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:
“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.”
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:
“If they have their dollars, we have our people and God.”
However, on Friday morning, Trump tweeted the following:
“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!”
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:
“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.”
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
- 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
Please let us know if you're having issues with commenting.