08-10-2018, 10:50 PM
(This post was last modified: 08-11-2018, 04:52 PM by John J. Xenakis.)
*** 11-Aug-18 World View -- Turkey's lira currency crumbles as Trump turns the screws after Erdogan double-cross
This morning's key headlines from GenerationalDynamics.com
****
**** Turkey's lira currency crumbles as Trump turns the screws after Erdogan double-cross
****
![[Image: g180810b.jpg]](http://Media.GenerationalDynamics.com/ww2010/g180810b.jpg)
Presidents Trump and Erdogan shaking hands when they were still friendly (Reuters)
Turkey's lira currency has been falling steadily for the last year
because of a clearly stated view by Turkey's president Recep Tayyip
Erdogan that interest rates are "evil," and because he has been
controlling Turkey's central bank consistent with that
belief.
The lira has already lost 40% of its value in the past month. On
Friday, the currency fell another 20%, before settling at being down
14% from Thursday's level.
The result is that any imported item now cost two or three times as
many liras as they did a few months ago. The inflation rate is
above 15%.
Many economists had been predicting for months that Erdogan's actions
would lead to a currency crisis, which is what's happening now. There
are concerns that unless Erdogan adopts sensible policies, the result
will be a full-scale national economic crisis.
During the campaign for the June 24 elections, Erdogan said the
following:
<QUOTE>"If my people say continue on this path in the
elections, I say I will emerge with victory in the fight against
this curse of interest rates. Because my belief is: interest
rates are the mother and father of all evil."<END QUOTE>
In July he appointed his son-in-law, Berat Albayrak, to run the
central bank, and said, "We will see inflation and interest rates
decline in the coming period."
These statements caused concern among investors for two reasons.
First, an interest rate decline will cause higher inflation, not lower
inflation, and combined with his statement that interest rates are
"the mother and father of all evil," it's reasonable to conclude that
Erdogan does not have the vaguest clue how economics works.
We've seen this kind of thing in other countries. In Venezuela, Hugo
Chávez and Nicolás Maduro followed and are following policies which
have meant economic destruction for their country. In Zimbabwe,
Robert Mugabe's policy of throwing white farmers off farms and giving
the farms to political cronies who know nothing about farms ended up
destroying Zimbabwe's economy, and it's unclear whether this policy is
still continuing. I've written about many other examples where a
clueless idiot leader politician destroys a country's economy and the
country itself.
That hasn't happened to Turkey yet, but Erdogan has become so
fanatical that it will if he continues the path he's on.
The second reason that investors are concerned is that Erdogan seems
determined to control the central bank even though it should be an
independent institution, like America's Federal Reserve. So now you
have delusional politician, Erdogan, who says that "interest rates are
the mother and father of all evil," and is also running the central
bank. What could go wrong?
So that's why the lira currency has been falling steadily for a year,
and then started falling even more rapidly after the June 24 election,
when he was reelected president, along with a constitutional change
that gave him almost dictatorial powers.
Hurriyet (Ankara) and Business Insider and Deutsche Welle
****
**** Trump turns the screws
****
So there have been an interesting series of statements from both
Erdogan and US president Donald Trump in the last couple of days.
On Thursday evening, Erdogan that there was nothing to fear if the
lira was falling against the US dollar:
<QUOTE>"If they have their dollars, we have our people and
God."<END QUOTE>
However, on Friday morning, Trump tweeted the following:
<QUOTE>"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!"<END QUOTE>
This caused the lira to start plummeting, ending up the day having
lost 14% of its value.
Erdogan apparently went into a panic, because he gave one of his
televised national rants where he screams every sentence furiously at
the top of his lungs. He said the following:
<QUOTE>"If there is anyone who has dollars or gold under
their pillows, they should go exchange it for liras at our
banks. This is a national, domestic battle.
Some countries have engaged in behavior that protects coup
plotters and knows no laws or justice. Relations with countries
who behave like this have reached a point beyond
salvaging."<END QUOTE>
Erdogan also warned of “economic war.”
However, there is a greater concern that the falling lira will lead to
contagion. A number of banks, especially in Spain and Italy, are
holding Turkish government bonds, and they are going down in value
with the lira. A bigger concern is that many companies in Turkey have
borrowed money in international markets, and the debts are denominated
in dollars. A typical company's income would be in lira, while debt
payments must be made in dollars. A weakening lira means that
companies may default on their loans.
CNBC and Hurriyet News (Ankara) and Bloomberg
****
**** How Erdogan apparently double-crossed Trump
****
A lot of people were shocked on Friday morning at the harshness of
Trump's tweet when he said that he was doubling Turkey's tariffs on
steel and aluminum, and at the same time he apparently mocked Turkey's
falling lira currency.
It appears that this highly confrontational statement was retaliation
for what Trump saw as a double-cross by Erdogan.
Trump met Erdogan at a Nato meeting early in June. Their discussions
were very friendly, and after they ended, Trump thought they had made
a deal: Trump would ask Israel's prime minister Benjamin Netanyahu to
release a Turkish citizen, Ebru Ozkan, arrested because of alleged
terrorist links to Hamas, and then Turkey would release pastor Andrew
Brunson, who was arrested in Turkey on October 2016 on charges of
espionage, which the US considers are bogus charges.
So on July 14, Trump called Netanyahu and requested that Ozkan be
released, and she was released the next day. But Brunson was not
released, and Turkish officials said that no such deal had ever been
made. Instead, they began piling more demands that would have to be
met in exchange for the release of Brunson, including the extradition
of Fethullah Gülen, whom Erdogan blames for the attempted coup in
Turkey in 2016, but without any evidence.
Needless to say, Trump was infuriated, and this led to a first round
of sanctions in July, and then Friday's announcement of more
sanctions. The Trump administration is now saying that Brunson must
be released, to resolve this situation. Furthermore, reports indicate
that because Trump believes he was double-crossed, the administration
is also requiring that all further conditions and demands from Turkey
be put into writing, to avoid future misunderstandings.
Trump is now involved in highly contentious sanctions disputes with
Turkey, Russia, Iran and China. Any one of these situations could
spiral into something much larger, including an actual war.
Also, since the global financial system is currently one huge Ponzi
scheme, one of these situations could also trigger a chain reaction
leading to a global financial crisis.
Washington Post and Hurriyet News (Ankara) and Ynet News (Israel) and Middle East eye
Related Articles:
KEYS: Generational Dynamics, Turkey, Recep Tayyip Erdogan,
Berat Albayrak, Benjamin Netanyahu, Ebru Ozkan,
Andrew Brunson
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Turkey's lira currency crumbles as Trump turns the screws after Erdogan double-cross
- Trump turns the screws
- How Erdogan apparently double-crossed Trump
****
**** Turkey's lira currency crumbles as Trump turns the screws after Erdogan double-cross
****
Presidents Trump and Erdogan shaking hands when they were still friendly (Reuters)
Turkey's lira currency has been falling steadily for the last year
because of a clearly stated view by Turkey's president Recep Tayyip
Erdogan that interest rates are "evil," and because he has been
controlling Turkey's central bank consistent with that
belief.
The lira has already lost 40% of its value in the past month. On
Friday, the currency fell another 20%, before settling at being down
14% from Thursday's level.
The result is that any imported item now cost two or three times as
many liras as they did a few months ago. The inflation rate is
above 15%.
Many economists had been predicting for months that Erdogan's actions
would lead to a currency crisis, which is what's happening now. There
are concerns that unless Erdogan adopts sensible policies, the result
will be a full-scale national economic crisis.
During the campaign for the June 24 elections, Erdogan said the
following:
<QUOTE>"If my people say continue on this path in the
elections, I say I will emerge with victory in the fight against
this curse of interest rates. Because my belief is: interest
rates are the mother and father of all evil."<END QUOTE>
In July he appointed his son-in-law, Berat Albayrak, to run the
central bank, and said, "We will see inflation and interest rates
decline in the coming period."
These statements caused concern among investors for two reasons.
First, an interest rate decline will cause higher inflation, not lower
inflation, and combined with his statement that interest rates are
"the mother and father of all evil," it's reasonable to conclude that
Erdogan does not have the vaguest clue how economics works.
We've seen this kind of thing in other countries. In Venezuela, Hugo
Chávez and Nicolás Maduro followed and are following policies which
have meant economic destruction for their country. In Zimbabwe,
Robert Mugabe's policy of throwing white farmers off farms and giving
the farms to political cronies who know nothing about farms ended up
destroying Zimbabwe's economy, and it's unclear whether this policy is
still continuing. I've written about many other examples where a
clueless idiot leader politician destroys a country's economy and the
country itself.
That hasn't happened to Turkey yet, but Erdogan has become so
fanatical that it will if he continues the path he's on.
The second reason that investors are concerned is that Erdogan seems
determined to control the central bank even though it should be an
independent institution, like America's Federal Reserve. So now you
have delusional politician, Erdogan, who says that "interest rates are
the mother and father of all evil," and is also running the central
bank. What could go wrong?
So that's why the lira currency has been falling steadily for a year,
and then started falling even more rapidly after the June 24 election,
when he was reelected president, along with a constitutional change
that gave him almost dictatorial powers.
Hurriyet (Ankara) and Business Insider and Deutsche Welle
****
**** Trump turns the screws
****
So there have been an interesting series of statements from both
Erdogan and US president Donald Trump in the last couple of days.
On Thursday evening, Erdogan that there was nothing to fear if the
lira was falling against the US dollar:
<QUOTE>"If they have their dollars, we have our people and
God."<END QUOTE>
However, on Friday morning, Trump tweeted the following:
<QUOTE>"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!"<END QUOTE>
This caused the lira to start plummeting, ending up the day having
lost 14% of its value.
Erdogan apparently went into a panic, because he gave one of his
televised national rants where he screams every sentence furiously at
the top of his lungs. He said the following:
<QUOTE>"If there is anyone who has dollars or gold under
their pillows, they should go exchange it for liras at our
banks. This is a national, domestic battle.
Some countries have engaged in behavior that protects coup
plotters and knows no laws or justice. Relations with countries
who behave like this have reached a point beyond
salvaging."<END QUOTE>
Erdogan also warned of “economic war.”
However, there is a greater concern that the falling lira will lead to
contagion. A number of banks, especially in Spain and Italy, are
holding Turkish government bonds, and they are going down in value
with the lira. A bigger concern is that many companies in Turkey have
borrowed money in international markets, and the debts are denominated
in dollars. A typical company's income would be in lira, while debt
payments must be made in dollars. A weakening lira means that
companies may default on their loans.
CNBC and Hurriyet News (Ankara) and Bloomberg
****
**** How Erdogan apparently double-crossed Trump
****
A lot of people were shocked on Friday morning at the harshness of
Trump's tweet when he said that he was doubling Turkey's tariffs on
steel and aluminum, and at the same time he apparently mocked Turkey's
falling lira currency.
It appears that this highly confrontational statement was retaliation
for what Trump saw as a double-cross by Erdogan.
Trump met Erdogan at a Nato meeting early in June. Their discussions
were very friendly, and after they ended, Trump thought they had made
a deal: Trump would ask Israel's prime minister Benjamin Netanyahu to
release a Turkish citizen, Ebru Ozkan, arrested because of alleged
terrorist links to Hamas, and then Turkey would release pastor Andrew
Brunson, who was arrested in Turkey on October 2016 on charges of
espionage, which the US considers are bogus charges.
So on July 14, Trump called Netanyahu and requested that Ozkan be
released, and she was released the next day. But Brunson was not
released, and Turkish officials said that no such deal had ever been
made. Instead, they began piling more demands that would have to be
met in exchange for the release of Brunson, including the extradition
of Fethullah Gülen, whom Erdogan blames for the attempted coup in
Turkey in 2016, but without any evidence.
Needless to say, Trump was infuriated, and this led to a first round
of sanctions in July, and then Friday's announcement of more
sanctions. The Trump administration is now saying that Brunson must
be released, to resolve this situation. Furthermore, reports indicate
that because Trump believes he was double-crossed, the administration
is also requiring that all further conditions and demands from Turkey
be put into writing, to avoid future misunderstandings.
Trump is now involved in highly contentious sanctions disputes with
Turkey, Russia, Iran and China. Any one of these situations could
spiral into something much larger, including an actual war.
Also, since the global financial system is currently one huge Ponzi
scheme, one of these situations could also trigger a chain reaction
leading to a global financial crisis.
Washington Post and Hurriyet News (Ankara) and Ynet News (Israel) and Middle East eye
Related Articles:
- Turkey's government takes control of last remaining independent news source (23-Mar-2018)
- Relations between Germany and Turkey spiral into crisis (21-Jul-2017)
- Turkey's 'shameful day for free press' as government seizes Zaman media (06-Mar-2016)
- More than a million of secularists rally in Turkey (14-May-2007)
- Turkey debates Islam versus secularism (26-Feb-2010)
KEYS: Generational Dynamics, Turkey, Recep Tayyip Erdogan,
Berat Albayrak, Benjamin Netanyahu, Ebru Ozkan,
Andrew Brunson
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
