide Erdogan space to hide behind the „new enemy“, the US.
3
@Martin Julius
Actually Turkey's EU membership has been on the agenda for ten years but was never going to happen.
3
@Martin Julius EU dodged a bullet by not letting in Turkey. Unfortunately, they let in every two bit Eastern Bloc country which more than negates Turkey's denial of membership.
How is the ever complaining UK better than those two-bit Eastern European countries you speak off? They allowed the xenophobia, racism, bigotry, anger and ignorance coupled with massive amounts of misinformation of a segment of their population decide their future.
What is happening in Poland, Hungary and the Czech Republic is worrisome indeed. But the Western members of the EU might also want to looks at themselves and their own policies and tepid commitment to the European project, for the precarious situation they find themselves in currently.
1
No wonder there is so much interest in Bitcoin. It is a lot less risky than the fiat money of many countries.
As the article points out, Turkey is just one example. A few more years of Trump rule, and the United States may be another example.
And, as the article suggests, our meddling in Turkey's affairs may have been a contributing factor. It would be interesting, to try and create a list of countries we haven't meddled in. Engraving the names on the head of a pin, would not be a problem.
2
@Peter Zenger
Yes Bitcoin only fallen from about $1900 to around $700 during the past year. And that's without the numerous thefts amounting to hundreds of millions of dollars.
No risk at all. LOL.
5
Seems to me the Ottoman Empire dreams going up in smoke. Stop persecution of minorities and free press. Stop expansionism and genocides.
1
Obama campaigned on health care, bipartisanship and fairness.
Trump ran on division, white grievance, destroying anything on a whim--and death by a thousand cuts.
The GOP simply stands by, if paying attention at all.
Trumpism is a blight. It would appear global demolition is the goal. Something to which Steve Bannon , his confidant, and Putin, his hero, subscribe.
6
Awe, poor dictator country. Good riddance.
1
@Daniel Kinske
Indeed. Poor old America. Once a democracy, now a dictatorship complete with unelected family members in key political positions. In the past week Trump has threatened the rest of the world if they do business with Iran, toppled the rouble in an attempt to disassociate himself with the US elections rigged by Russia, and now he has picked on a struggling country and ruined them which will have an impact on other European economies. What a guy :-)
4
Please distinguish between two very different kinds of "foreign investors" whose behavior and effects are very different.
"Indirect" foreign investment is the kind the article is talking about. It's strictly financial -- purchase of bonds, stocks, or other financial paper. Almost always this paper is traded on some market, and is quite liquid. Think Chinese purchase of US Treasury bonds, or American speculators buying and selling Russian government bonds in the 1990s.
"Direct" foreign investment is the purchase of a significant (usually 10% or more; often more than 50 or even up to 100% of the stock of a company. It often involves constructing new factories (then it's called "greenfield")
It's the BMW plant in South Carolina, or the Chevrolet plant in China. It's about transfer of technology, access to domestic and maybe export markets, and other business purposes. It is a long-term, serious commitment.
In the Asia crisis two decades ago, "indirect" foreign investment left the afflicted countries almost completely. "Direct" foreign investment, however, not only stayed there but actually increased during the crisis.
There are also other differences; my point is that it's important to specify which of these two activities and actors are being discussed.
8
US relations with Turkey have taken a big turn from the time that their bases were needed for the unnecessary Iraq war and we bent over backward to please them. Now we rub their faces in their cooperation. And Bolton has been their all the way.
6
My bet is that Trump’s “blind trust” investments shorted Turkish portfolios before the tariff announcement. When things bottom out he will long it again before doing a 180 and withdraw most of the tariffs.
2
I doubt that the White House inhabitant does understand the consequences of his current “war” on the currency of Turkey. You can discuss any aspect of the Erdogan regime for hours - but they are reliable NATO partners and the country is the most important gateway between the islamic and western world. The only result of ruining the economy of the country will be a radicalization that serves absolutely nobodies interests. I think this crisis will be he most consequential for decades to come when it comes to he safety and stability of the western societies. I hope that the European Union is clever enough to understand that and will jump in to help.
6
@Thorsten Fleiter
Anything that might have been true about Turkey in the past is no longer relevant. Under Erdogan Turkey is a completely different country than the Turkey you are referencing. They WERE a reliable NATO allie. Now they are the snake in the grass. A closer version of Pakistan who cannot, and should not, be trusted. They should be removed from NATO.
7
@Thorsten Fleiter
Trump understands the consequences all too well. In fact it's a dream come true for him. He is getting brownie points from his evangelical clientele as he is pressuring Erdogan to release the American pastor. He accelerates the economic downfall of Turkey thus putting European banks under tremendous pressure and weakening the European Union as a whole. And he alienates an important NATO partner who is already talking to Russia and China.
Domino theory a la Trump.
1
Trump is simply following Putin's order who seeks to destroy NATO and EU. Trump is committing treason of the highest order. America's intelligence community and military chiefs are well aware of Trumps duplicity. They are relying on Mueller and the courts to end Trumps treason and allow them to counter Putin's attempt to resurrect the old Soviet Empire.
2
Anything that strengthens the US dollar will increase trade deficits.
4
I’m skeptical about this as perhaps being manufactured or created in order to push Turkey further into the arms of Russia and or China further splitting NATO. But of course it will have real world financial consequences for the little people but when hasn’t a political power grab not have real negative consequences for innocent people!??
Some believe the coup was staged by Erdogan to have an excuse to eliminate opposition and harness power.
Don’t forget that coup all happened during the US campaigning prior to elections when Russia was hacking us, to help Trump win. I sense Russia helped Erdogan win as well. They are having a meeting in Ankara.
It’s all part of Russia’s plan with the help of Trump and Company to Make Russia Great Again!
9
@Maria Seems like you've asked yourself 'cui bono' (who benefits) from nearly wiping out Turkey's and weakening Europe's economies thanks to our grand and glorious, easily winnable trade war. Me, too. Looks like we both came up with the same answer.
3
@Maria Those who attempted the coup caught in action with their weapons in hand. Including at least 5-6 hours of video from security cameras show what they were doing, who they were. They are almost all related with each other through a common person like a pyramid. They are in jail since then and almost all of them getting life sentences as their court hearings end. None of them ever claimed, top to the bottom, that they were in it for a favor to Erdogan. Don't believe everything you read as almost all the commenters here has done. None of what you/they say can stand against an iota of logic.
Hypothetically, what would even happen to the United States Dollar if our national credit rating suffered in a way that eclipses the Great Recession?
The greatest contributing factor to pulling the country out of the Great Depression was our dramatic shift towards an increased level of factory output, which plateaued once arms manufacturing became a central focus.
President Eisenhower didn’t actually have the ability to see the future, but he did have an incredibly adept strategic mind. We are living in the exact situation that he foresaw, and we have yet to curb our zest for the militaristic. Fascism doesn’t emerge in a vacuum.
6
I suppose the President of Turkey claims to be at least as knowledgeable about economic affairs and securing national advantage as the President of the United States claims to be. If Erdogan's claim is inaccurate, that is bad news for them. But if his claim is accurate, that may be bad news for us.
Turkey + 5 years = Venezuela
2
@Roberto Anker
2 term Trump + 5 years... a nuclear wasteland
3
where this is hilariously ironic is with the Italian lira
Perhaps now Mr. Erdogan realizes that picking on his son-in-law to stop the slide of the Turkish Lira is as effectual as crying to Vladmir Putin about it; especially as he currently has to deal with a new round of sanctions against Russia.
Meanwhile both leaders continue to maintain a strangle-hold on their country's economies, while the average citizen pays the price.
Actually, not too dissimilar from what's happening here in the U.S., is it?
9
Don't get me wrong, I despise Erdogan. I don't understand who told him that the world needs yet another Islamic autocracy, as if Saudi Arabia, Pakistan & Iran are not trouble enough!
However, what Trump is doing here (taking sides with the rich gulf Arab states in their quarrel with Turkey & Qatar) is very disgraceful! Don't forget his Iran "policy", if you can call it that. Obviously, Trump is more motivated by establishing powerful political relations with these rich gulf Arab nations that can be translated to helping his family business empire post presidency than anything else.
Trump might as well change our country's name to - the United States of Arabia! :)))))))))
9
no one has learned the lesson from the 2008 meltdown- no one. Here in the U.S. the Republicans have lifted banking safe guards and along with their trillion dollar tax breaks are leading us to another road to ruin perhaps worse than in 2008. Turkey should be a warning sign but NO! The Republicans and Trump will have none of it. How insane are our world's leaders along with the business and banking community? This isn't Monopoly money you're playing with. P.S. when will the dumb voters of the world's democracies get educated and throw these bums out? Seems that idiology whether economic or religious has greater say than common sense. People, you get what you deserve.
23
Racing Venezuela to the bottom.
7
Couldn’t happen to a nicer guy
6
Erdogan is a near despot whose understanding of economics makes Robert Mugabe look good.
Turkey is a NATO member and a vital bulwark for the west, which has muddled its diplomacy with the country for a decade or more.
Now is the time for western leaders to act with care, recognising the complexities and delicacy of the situation, in both economic and military terms.
Instead, the West has Trump, whose answer is to throwing gasoline on the fire.
17
When there's a real estate bubble somewhere, you can bet the big EU and/or American banks are in on it.
Can you blame them? If it goes belly up, they know they can always count on the IMF, Fed, ECB, ... to save their hides.
The big banks have revolving doors to all the major governments to make sure their risk free business model endures.
2
My read of this is that it is just more of Trump doing Putin’s bidding.
Remember when the Turks shot down a Russian fighter jet a few years ago? I’ll bet he is still mad about that. And now that the end game in Syria is at hand, it would be very helpful for Russia to have Turkey neutralized. Ultimately they will cut a deal to save the lira in exchange for Turkey staying out of Syria (but with the side deal that they get to keep pounding on the Kurds, of course). All Trump will out of it is a further extension on those loan payments and a promise to keep those pictures in the safe.
It’s the Great Game, being played by a grand master.
8
Americans own 25% of all Turkish bonds and stocks, well does that mean Trump just shot himself in the foot?
3
Well I guess Trump showed those Turks. And when it comes back around to our economy I wonder if those MAGA hats will be as popular.
6
What will happen to Turkey when Erdogan gets off the "throne"?
In short? AKP will not last long after Erdoğan. Because while one-man regimes might be effective in the short term, it actually hurts your cause immeasurably. Because being a one-man regime means that you actually forego building institutions or cultivating successors. Erdoğan has done none of that.
4
Portugal today has 322b in govt debt and 402b in private debt, against a GDP of around 200b.
These relative magnitudes are grossly in favour of Turkey at the moment. 240b of private debt denominated in USD and less than 100b USD owed by the govt, against a GDP of at least 600b USD even when you use the latest, shot-up fx rates. its exports + tourism earnings are at a run rate of 220 billion per year currently.
The problem with Turkey is how it is governed. 100%. Erdoğan, the ignorant wannabe sultan has taken the worst option in at least the last 15 important economic decisions that he had to make. He has lowered interest rates when they had to be increased; he has gone for fiscal expansion, financed by absurd taxation and debt, when taxation had to be rationalised and the fiscal side needed prudence. And, after the sham elections, done under emergency rule, he is answerable to no one anymore. So this latest Brunson skirmish has broken the camel's back, the markets' patience has entirely run out.
So despite having an apparently not so bad debt to income ratio, Turkey's position is actually a lot worse than Greece's was when its crisis struck. There is absolutely zero probability that an unchecked Erdoğan will be able to engineer a turnaround. Zero. The realities of the situation, despite being amazingly simple, are still too complex for him and run counter to his deep biases. Plus, he could not care less, he has just become sultan. Things are bound to get way worse.
4
only dim Donny tipped the wildly indebted Turkish economy over the edge into an imploding €-Merkel land (Italy and Britain smiling) with the insanity regards Tehran and then something about some moronic American pastor...meanwhile i'm loving an empty Paris
4
...meanwhile i'm loving an empty Paris.
Yes, the majority of Parisians are still vacationing at the Med.
I'd much rather see a Paris empty of hideously dressed American taking over in the summer.
Main issue: They borrowed US Dollars when they were low. They may have even released debt denominated in US Dollars expecting cheaper dollars...something Brazil did. Usually an idiotic idea as you have no control when that currency you borrowed gets away from you. The FED caused this...not Trump or Obama
2
It would be instructive for readers to refresh themselves of the timeline for the Asian Financial Crisis which started with the collapse of the Thai Baht
https://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html
1
Tayyip, you might want to caugh up that preacher man.
Americans should learn a lesson from Turkey on excessive debt, printing excessive currency, tax cuts & budget deficit.
8
@Pat Kilroy
Oh no! It's bad?
Duh.
But seriously? It's not a big deal.
I mean really, the question is something like, or in the nature of elasticity: The US can print its own money and pay, which is almost okay because the US economy is that powerful and generates a lot of wealth, just about however defined.The EU is similar, mainly because of Germany and to some extent France and the Northern countries.
Turkey does nothing of great value. And to top it off, so many of its (private) debts are now denominated in foreign currency. And maybe some public ones too?
It's a huge difference: apples v computer technology?
Greece's govt debt was 450b euros when it went belly up. The private debt which was a low 12-figure amount needs to be added to that. All these in a non-export oriented economy of 180b euros.
Portugal today has 322b in govt debt and 402b in private debt, against a GDP of around 200b. All in euros.
These relative magnitudes are grossly in favour of Turkey at the moment. 240 billion dollars of private debt denominated in USD and less than 100 billion USD owed by the govt, against a GDP of at least 600 billion USD even when you use the latest, shot-up fx rates. its exports + tourism earnings are at a run rate of 220 billion per year currently.
The problem with Turkey is how it is governed. 100%. Erdoğan, the ignorant wannabe sultan, has taken the worst option in at least the last 15 important economic decisions that he had to make. He has lowered interest rates when they had to be increased; he has gone for fiscal expansion, financed by absurd taxation and debt, when in fact taxation had to be rationalised and fiscal side needed prudence. And, after the sham elections, done under emergency rule, he is answerable to no one anymore. So this latest Brunson skirmish has broken the camel's back, the markets' patience has entirely run out.
So Turkey is in much much worse shape than Greece. There is zero probability that the sultan will be able to find a way out of this mess. Things are too complicated for him, in all their simplicity, and he can no longer be held accountable.
1
A potential silver lining in the plunge in Turkey's currency is that the fall of the lira may lead to the fall of the liar - President Erdogan.
5
@Jay Orchard
If a potential plunge in the US currency would lead to the fall of the liar Trump, I'd be all for it.
1
I hope Turkey does not follow the same path as Venezuela did. It will be so bad for Europe.
4
I visited Istanbul a little more than a year ago and found the Turks polite, courteous, intelligent, and industrious. At the time their economy was being impacted by terrorism in the form of several bombings. Tourism from Europe and the US was way down and the only tourists in the streets were from the Middle East where bombings aren't rare. What Erdogan has done to Turkey in regards to human rights is horrific. What Trump, an equally despotic hopeful did was light the fuse for Turkey's economic demise, which I suspect will lead to Erdogan's political demise. But what's important to note is that right after Trump put Tariffs on Turkey, Erdogan called Putin for help. Considering that the US has had Air Force Bases in Turkey for decades Erdogan's call to Putin could be catastrophic for the US, which needs those bases for Middle Eastern runs. Trump may have destroyed our only military presence in that part of the world. Congrats Donald the Dumbest.
8
If Erdogan is going to be a stubborn goat, his best bet is to go to the Chinese and beg for a bail out in return of turning over all American Bases in Turkey to China, so Chinese soldiers can dip their feet into the "turquoise" (which means Turkish Blue) waters of Mediterranean for the first time and get their own shares of Middle East oil! China already wants to revive the old Silk Road with $1 trillion “Belt and Road” initiative. So, here is the golden opportunity for them! I think USA is making the biggest mistake she ever did in Middle East, worse than invading Iraq and then handing it over to Iran, WORSE!
7
@Carlos
I get your point, but nothing is worse than Iraq, the worst foreign policy decision in US history.
Putin must be giddy!
9
Remember how Iceland was the harbinger of the financial crisis of 2007-8?
It always starts somewhere, this game of easy credit and funny financing, this time exacerbated by rising authoritarianism (thus no accountability) and Trump's erratic threats and enactments of tariffs.
Tom Lee, in another article today, called Turkey the canary in the coal mine. While many scoff, it appears that he might be on to something.
Remember that financial markets are emotional, just like the stock market, and it doesn't take much to set off panic.
While I sure hope that this is not the case right now, I do know that economic history repeats itself and you can't keep trying to stuff the same 10 lbs of air into a 2 pound balloon.
3
While this current brewing and potential economic crisis may be market related and the result of external factors beyond Turkey's control, one cannot ignore the slide into authoritarianism the country has experienced over the past few years.
All the promise and hope surrounding President Erdogan and his AKP party, dissipated as he has morphed into a full fledged dictator and systematically went about dismantling the secular state and civil society Ataturk helped build and implement almost a century ago.
The safeguards, checks and balances which were in place, have been largely circumvented or outright eliminated, in favour of Islam centric policies, designed to please the religiously conservative segments of the population. By appealing to more militant and extremist Islamist streaks and ideology, Erdogan and his party have sought to consolidate power and exert complete control.
Yet despite it all, nothing could mask the incompetence and corruption that so often accompany these popular movements and leaders.
Unfortunately Turkey and it's people are now reaping the disastrous consequences and results of Erdogan's choke hold on the country.
What is even more dispiriting, is the international community's failure to call out Erdogan and his government for the flagrant human rights violations, for the reduction and suppression of civil rights and freedoms as well as Turkey's continued reluctance to deal with the Armenian Genocide and the future of the Kurds.
6
The view of LeMonde, France
Why is the Turkish lira collapsing?
Since the beginning of the year, it has lost 40% of its value.
Turkey is undermined by major structural problems. Its banks are in poor health. The galloping inflation (16% in July annual rate) cuts the purchasing power of households. In recent years, the debt of Turkish companies has exploded: they have borrowed heavily in dollars, which makes them vulnerable to changes in exchange rates. "The country has a large current account deficit: it depends on foreign financing, especially in dollars," adds Christopher Dembik, an economist at Saxo Bank.
The financing of this deficit has become more complicated and expensive since the US Federal Reserve began raising its key rate. It increases the cost of borrowing for Turkish companies indebted in dollars. "Again, this pushes investors doubting the strength of Turkey - like other fragile emerging countries - to leave the country to place their money in the United States, where the rate increases offer better returns," says Philippe Waechter, chief economist of Ostrum Asset Management.
In the long run, only substantive reforms to clean up the banking system, strengthen financial regulation and restore confidence will likely pull the Turkish economy out of the crisis.
---
To quip : Turkey is suffering a giant hangover from too much Keynesian deficit spending, augmented by the consequences of the wind down of the Fed's QE, that has long worried economists.
1
Capitalism, Socialism, Welfare-state, These are not always described as in philosophy. If you look at the math, it's really about labor and use of money. Its about about how much people work or don't work according to skills and abilities. The Economy is relative to what people can do. America has helping, alternative and mainstream competitive but sometimes drugs are getting in the way.
The Middle east like the Mediterranean is a good place for welfare. They are not expected to have a full economy and many people are working on basic skills. People who live there might be from other countries and just can't work normally. In many instances for-profit players are paying for the people in a unique economy which is welfare and charity. They don't always use money and they don't want people to feel pressure to have money and compete like in North America, which has many "business zones". The mainstream economy in Turkey is limited to certain players, otherwise theirs welfare. Be aware there is only one American, most countries have limited economies, alternative, helping and competitive. Welfare states are very different than the USA.
Complete economic collapse will accelerate the emigration of progressive minded Turks to other parts of the world where opportunities abound for those who are prepared, leaving behind a shell of a nation with a retrograde path politically and economically. The purging of the military is complete .. the purging of the police nearly complete... and now the Universities are being "cleansed" -- decades of social progress are being erased. Those committees who vetted the military and police are now moving rapidly into the areas of Education and controlling politics (by intimidation) .. every law regarding social protections is being reconsidered.
20
Twenty years ago, I went to Turkey as an economic and engineering consultant to help the country privatize its energy sector. While there, I saw many things that were amazing to me. The old turkish lira converted to US dollars at 400,000 to one. When I left less than three months later, it was over 500,000 to the dollar. Restaurant prices were reset about once every three weeks. There was a strike/protest underway, with government workers protesting the raise of the retirement age from 52 to 55. Banks offered 80% interest rates for Lira denominated CDs, but 5% for US dollar denominated CDs.
Contracts were written for payment in Liras, but the prices for future payments were set based on US dollars, converted to liras when the payment was due. I once got a reimursement payment in liras for an expense of about $700 US dollars. It was a stack of bank notes four inches high.
At that time, Turkey was trying to reform parts of its economy so that it could join the EU. How that was even thinkable with the massive inflation was a mystery to me. Plus, there were constant human rights issues.
At that time, it was always thought by locals that, if things got too far out of control, the military would take over the government. As had occurred before. Unfortunately for Turkey, the last coup was not supported by the people, everyone even remotely involved was arrested, and Erdogan is in total control. Things will get a lot worse there before they get better.
42
Things will not get better until after a total collapse of the government and the economy. It will take those who are left years to recover only to repeat the same mistakes unless they change their mindset, which is doubtful.
4
@RM- privatization is no cure-all. In fact it accelerates the social decay by encouraging excessive greed by individuals who run corporations that have taken over the state-run industries. Better to have a slow, rusty old running state-owned "factory" than to have a corporation run down it's work force with excessive hours worked, slave labor- type salary, poor working conditions. Remember the privately owned(FoxConn)Chinese factories where workers were committing suicide by jumping off factory building roofs due to being over workered and underpaid? Suicide nets were installed so workers couldn't do that anymore. I thought workers were a dime- a- dozen.
Looks like Trump's Tweets that have broad negative economic impact can roil the markets. Wouldn't it be nice to know on a Monday or a Tuesday what Tweet Trump might make on a Thursday or a Friday?
You could position yourself accordingly and make a tidy sum on the volatility. Up or down. Wouldn't matter if you had prior knowledge.
Wonder if SEC, IRS, or any other alphabet department of the U.S. government is monitoring to see if any individuals are having exceptionally good luck during (or after) these Trump Tweet storms.
9
@medianone
It's not only his tweets, it's his actions. He placed tariffs on several important Turkish exports. These tariffs will hurt the Turkish economy.
1
It's hard to defend Erdogan's autocratic and sometimes brutal regime. But Trump's careless tweets and financial punishments just strengthen Erdogan's hold, invoking from voters a defensive nationalism (just as the administration has done in Iran and China). And we have substantial national security interests in Turkey, not to mention military bases. All this for a cleric under house arrest, the darling of the religious right.
Trump thinks brute economic force will win and the costs to the US will be temporary. I think those costs will last a long time, damaging us and all our interests (national security and economic) abroad.
28
It appears that the liberal borrowing Turkey's bank were doing is the direct cause of the country trouble. Remindful of Iceland financial 'free-fall some years ago
The blame resting on Erdogan shoulders is that he was too busy with his foreign political agenda - too busy to supervise the country financial issues.
5
@Jak You're right, but Turkey's mess is going to have a huge ripple effect; Iceland with a population of 600,00 was a mere blip.
3
Turkey's leader is their version of Mr. Trump so he will blame liberals, free market and everything else except his policies.
18
Trump is driving Turkey right into the arms of Russia. Just what Putin wants. Is this what Trump and Putin planned during their secret meeting in Helsinki?
16
@Ronny YES
Fear not. Our President will continue to pour fuel on this fire.
21
@The Storm. That is a certainty. And the market likes certainty.... or something....
1
Dear President Erdogan,
For the sake of the good Turkish citizens:
Just put the pastor on trial, get the judges you keep in your pocket to find him not guilty, save face and send him back.
Maybe you can avoid a calamity.
9
A case could be made that this Tariff-war of Trump's is a war on civilians, for it's the people, not the governments and the military who are suffering. And it very well could escalate into a military conflict since economic instability is not a friend of peace.
2
Maybe decade from now that EU, RUSSIA, CHINA, SOUTH AMERICA, and other countries trade with each other. Pretty much isolating UNITED STATES FROM GLOBAL MARKET.
2
Turkey HAD an economy and some respect in the eyes of the civilized world, and they threw it away for the sake of religious fundamentalism.
40
Yes they did. But Europe refused To grant them the respect that they wanted, i.e.Entry into the European Union thus giving rise to Erdogan and the subsequent financial crisis that we are now witnessing.
1
It's always better for these bubbles to pop sooner rather than later. To the extent that Trump caused this bubble to pop, I guess we have him to thank for that.
It's going to be a miserable next 20 years in Turkey, hope it won't be as bad as Venezuela, but those people kept voting for Erdogan time and time again, and they didn't come out to support the coup. They have no one to blame but themselves.
Meanwhile, it's going to be an awesome time to visit Istanbul at least until public order breaks down. Things are going to be crazy cheap.
13
@Tom. Good luck visiting as a U.S. citizen.
@Tom Yeah lucky us. Have planned a trip of ten days in Early September. The last time we were there the NOK cost about 3 TRY. When I checked today it was 1,19 NOK for a TRY. Love Ixstanbul, but the city felt different the last time we were there. Bet it is worse now.
1
Cheap and really dangerous for American tourists.
1
Trump's trade policy fantasies have plenty of downsides.
One is he lacks historical perspectives on what could hurt the US and world economies. Nor does he care.
Already there are more losses than gains.
It is stunning we have a president who doesn't care what he does to other nations' economies. Or how his off-hand tweets rattle world markets.
All this is to pander to his base! His voters were easily manipulated by three word slogans. The constituency supporting Trump might get hurt substantially as this all progresses.
12
@One More Realist in the Era of Trump How pathetic of him to bask in the fact that the Lira plunged because another one of his whimsical policies.
1
It is unlikely that Trump will be around when China creates the same economic circumstances that the US created for Turkey all for the sake of saving a person who pretends to know things he does not know (a.k.a. preacher).
7
As Turkey moves further and further away from democracy and toward dictatorship and Islamic fundamentalism, it's clear that Erdogan is the cause of Turkey's woes.
23
It’s time for Erdogan to step aside to restore confidence and good will in Europe. Then maybe there can be some support for Turkey again. He has a bully for way too long.
10
@heinrich zwahlen
Erdogan has much belief in his own ability, that he is the best one to navigate this crisis. He will not step aside willingly. While having him step aside may sound appropriate even satisfying, his attitudes and policies have gravely weakened the very institutions that the country needs to navigate this crisis. Should he step aside, he leaves a structure ill prepared and will need years to recover.
I do not know who is more Corrupt Erdogan or Trump.
there are news reporting that Erdogan government took 200 billion USD bribe to gave foreign companies 600 billion dollars business investment.
one of them is already under FBI investigation Reza Zarrab Iranian mediator -plus money launderer.
8
@su. Trump. Maga.
1
Turkey benefited from low interest rates. They were judged harshly by markets when rates increased. Erdogan has been one the most mercurial leaders in his region. The overthrow of the Assad in Syria regime has been a major a huge on Erdogan's part and apparently seems that it will no occur and this has thrown Turkey's politics into turmoil. Now international markets and banks are being forced to make decisions that make people nervous. Despite placing himself at the center of Turkish power Erdogan's actions have been far from reassuring. Added to this fact is that Trump is the president of the US and one can understand the concerns raised.
2
Turkey has in a few short years gone from a solid NATO member with a good economy on a short path to EU membership to a autocrat failed state in economic ruin. Erdogan has always been poison but the west including President Obama hoped that he would the template for a new model of moderate Islamic democratic governance for the region. Well they didn't get the moderate or the democratic.
17
Unfortunately, Turkey was never really on the short path to EU membership. They did everything requested of it and still could not penetrate the EU. It was racism, pure and simple, giving rise to Erdogan and today’s crisis.
American investors have been complicit in the disaster in Turkey. The "get rich quick" crowd has been making dollar loans to Turkey--the vast majority of investment in the Turkish economy. But never mind, the American plutocrats will come out unscathed while the Turkish economy tanks, and will probably take the world economy down with it.
Trump? Wilbur Ross? Do something? Don't make me laugh. These guys are crooks and they will practice the time-honored strategy of CYA while the rest of us tank.
Hey you MAGA-heads still touting your 401k accounts (which have declined since January 2018). Watch those accounts tank over the next year, and then just keep masking your pain by shouting "lock her up!" at dumb Trump rallies.
19
...contagion is no surprise - Greece, Italy, Spain and Portugal are essentially bankrupt - Turkey's no exception. While it's debt is only 40% of GDP (US is 100%), it cannot repay its obligations.
Erdogan, the bullying autocrat, is so desperate, it's almost humorous - the country will default on its bonds - it's not a matter of if, but when.
4
Contagion is often caused, or exacerbated, by the creditors - when they run from other currencies beyond the obviously affected one; those other currencies devalue and then they have trouble paying back what they owe, thus causing or exacerbating a problem that might not have existed without creditor inducement. In the 1980s, when Mexico defaulted, creditors ran from any developing country that spoke Spanish or Portuguese (eventually most developing countries), even those who had been servicing their loans on time - this made the problem worse earlier than it would have been.
Attempts to stop capital flight in Turkey, however, scare investors into taking their money out of other 'similar' countries before they are barred from doing so, but as stated above, this action causes the very problem - devaluation of currency, default, likely attempts at capital control - that they are running from.
6
One of the aspects is the low level of calibration among World leaders. Now the rising tension btw two states has no meaning since both countries have investment in each. It is true that Turkish economy might be fragile amid lira volatility and rising c/a deficit but fiscal policy is stronger compared to EU criteria. Maybe backing up ruling government isn't the best option, same as 50% voters, but actions shouldn't distort long term interests. Fragility in EM amid rising interest rates by developed economies is a well knows truth but deteriorating credibility of Turkish regulatory bodies pushed Turkey to decouple more. Bubble in the growth,mostly in construction and the allocation of imported capital in consumption rather than export-based production increased householde debt and loan/deposit ratio. So Turkish economy is exposed to critics but still open for opportunities since investment climate is also flexible. I hope common sense will prevail.
2
This is nothing new. The money powers of the world (and in particular the west) are upending whole sectors, economies and countries. (taxes/tariffs/trade wars anyone ? )
They are picking winners (themselves) and losers (everyone else) by depressing economies and currencies, and then swoop in to buy up everything for pennies on the dollar in the aftermath.
In this case it is Lira.
8
@FunkyIrishman sure but Erdogan also helped digging that grave.
4
Turkey flourished for decades as a tolerant secular society when Kemal Ataturk took over in Turkey after the collapse of the Ottoman Empire, creating conditions for a modern economy increasingly integrated with Europe.
But rural people flooding into Istanbul grew the city from 1 million to 15 million since 1950. Saudi imams helped to push a moderate Muslim population in a more conservative direction, which the party of Erdogan exploited, with Istanbul as its base.
Now Turkey is heading backward into authoritarianism and economic chaos. Turkey was the gateway for foreign fighters joining ISIS in Syria and Iraq, as well as the most important customer for smuggled oil from ISIS held wells, helping to finance the terror and destruction. An unstable and radicalized Turkey is a threat to the greater region.
One of the lessons of Turkey is that religion and government are a bad mix. That is worth remembering if Trump is tossed out and we end up with President Pence. A Democratic House could at least be a better check on Pence than the current GOP Congress.
77
@Look Ahead
Turkey is being punished for its role in the Armenian genocide.
1
Anyone who reads Professor Krugman’s column knows we have seen this movie before. It’s going to get uglier this time however because Trump.
6
Erdogan always has been a mobster, and that's the only wat he knows how to run things. Mobsters, when not running national government, would in bad times squeeze the weaker further in order to get what they want. But this time it's not going to work for him.
3
When you think about world wide debt (estimates range from $250 TRILLION to $300 TRILLION, Turkey's $857 billion in GDP seems small potatoes. I would think their Central Bank would be able to print their way out of this mess. If not...just have them join the Euro...problem solved. LOL!
@wedge1 They can't print dollars.
3
Joining the Euro (not that they would be admitted in their current state) would be a disaster for Turkey, just as it has been for Greece. The Euro is over-valued for the Mediterranean region.
1
President Erdogan barely survived a military coup and has brutally dealt with his opposition with tyrannical rule, is there any wonder why foreign investment is fleeing Turkey before Erdogan nationalizes corporations and services. The plunge in Lira is his fault and Turkey's economy still hasn't hit bottom.
7
in politics, and probably in most areas of life, financial leadership and possessing a gentleness in governance, are mutually exclusive.
so, while Erdogan's "persecutive" style of rule is odious, his handling of the economy is all together a different thing—perhaps.
his push for increasing debt-levels in Turkey's shows a disregard for his constituency.
2
Five days before Black Tuesday was Black Thursday. But what does Canary Wharf have to do with Wall Street?
Globalism is some bizarre stuff.
3
Any country that jails innocent Americans deserves our full wrath!
2
@John Mardinly: anyone left jailed in guantánamo?
all guilty after having been properly tried, right?
9
@John Mardinly At least Turkey has not tortured any Americans currently being tried in their judicial system as we have (with the torture at Guantanamo continuing for four more years AFTER the accusations against the Turkish national were found to be groundless by U.S. Army investigators). Read the following before pointing fingers and spouting off about who deserves the wrath of whom: https://en.wikipedia.org/wiki/Murat_Kurnaz
Regarding your "innocent American" Pastor Brunson who was convicted of aiding and abetting two different terrorist organizations in Turkey; three separate witnesses with first hand knowledge testified against Brunson during his trial, one of whom was a member of his congregation (https://www.christianpost.com/news/pastor-andrew-brunsons-former-church-.... And digital data obtained from his own cell phone was among the evidence introduced against him.
Brunson's case is currently on appeal and the Turkish judicial system based on Western European legal standards (Swiss, German, French and Italian codes), has multiple layers of protection ranging from the Appeal Courts to the Turkish Constitutional Court and all the way to the European Court of Human Rights; an international court which can overturn any convictions if warranted since Turkey as a member of the Council of Europe has accepted its jurisdiction. Therefore adequate safeguards exist. Trump is only pandering to his evangelical voter base.
1
@John Mardinly or for that matter, beats US citizens protesting in their OWN CAPITAL against their tyranical regime.
Points scored:
Putin/Trump: + 1
United States: -1
5
This is what they get for re-electing a Muslim extremist allied with the illegitimate, so-called "islamic republic of Iran".
4
@MIKEinNYC: erdogan did not need iran
to turn himself into a full-fledged dictator.
1
The word is "panic" not "contagion." We can only hope that Turkey is the only real economic turkey that will be roasted as investors pull back there and elsewhere. Right now there is the real possibility of another perfect storm that like 2008 was caused by large tax cuts, financial deregulation and a financial crisis. Trump's trade war with China, Turkey and others may be just the crisis that will once again torch the world economy. October is coming and it just may be "deja vu all over again."
11
The US imposes sanctions on Russia but as a consolidation prize to Putin, Trump hands them Turkey.
5
@Patrick The story of Turkey and Russia, starting with the war of 1877, is astonishing. That war ended badly for the Ottomans, and the treaty of Berlin (after San Stefano treaty was scrubbed) was a big step toward the dissolution of the Sultanate. Ataturk founded the Turkish republic in 1923, having soundly routed the Greeks from the large portion of Anatolia in which they lived then. But he might never have won what they rightly call the war of independence but for arms and munitions from Russia, an Ataturk ally.
Patrick, you must not jump hastily to any conclusion where Turkey is concerned. Understand the history, and know something of the people before you casually imply that Russia might 'own' them. They are fiercely proud, and would bristle at that hasty remark.
3
The Turkish Lira has always been unstable. I was in Istanbul several years ago before the Taksim Square protest. My hotel offered a huge discount for US currency. Gold bracelets were everywhere on display in shops. According to a Rick Steves guidebook, they are not so mush used as jewelry, but as a hedge against the unstable Lira.
3
Erdogan's son-in-law heads his Finance Ministry, and the performance of Erdogan's family members in government posts demonstrates once again that nepotism is the most efficient form of government.
5
@Oswald Spengler
Mobsters are as the are. It's always all in the family.
1
@Oswald Spengler
hmmm, sounds similar to trump org. w/ his kids and sons in laws mucking up the works.
8
Erdogan most likely will be removed and the new leader (his deputy) will implement US instructions and also set free its many prisoners from the fake Military revolution 2 years ago. Erdogan was getting too close to becoming a new Middle Eastern dictator also force-feeding his believes far into Europe.
3
On 9-11, NATO came to America's defense.
When the next "9-11" occurs (and it will happen again), guess who will come to America's defense?
My guess is "No one."
15
@Jay David
Please explain how NATO came to America’s defense on 9-11? Are you talking about the later invasion of Iraq - which Turkey declined to participate or even allow allied forces to pass.
3
@Jay David I think you are wrong; the following countries may yet come to our defense:
Guatemala
Honduras
Israel
Marshall Islands
Micronesia (if not submerged by then)
Nauru (if not submerged by then)
Palau (if not submerged by then)
Togo
The only nine nations in the world to have voted in support of Trump's decision to recognize Jerusalem as the capital of Israel in the U.N. on December 21, 2017 :-)
11
@macbloom In answer to your question "Please explain how NATO came to America’s defense on 9-11?"; it was through the NATO-led International Security Assistance Force (ISAF) fighting the Taliban in Afghanistan alongside our forces from 2001 until 2014 for thirteen years.
BTW, Turkey was also a participant till the very end (even after Erdogan was elected in 2003), with the third largest contingent at one point.
1
I think Mr. Trump is being incredibly unwise and very much hurting US interests in kicking Turkey when it is down. Erdogan brought the economic crisis on himself and obviously he can use Trump's action to try to attach blame to the US. Beyond that, we are talking about the welfare of a whole nation of people who are ostensibly our allies. You just don't kick people when they are down if you are better than a thug.
20
@Charles
Turkey under Erdogan is not a US allie. He is famous for saying the following about Democracy:
Democracy is like a bus. You take it to your stop, then you get off.
Erdogan got off the Democracy bus a while ago. He is a dictator and a tyrant. Turkey needs a new leader or they need to be removed from NATO.
1
Turkey needs to duck and cover from Trump. Try to remember that next week Trump will move his hate along to some new ink generating topic or victim.
3
Good old Trump, fomenting another economic war just to satisfy his bullying instincts and further destabilize the world economy. 'Mr. Chaos' Steve Bannon must be somewhere in the shadows of all this.
9
What kind of financial genius would lend billions to Turkey?
6
The New York Times is wrong on what has caused recent problems in economy of Turkey. It is U.S. sanctions imposed over one person Turkey is holding and who is on trial in Turkey. What is happening is sanctions by bully U.S. President Trump is leading to total U.S. isolation from the region. Just today Iran has banned talks with USA!
3
@Royal Kingdom of Greater Syria
That person is a US Citizen and he is being held on bogus charges. Turkey can send him home at any time, why won't they?
1
Our President uses the same techniques internationally that he used In NY and elsewhere to “build/create” his business. He lies, he bullies, he delays, he avoids fulfilling his contracts. It’s why people just LOVE him . . . right? And it’s the same techniques used by authoritarians world wide and the same techniques used by McConnell in the Senate. Cut from the same nasty piece of cloth. And why-ever not? None of them believe in ethics or morality, although all of them wrap themselves in the flag of their choice, throw kisses to their adoring audiences, and grunt delightedly over that chocolate cake off stage.
12
This comment could apply to almost all current economic stories today, so it might as well be here. Amont the other stupid effects of Trump's using tarrifs like a stickk wielded by a blindfolded child wjacking at a piñata is the weakening of those currencies against the dollar, kmaking those countriy's goods more attarctive than ours. If the media the partisans from different sides watch— CNN, MSNBC, FoxNews‚— spent half as much time covering this subject as well as things like the tax cuts' causing share buy backs instead of job growth and higher wages, as they do parsing Ms. Manigault's return from the Island of Monte Cristo, perhaps a tenth of the electrate would be able to make more intelligent choices than they did in 2016.
5
Turkey - once a model mix of modernity and Muslim modernization under the AK - has now rotted into a 'cult fo personality' under Erdogan. It only Erdogan's betrayal of democracy that has led to Turkey's attempted coup, economic collapse, and political calamity. There is a lesson here for the West beyond stock prices - Government by Narcissism leads to doom. Is it November yet?
10
I'm not sure how NATO works... What happens if Turkey, deciding that the EU will never accept it and that the US throws it's weight around a bit too much, chooses to do a Turxit?
This is so positive a development for Russia, which is doing its damnedest to destabilize the West without actually going to war, that one has to wonder whether Trump's latest tweet-volley is something Putin suggested to him when they met privately in Helsinki.
(It can of course also just be Donald's the Magnificent's basic ignorance and stupidity getting the better of him. After all, keeping Turkey on side is geopolitically way more important, seeing the goings on in the Middle East, than one jailed uppity pastor.)
7
France withdrew from the military wing of NATO for several decades. If France can withdraw without lasting consequences for the alliance, so can a much smaller Turkey. But, as you pointed out, Turkey occupies a strategic geographic position that NATO wouldn't want to lose.
1
Lets be real: Together Turkey and Russia have about the economic clout of what? A single large US State? Two such states? Less than that? Lots of people, maybe, and a fair amount of very cold land, but no money and no real industry. Any growth to speak of? My quick search shows an economic contraction in 2016 and 1.5% growth in 2017. That's pitiful.
Putin is a pain in the neck, but not a real threat to do anything serious, like take over the USA. He can't even do anything very worthwhile for Russia, except dream of the past glory of the USSR. Or steal land from Ukraine. Pathetic.
Wasn't the USSR and Communism about getting all these weak and impoverished countries to be supported by Russian and then oppose the USA, and thus Rule The World? Does Russia really want some of those Eastern European countries back again? Does anyone else want them?
And how did all that work out? The USSR went bust and collapsed. That's how it worked out. And Putin, the genius, wants to do that again? An absolutely brilliant plan. Putin is even more of an idiot than Trump.
4
The sky may be falling over Turkey but it won't be elsewhere.
Such hype. The financial world will not collapse because of Turkey's flailing Lira. If anything, perhaps Erdogan will be overthrown and this could potentially be a good thing? Historically regime changes can be a positive.
5
you have got to realise that, beneath the bluster and fury and hitler-esque fire to incite his followers, Erdogan knows nothing, absolutley nothing about anything. Him dealing with such an amazingly complex economic and geopolitical mess is analogous to a person transported from the 12th century wandering around in a electric power station that is malfunctioning. He will put levers haphazardly, or even worse, according to his religious biases.
And on the other end of this table are hedge funds who are shorting the TL and having so much fun. They are against someone without any checks and balances who would not be able to tie his shoelaces on his own.
4
The United States should drive the Turkish lira into the ground, until they accept secularization and dethrone Islam from its privileged perch.
6
@Louis Anthes
so we accomplish that well in IRAQ and Afghanistan and Pakistan
5
@Louis Anthes: don't the US have plenty
of construction sites at home to take care of?
methinks there's plenty of painful stuff
happening in secularized circumstances, too.
[and i agree with su's comment.
iraq, afghanistan, pakistan = painful reminders
of how hard it is to change things by force.]
3
@Louis Anthes: don't the US have a number
of construction sites to take care of at home?
painful things are happening under
secularized circumstances as well.
and i agree with su's comment:
the countries named are a reminder of
how hard it is to change things by force.
"Turkey’s economy is only the 17th-largest in the world, and it is not as integrated into the global financial system as countries like China and the United States." FYI, if California, as its own country, it would the 16th.
It takes a while, but again Trump, and his tariffs, is playing a large role in what is going in with so called "emerging economies". The tariffs, or threat of them, is impacting countries like Turkey. It is also taking a toll on the EU and China.
Eventually, this will impact the United States, like it did in 1930. Putting "America First" then, after the 1929 crash, created a trade war and fueled the Great Depression. It would take, to the Eisenhower Administration to completely recover. From bad GOP policy, bad Hoover policy, the Depression and WWII (one of its causes was the Great Depression).
In the US, and much of the western world, the Great Recession ill affects are still being felt. Especially with wealth and wage disparity. Trump, like Hoover, is banking on tariffs will add steam to the US economy raise wages, cut deficits, create manufacturing jobs, improve the standard of living, move more people out of poverty, and spread wealth to the middle class. And, do this all with less regulation of banks and Wall Street.
Alas, as Hoover, and the GOP, found out, in 1930, their economic ideas failed miserably. Trump, and the current GOP, are in the process of a repeat. And this repeat coudl be worse, than the Great Depression.
6
It is unclear if sanctions and tariffs will work. In a way, Trump is putting sanctions on his tenure if they don't work, and there is a negative ripple that cannot be controlled. No one has figure the odds if Erdogan outlasts Trump.
The irony here is that Trump, who is ostensibly concerned with our trade deficit, has pursued actions which strengthen the dollar and weaken currencies around the globe. The result? Imported goods will be cheaper, thereby increasing the trade deficit. Econ 101.
22
@Jsailor: Not to mention the impact on tourism. An expensive dollar means that tourists will choose other, more affordable destinations.
4
@Allison Tourism is a very interesting mention. Between our unwelcoming attitude to outsiders, coupled with a complete joke of an infrastructure system paired with things like what amounts to a war on our historical sites and national parks and I would suggest that tourism is the single biggest pile of money and job creation that we leave on the table.
@Jsailor, this is WAYYYYY to complicated for Trump to understand. Even with his extraordinarily high IQ.
6
The financial crises are periodic around the
world. In 2008 the developed world was in
serious crisis. Now is the turn of so called
emerging economies. The basic cause
is the same and constant through the years--
too much borrowing and poor risk assessment
by the lenders. Unfortunately the finance
people never learn the lesson and keep
repeating the same mistakes. As far as Turkey
is concerned the financial crises have been
occuring since the last 100 years of Ottoman
empire and every government since 1923
has seen the financial panic. It is Turkey
today and another country or countries
tomorrow. World is ready for another serious
economic crisis hastened by Mr. Trump.
4
"But Mr. Erdogan’s popularity has hinged on rapid growth fueled by credit." That, and Erdogan constantly catering to his nativist and religious radical base who want Turkey to be a Sunni Islamic fundamentalist state comprised only of those of pure Turkish national identity. They have rabidly supported Erdogan and his Islamist-rooted Justice and Development Party, the AK Party, even as it destroys Turkey. It is impossible to miss the correlation to Trump and the Republicans, whose popularity rests on bankrupting our country through tax cuts to billionaires and skyrocketing debt, while also constantly catering to Trump's nativist and religious radical base who want America to be a Christian fundamentalist state comprised only of those of pure White national identity. They're the Americans who rabidly support Trump and his Republican Party, even as it destroys America.
In the end, this will likely end disastrously not just for Turkey, but for NATO. Attempted migration from the Middle East to Europe will massively increase, further destabilizing, and possibly destroying, the EU. The US will be further isolated, while being in an increasingly precarious political and economic position.
It seems that everyone is actually a loser here, but that isn't really true. Putin, the master of "Active Measures," has his grimy fingerprints are all over this. Thanks to loyal operatives like Trump, who undermine America, Europe, and the world at his behest, he's the real winner here.
53
@Robert B
As Mama Mia sings, "The Winner Takes it All". And that is Putin. But we all know that Russians are masters at chess.
2
Given that many of the third world countries that borrowed heavily in dollars are on a verge of collapse now, and that we are raising the Fed's interest to 2.5%, we may actually start domino reaction as early as in September, at the next Fed's interest increase.
All the factors are coming into play now, including slowing of the world economy.
8
Apart from adding to the geopolitical uncertainties in West Asia the US-Turkey conflict might trigger a financial crisis in Europe and Asia which could prove contagious to the global financial markets. J bi
10
A 1,000 point drop in the DOW and Trump will lose the support of the WSJ crowd.
A 2,000 point drop and he will lose all political support in congress and will be indicted and impeached via the Mueller investigation.
37
@Mike OK
It's gotta be UGER than to have an effect. If Donald is in charge then there's a "big" drop it's got to be bigger, huger, the biggest drop EVER.
@Mike OK
Well I wouldn't want that big of drop in the Dow because I do have a tiny portfolio that is my retirement account even though I dislike 45 INTENSELY. I'm sure there are others in my same situation. Either Mueller finds definitive evidence of collusion soon or we vote that sucker out in 2020. In the meantime, please vote to flip the House in the midterms so there is a check on the big treasonous blowhard masquerading as president.
2
@Mike OK I see pain. But worth it.
I don't know the first thing about Brunson, but an observer noted, after watching courtroom proceedings, “We leave the courthouse with serious concerns. Today’s eleven hours of proceedings were dominated by wild conspiracies, tortured logic, and secret witnesses, but no real evidence to speak of. Upon these rests a man’s life”
No wonder that Trump has not found fault with the legal proceedings. I'm more surprised that he has not endorsed Turkey's legal system over ours.
5
Diplomacy of tariffs. The world took advantage of America, now we have new sheriff in town. No more free cookies. We make you pay for it.
4
The article "A Gas Pipeline to Italy? Five Star Backers Sense a Betrayal", published yesterday in NYT, is closely linked to what is going on in Turkey today. The said gas pipeline, being built by the UK and US oil companies, starts from Caspian Sea in Azerbaijan and passes through Turkey.
One should not be surprised that those funding this highly strategic pipeline want to make sure that the government in Ankara not only is "on board" but fully "cooperative". It appears that President Erdogan has not given anyone such assurances!
5
What's the end game here? Are we looking to radicalize Turkey? Certainly helping to destroy their economy will not endear us to the 'Turkish Street'. While Erdogan is a big problem, and their treatment of Andrew Brunson is not acceptible, Trump's tendancy to jump to defcon 1 is alarming and leaves little room for manuevering. If the Turks falt that they trul needed us, and the Turkish people sufficiently valued their relationship with the US, Mr. Brunson might have been released. Bruise a male ego sufficently and no one can predict what will happen.
11
Over and over again, I've advised Erdogan to get over his fascination with flotillas, but he just wouldn't listen to me.
So....
2
This is what happens when you have people running a country that are unqualified and want to be a king. They put their friends and family in positions they are not qualified for and run foreign policy as if it was a school yard fight. They refuse to admit mistakes and never change course.
31
@Thomas Renner Which country(s) are you referring to?
1
@Jeff L Turkey and the US for two along with Venezuela.
Before declaring economic war on a strategically located 66-year NATO ally because of a wounded ego, one wonders whether Trump and his hardline National Security Advisor John Bolton considered the following possible outcomes of their actions:
1- When the Turkish lira loses so much value compared to the U.S. dollar and other Western currencies, it only makes their exports that much cheaper and more attractive to foreign importers.
2- What if Turkey, having become the target of sanctions and doubled tariffs itself, decides to disregard U.S. sanctions on Iran with whom it has good trade relations, shipping them all kinds of goods in return for Iranian natural gas and oil? Last year Iran was Turkey's 7th top trading partner with $7.5 billion in trade.
Iraqi Prime Minister al-Abadi has already stated that while Iraq “will abide by them [U.S. sanctions on Iran] to protect the interests of our people," that Baghdad won’t "interact with [the sanctions] or support them". Perhaps this is what al-Abadi meant: https://sputniknews.com/business/201808091067081482-iraq-iran-trade-doll...
3- And what if Russia (Turkey's 3rd top trading partner in 2017 with $19.5 billion in trade), also under U.S. sanctions, decides to join them; thus establishing a defacto regional free-trade zone utilizing their national currencies instead of the U.S. dollar?
It seems Trump's concern is less about U.S. interests and more about pandering to his evangelical base for the November elections.
34
@EMIP
With the tariff and sanction policy of mr Trump, al nations will be interested in reducing the position of the US dollar in the world. That will happen in some years. Meanwhile the US will have a national debt of unmeasurable dimensions that will be te base for a crisis in say 8 to 10 years. With a national debt nearing 100% by then, you can't afford a crisis.
3
@matteo: Was thinking exactly the same thing. Plenty of countries wouldn't mind seeing the dollar replaced as the world's trading currency. The more Trump and Putin fracture relationships among countries, the harder it is going to get for international trade to function smoothly. There are billions of dollars invested in doing business as usual based on the current model, and more destabilization is going to scare a lot of businesses around the globe.
2
So another autocratic rulers economic bubble has burst. Erdogan can now join the ranks of Chavez and Maduro. Soon to follow will be the aspiring dictator trump who is on a path toward economic ruin.
58
don't worry putin will come to the rescue and "stabilize" turkey..... and don will have finally paid off his debt.
5
After almost 70 years of expansion, world democracy is shrinking.
Republican business conservatives created this disgraceful set of affairs and they should be the one's to remove Trump and Pence from office Now.
10
Finally, a dictator Trump hasn't (yet) literally embraced!
It may get interesting whether he will nix a bailout that will prop this scary man up ... while shielding this or that big bank from write-offs. Of course, the words "moral hazard" border on laughable with d.j.t in office, but when smart people say this is a re-run of Thailand (and/or Korea, Iceland, etc.), maybe a joker/ wild card in power (Trump, that is) will do the right thing - albeit for the wrong reason.
Landon Thomas Jr. wrote a great article in the Times about financial advisor Time Lee. Two quotes from the article follow:
"One side effect of having trillions of dollars of new money sloshing around courtesy of central banks was that it became much easier for governments and companies in hot economies like Turkey’s to borrow money in dollars — as opposed to their own currencies — to finance their investments or other growth plans"
“Companies there just ignored all the risks and kept borrowing in dollars,” Mr. Lee said.
Many lauded the FED's zero interest rate and QE policies without understanding the international consequences. Now the FED has to raise interest rates and unwind QE to head off inflation and avert a pension fund crisis. That will strengthen the $USD, and loans made in dollars have to be repaid in dollars. Turkey may be the "canary in the coal mine" as Mr. Lee asserts, as global debt has surged to $247 Trillion, much in $USD.
30
@James
Reminds me of the Wall Street Bankster crisis of
2008. Greed is self destructive. Am out of the market watching for the coming deluge.
Erdogan is practising irresponsible policies in the national interest. Trump is displaying irresponsible policies in the national interest. Both are authoritarian leaders. Here we see the blessings of nationalism. The interbellum revisited.
6
The Con Don and his Wall Street Robber Baron administration are engineering a global financial meltdown and think they will win.
Nobody wins. They are apparently too stupid to figure it out and too socially unconscious/insatiably greedy to care.
107
@njglea
Trump's true state of health remains hazy and obscure.
There may well be grave concerns at heart that influence his policy making, explaining his Louis XIV 'after me the Flood' mentality. Tomorrow doesn't matter because Trump won't be there to be affected by the consequences. So let her rip !
4
@AE, This is a very scary thought indeed.
@njglea - nonsense. Trump put sanctions on a total of two Turkish nationals. What's happening in Turkey is squarely the fault of the Turkish government, which wildly spent borrowed money for a decade. That you feel the need to insult the U.S. government with every post says more about you than it.
2
European stocks are down, but not US stocks. Apparently, most of the creditors are European banks and some of them are rather shaky anyway. The banks in the US don't seem to be much impacted.
However, if the European banks got into serious trouble, or there were runs on Italy and Spain, then there might be big trouble. The ECB will do anything to head this off, including printing money and handing it out, although they like to call it purchasing sovereign debt.
Every so often the world goes into a major financial crisis like in 2008. Interest rates drop and borrowing becomes cheap. Emerging (Third World) countries borrow cheap hard currency knowing that rates will eventually go up again and they won’t be able to repay. When rates goes up, these countries get in a financial crisis and everybody panics. The world goes into another financial crisis and the cycle repeats.
Don’t we ever learn?
18
The NYTimes and Landon Thomas, Jr. ought to do a little fact checking before writing this about the exchange rate of the Turkish lira "one dollar buys 6.4 lira, the most ever."
Not even close. I lived in Turkey as a Peace Corps volunteer 1964-66. That may be pre-history to Mr. Thomas but is not pre-history to the NYTimes. The official exchange rate was about 9:1, which we all rounded off to 10.
Per the Wikipedia article on the Turkish lira the "First Turkish Lira" was indeed 9:1 in 1966.
Thomas and the NYT should be more precise. The second Turkish lira was introduced in 2005.
5
@CJGC
actually there have been many "new" lira. I was in Turkey once when the rate was 1 million lira to the dollar!
Turns out, despite the jingoistic and Islamist rhetoric, despite the authoritarian strongman act, Erdogan has no solution to real problems.
I wonder how the US will do with its own wannabe authoritarian, who peddles same jingoistic mumbo-jumbo mixed with pandering to religious fundamentalism? The MAGAs can keep howling about winning, but it’s not margin call yet.
58
Solutions are hard, slogans are easy and painless. Guess which one excites the masses?
5
Foreign currency markets, like any price or commodity, can be heavily manipulated and influenced by computer algorithmic trading. If a specific country doesn't conform to certain "ideal norms" to satisfy influential nations, their banks or related agencies, currency markets can function as a cudgel of economic destruction upon another country. Hence, currency trading can more than offset any attempt by that government in managing its economy or currency. We therefore do not know to what extent targeted countries such as Turkey are a victim of currency manipulation or internal mismanagement.
10
@tennvol30736
When you sleep next to a giant (like the US and EU), you better turn at the same time or you'll get crushed. Erdogan wants his own turns, and no clever ones. The turkish people will definitly suffer by his choices. It's already there.
In the end the EU will have to lend a hand to the turkish people. Erdogan will be gone by then. He is not trustworthy.
1
Remember Greece? Turkey is much bigger than Greece. Financial markets are globally interlinked. If Turkey goes down, we will be impacted and the EU much more so. Then we have the prospect of political instability. Let's see. A large Muslim country surrounded by failed states experiencing severe political instability caused by economic collapse. Haven't we seen this movie before? Not only have we seen it. We are still watching it. Or, are we watching the sequel?
125
@Bruce Rozenblit Could this ultimately lead to declarations of war influenced by currency trading by the likes of Goldman Sachs? Remember what happened with currency inflation during the 1930's German Weimar Republic? Many estimates counted that WWII human death toll at around 40 million (about the number that will be killed within 24 hrs of a nuclear war).Market capitalism can have consequences beyond the immediate bottom line.
1
@Bruce Rozenblit
The handling of the Greek crisis was a stupidity because it was ruled by principles end not by pragmatism. Less than 1% or the EU GNP in a year was enough to solve this crisis in the beginning. But it was let out of hand and later contained to Greece itself at a much higher cost. There were also political and personal issues of course.
Turkey is bigger, yes, bur no member of the EU and the Euro, like Greece. But to help Turkey, Erdogan will have to go. He is not trustworthy.
@Bruce Rozenblit Greece's govt debt was 450 billion euros when it went belly up. Look up the private debt amount which has to be another 12-figure amount to add to that, and compare that to a measly, non-export oriented 180 billion euro GDP.
Portugal today has 322 billion in govt debt and 402 billion in private debt, against a GDP of around 200 billion. All in euros.
These relative magnitudes are grossly in favour of Turkey at the moment. 240 billion dollars of private debt denominated in USD and less than 100 billion USD owed by the govt, against a GDP of at least 600 billion USD even when you use the latest, shot-up fx rates. its exports + tourism earnings are at a run rate of 220 billion per year currently.
The problem with Turkey is how it is governed. 100%. Erdoğan, the ignorant wannabe sultan has taken the worst option in at least the last 15 important economic decisions that he had to make. He has lowered interest rates when they had to be increased; he has gone for fiscal expansion, financed by absurd taxation, when in fact taxation had to be rationalised and fiscal side needed prudence. And, after the sham elections, done under emergency rule, he is answerable to no one anymore. So this latest brunson skirmish has broken the camel's back, the markets' patience has entirely run out.
2
Turkey has borrowed US dollars to finance its growth and have to repay that debt in USD. Unfortunately the only currency they can print is the Lira. Any fall in the Lira rises their level of indebtedness to the point where they can not pay it back. The question is, will the lenders who foolishly loaned out this money be fully responsible for its loss or will gov't thru the taxpayer bail out those financial institutions once again. What affect will this have on the people of Turkey who autocratic ruler has used these loans to enrich himself, his family and his cronies that keep him in power? Will they suffer the fate of Argentina with a pack of Paul Singer's biting at their heels forever?
78
@Peter S.
The EU has a clear position in these cases. The banks pay for themself. Then the shareholders and the bonds. The EU members come last and the small accounts are guaranteed, and so it should.
1
Turkey brought this on itself. They compounded it by getting into a stand-off with the US over the imprisonment of a US citizen. They were asked multiple times, in multiple ways, in multiple forums to release him, but refused. Now, the Turks pay the price.
I am glad that this administration is not a rollover.
10
@Whatever
Neither you nor me have all the details to why this U.S. citizen was jailed. Tens of thousands of U.S. citizens visit and work in Turkey every year. They don’t get jailed. He may not be a saint as the U.S. government has portrayed. We just don’t know.
What we do know, however, is that Turkey is going through a major financial crisis that is impacting markets worldwide, consequences of it that can last many years. This administration that you praise for not being a rollover, is only making matters worse. This isn’t about chest-pumping and draping over the American flag. It’s about having brains - something this administration lacks dearly.
43
@BWCA, in the same vein, neither do you or I "have all the details" on why thousands of Turkish journalists and academics have been jailed.
It is most certainly not about chest-thumping, rather it's about having the brains to connect dots in understanding the behavior of a cruel despot in Turkey, and not be driven blind by one's hatred for all things Trump.
@Whatever I think the point is that it's not just Turks who will pay the price. Trump could have picked some sanction that didn't cost the rest of the world in money and security.
A crisis by its very nature builds up slowly and silently over many years and then bursts forth overnight over some obscure event which normally would have been just a hiccup. Turkey has been a disaster waiting to happen for a number of years. It has been living on borrowed money and borrowed time. International investors have been eager to lend it money in a world of low returns everywhere and the security industry, fed on commissions has been eager to promote stories of health and vitality. It was not Enron that led to the Dot Com crash, nor Lehman Brothers that led to the Great Financial Crisis. They were just events that revealed the rot that had been building up because they had been the biggest gamblers like Turkey is today and the tide had turned.
168
@Rahul
'living on borrowed money and borrowed time.'
Much like American consumers part of a workforce severely underpaid and forced to have recourse to revolving credit and usurious debts in order to survive from day to day. Turkey is not alone as a potential powderkeg set to blow. Could happen nearer to you than you care to believe.
148
@AE
Nobody puts a gun to anybody's head and forces them to borrow. It is a choice that the borrower makes to live a lifestyle that is higher than they can afford and a choice a lender makes to get returns better than those available elsewhere. It all goes horribly wrong when everybody else has made the same calculation and the same bet based on information and advice that turns out to be wrong in hindsight. Turkey's collapse will reveal how many dominoes are out there in the emerging markets. As far as the US consumer is concerned, people who borrow to finance day to day expenditure will rarely cause a financial crisis because everybody is smart enough to never lend them too much. The great financial crisis was caused by the doctors and lawyers who had bought second homes and investment properties as a one way bet.
http://fortune.com/2015/06/17/subprime-mortgage-recession/
As we speak now, real estate has stopped selling in big US cities from coast to coast. You are talking $ 2 million condos not typically bought by people living paycheck to paycheck.
@Rahul
Try telling that to young high school graduates who are FORCED to go into debt in order to matriculate at any institution of higher learning in the United States. And please do not confuse immature and economically-illiterate spendthrifts with mature adults who find themselves in the position to contract credit in order to move for employment reasons. The only way I see for individuals to have any kind of 'choice would be to prolong one's dependency upon family members (not a given for many folks), saving up money for years for a deposit on the first home, paying for a car in cash, etc. Update yourself, Rahul --- those frugal alternatives are not what forward looking Americans were led to believe as ideal and reasonable solutions to the dearth of decent paid entry-level jobs.
Putin must LOVE all this. Especially when Erdogan threatened the US with leaving NATO and seek different military alliances (Read: Russia and China). It is true; trump does Putin's bidding. And he (trump) is either to stupid to realize that, or he is just plain evil. My money is on the latter.
179
@TermlimitsNow Don't underestimate trump, he can be both!
5
@TermlimitsNow Please, Russia and Turkey have never been allies and one despot will not determine how all Turks feel about or accept that. Like Chavez and Venezuela, this one is not our fault, but entirely at Erdogan's feet and has been building for a longtime.
1
Evil and stupidity are difficult to tell apart. Often they're the very same thing. Trump, I think, is closer to the Stupid end of the spectrum.
2
A big plot is afoot, launched by Donald Trump's excessive aggressivity towards a strategic ally now deemed to be an unfair competitor on the economic front.
Learn to play chess, Americans. Or perhaps Trump's Russian friends have taught him a thing or two. To wit : this not so innocuous event may trigger an upheaval in Turkey with geopolitical consequences affecting Europe dwarving the current crisis involving Syrian refugees. Desperate starving people will leave the wasteland they call home no matter what form of rejection and probable hostility fleeing Turks would encounter on the part of Europeans incapable of coming to grips with such a crisis. This is all part of Trump's master plan to destroy America's new rival, the European Union. The nationalism democratically inclined thinkers deplore in Poland and Hungary will spread westwards when the migrations hit a tipping point. You have been warned.
70
@AE
"....an unfair competitor on the economic front."
For what? Dates and figs?
12
@george eliot
In the parallel universe of Trump, dates and figures belong to the malleable realm of what you and I call FACTS. Trump has just imposed tariffs for deeply personal strategic reasons whose full implications are only known to him and his cohorts.
@george eliot
Turkey exports great pistachios.