Turkey in 2nd Currency Crisis in 2 Years. Lira Hits Record Low

Foreign investors are fleeing, worried about surging inflation, deeply negative real interest rates, and a central bank unwilling to crack down on inflation.

By Nick Corbishley, for WOLF STREET:

The Central Bank of the Republic of Turkey (CBRT) has burned through tens of billions of dollars of increasingly scarce foreign-exchange reserves trying to prop up the lira. It has also borrowed vast sums of foreign currencies from domestic banks and then sold those currencies to buy lira. But to no avail. The Turkish lira is plumbing depths it’s never seen before. This week, it sank to a record low of 8.30 lira to the euro and closed on Friday at 8.25. This three year chart also shows the currency crisis in August-September 2018:

In terms of the dollar, the lira had hit a record low on May 8, at 7.2 lira to the dollar. Then the dollar spiraled into a sharp decline against a basket of other currencies. And the TRY found some relief against the dollar. But that ended early this week, when the lira started falling against the dollar as well, even as the dollar was falling against other currencies — to close on Friday at 7.0 TRY to the USD — stirring fears that Turkey could be on the cusp of yet another debt crisis, just two years after the last one.

A Bleaker Panorama.

Today, Turkey faces a bleaker panorama than it did two years ago. The economy is weaker today than it was then, having already been through one crisis in 2018. Now, the virus crisis has wiped out a big chunk of the nation’s revenue from tourism and exports while the plunging lira is making it hard, once again, for companies and the government to service their foreign-denominated debts, which in April still accounted for 37% of the total debt owed by Turkish borrowers.

This preponderance of foreign-denominated debt in Turkey is a huge risk for banks based in the country, warns S&P. Some of these banks are owned by European banks.

The CBRT, after burning through scarce foreign-exchange reserves to prop up the lira, has another option to try to prop up the lira: raising the benchmark interest rate.

But that is anathema to Turkey’s president Recep Tayyip Erdogan, whose post-2018-crisis plan all along was to reanimate the economy by recreating the exact same debt-fueled consumer and construction booms that paved the way to the last crisis. The CBRT’s former governor, Murat Cetinkaya, tried to hike rates anyway and was sacked for it by Erdogan in July 2019 and replaced with his deputy, who spent the next nine months slashing Turkey’s benchmark rate — to 8.25%.

Back in 2018, Turkey’s consumer price inflation had surpassed 25%, which in part triggered the currency crisis. And to combat it, the CBRT had raised interest rates, which brought inflation back down, and in mid-2019 inflation was back to about 8%. But since then, inflation started storming higher and hit 12.6% in June!

Now, the benchmark rate is substantially below the official inflation rate, and has been for the past six months. In other words, real interest rates have become extremely negative. Given Erdogan’s intolerance for rate hikes, they’re likely to stay that way for some time.

This has raised concerns among foreign investors that if inflation continues to rise, the central bank will be neither willing nor able to raise borrowing costs quickly enough to bring it under control. With real interest rates already deeply negative, many investors feel that they are not being adequately compensated for the risk of holding Turkish assets. The result has been a flight out of Turkey’s bond and stock markets.

Foreign investors pulled more than $7 billion out of Turkey’s local currency bond market in the first six months of the year — the largest drawdown in the first half on record — and $4.3 billion from Turkish equities, according to data from the CBRT.

Blowing New Bubbles.

To make sure the lower interest rates it had set translated into lots of new bank lending, the CBRT, at Erdogan’s behest, devised incentives to encourage banks to lend out money and penalties for those that refused. It had the desired effect: by May 2020, the country’s total supply of domestic credit had reached $551 billion — an increase of 30% year-over-year.

Fueled by dirt-cheap mortgages (in real terms) provided by state-owned lenders, house sales have skyrocketed, helping to fill the pockets of Erdogan’s friends in the construction industry. In June alone, home sales surged by 209% year on year, helped along by the fact that state-owned lenders were offering mortgages at rates well below the rate of inflation.

Credit for consumer goods is also flowing freely, just like the good old days. But just as before, most of the goods Turkish consumers are buying are imported from oversees, which means the balance of payments deficit is once again widening. Between January and May this year, imports exceeded exports by $16 billion, putting the current-account deficit on track to reach $40 billion by the end of the year — its widest since 2017.

Where’s the money?

Normally, countries that find themselves in such a situation would issue long-term debt to fund the gap. But with foreign investors increasingly abandoning Turkish bonds, Ankara doesn’t have that luxury. The CBRT’s foreign currency reserves are very low: the central bank’s official net international reserves currently stand at $31 billion, according to Reuters. But minus swap lines, gold reserves and lines to domestic banks, the number is believed to be negative.

Some large emerging economies with better credit ratings and better relations to the US government, such as Mexico, Brazil, Singapore and South Korea, have been able to alleviate their short-term dollar funding pressures by drawing on the dollar swap lines hastily rolled out by the Federal Reserve at the beginning of the pandemic. But Turkey does not have that luxury. It has repeatedly asked the Fed for a swap line but has been rebuffed each time, partly due to Washington’s rocky ties with Ankara.

Ankara is not completely out of options. In May, as its funding pressures mounted, it managed to persuade Qatar to triple its swap line, from €5 billion to €15 billion. A month later, the CBRT announced it had used a funding facility for Chinese yuan for the first time under an already established swap agreement with the People’s Bank of China, though it’s not clear how much for. To meet Turkey’s funding needs, it will need to be a lot. By Nick Corbishley, for WOLF STREET.

Too-Big-To-Fail Santander is also one of Eurozone’s worst capitalized banks. Read… Confession Time for Big Banks in Europe: Banco Santander Reports $12.7 Billion Loss

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  59 comments for “Turkey in 2nd Currency Crisis in 2 Years. Lira Hits Record Low

  1. MonkeyBusiness
    Jul 31, 2020 at 4:51 pm

    It always amuses me whenever I see these two: Singapore and South Korea being classified as emerging market economies.

    I’ve been to both countries, and if those two places are “emerging”, I think living in emerging countries might be better.

    • Lee
      Jul 31, 2020 at 6:51 pm

      South Korea has come a long way in the last 40 years. It was amazing to see the changes since the first I lived there back then.

      I think the biggest changes took place right before and after the ’88 Olympics.

      IMO there is really no longer any reason for the US military to be stationed there either. The amount that SK pays the USA for ‘whatever’ doesn’t even come close to what it costs to maintain our presence there.

      • Javert Chip
        Aug 1, 2020 at 12:42 pm

        Lee

        re: American military leaving Korea

        Just interested in your thoughts; without US troops, do you believe South Korea could defend itself against North Korea, or do you believe North Korea is now a peace-loving country? Or something else?

        • Lee
          Aug 1, 2020 at 8:38 pm

          How to answer those questions…………….

          I was stationed in SK in the early 80’s in a position using my MOS of 35E so I had access to a lot of interesting stuff. I also spent a number of years in the Reserves with the same MOS.

          The SK military is now more than capable of handling the NK conventional threat without any problem. US forces, especially the US air components (Air Force and Army assets), would provide the most backup.

          Looking at the NK military you have to weed out a lot of crap that you get from the media and the mis-information also being put out by various military personnel about them. They like to make them ‘bigger nd badder’ than they really are for their own purposes.

          One of the best studies I’ve seen was done by Rand that discussed various scenarios and results of a war on the Peninsula. I used to have a copy, but I think it was on my old computer and lost it. Unfortunately I haven’t been able to find it on the Intenet either.

          Now, looking at the NK and their capabilities. Their conventional forces are, IMO, basically worthless and would be out of any conflict within a short period of time.

          You need to be able to train and maintain your equipment and personnel on a regular basis which NK has been unable to do for years with most of the funds directed towards building a nuclear capable military. Putting on a fancy show of firing off a whole bunch of tubes doesn’t cut it.

          Their special forces would be a problem in the event a conflcit and probably cause the most conventional damage.

          In the event of a war the NK capability in the NBC area is the most alarming moreseo the”BC” part rather than the “N” part. (Once you go the ‘N’ route, well the outcome is quite certain……….)

          I doubt that initially either the US or SK is prepared for or would be able to respond quickly enough under a full blown biological of chemical attack by NK.

          Years ago this was even worse given the location of US forces in South Korea. This has been some what mitigated by change in the disposition of US forces there now.

          And no, NK is not a peaceful country at all. They are basically a failed state propped up mostly by China and to a lesser extent Russia to use as a thorn in the side of the US, Japan and SK.

          The US military was needed years ago to defend the country, then as a ‘tripwire, and now there is no need to be there at all.

          What little intelligence and strategic benefit we get from the funds spent and manpower there isn’t worth it.

        • Javert Chip
          Aug 1, 2020 at 10:19 pm

          Lee

          Interesting read. No offense, but MacArthur felt roughly the same as you describe.

          As MacArthur painfully discovered, NK is really China+NK (with questionable Russia), and relative to SK, has access to essentially infinite human resources; SK has total population of 52M.

    • Willy2
      Aug 3, 2020 at 8:53 am

      – South Korea has its own housing bubble in recent years. The country is now in the early stages of a housing bust as well. and each housing bubble is build on a (giant) of credit. so, with the housing about to deflate the south korean credit bubble is about to deflate as well.
      – Anyone who has followed the US housing bust knows what’s instore of South Korea as well.

  2. MiTurn
    Jul 31, 2020 at 4:56 pm

    Perhaps Turkey’s misfortune will be an opportunity for the Chinese. Turkey’s recent military activities have hurt its relations with the West — so much the better for China?

    • Joe
      Jul 31, 2020 at 5:01 pm

      Turkey has blackmailed the EU and skated with NATO to get more lands in Cyprus and Syria.

      • Haluk duman
        Aug 1, 2020 at 5:58 am

        That s alie we dont want ant more land. Tell them not to disturb us..

        • Javert Chip
          Aug 3, 2020 at 6:57 pm

          Haluk duman

          Given the Armenian genocide, invasion of Cyprus, and invasion of Syria, it’s somewhat difficult to square this with your “we don’t want any more land” and “do not disturb” comments. Who will Turkey invade next?

    • Wisdom Seeker
      Jul 31, 2020 at 5:05 pm

      As I understand it, Erdogan and Xi are basically both in the “Dictators for Life Club”, so why not?

      Country | Dictator | Population 2020
      Afghanistan Ashraf Ghani Ahmadzai 38,928,346
      Algeria Abdelkader Bensalah 43,851,044
      Angola Joao Lourenco 32,866,272
      Azerbaijan Ilham Aliyev 10,139,177
      Bahrain Hamad bin Isa Al Khalifa 1,701,575
      Belarus Alexander Lukashenko 9,449,323
      Brunei Haji Waddaulah 437,479
      Burundi Pierre Nkurunziza 11,890,784
      Cambodia Hun Sen 16,718,965
      Cameroon Paul Biya 26,545,863
      Central African Republic Faustin Archange Touadera 4,829,767
      Chad Idriss Deby 16,425,864
      China Xi Jinping 1,439,323,776
      Cuba Miguel Diaz-Canel 11,326,616
      Dr Congo Felix Tshisekedi 89,561,403
      Equatorial Guinea Teodoro Mbasogo 1,402,985
      Eritrea Isaias Afwerki 3,546,421
      Ethiopia Abiy Ahmed 114,963,588
      Gabon Albert-Bernard Bongo 2,225,734
      Iran Hassan Rouhani 83,992,949
      Iraq Barham Salih 40,222,493
      Kazakhstan Kassym-Jomart Tokayev 18,776,707
      Laos Bounnhang Vorachith 7,275,560
      Libya Nouri Abusahmain 6,871,292
      Mauritania Mohamed Ould Ghazouani 4,649,658
      Nicaragua Daniel Ortego 6,624,554
      North Korea Kim Jong-un 25,778,816
      Oman Qaboos bin Said Al-Said 5,106,626
      Qatar Tamin Al Thani 2,881,053
      Republic Of The Congo Denis Sassou Nguesso 5,518,087
      Russia Vladimir Putin 145,934,462
      Rwanda Paul Kagame 12,952,218
      Saudi Arabia Abdullah Aziz Al Saud 34,813,871
      Somalia Mohamed Abdullahi Mohamed 15,893,222
      South Sudan Salva Kiir Mayardit 11,193,725
      Sudan Abdel Fattah Abdelrahman Burhan 43,849,260
      Swaziland Mswati III 1,160,164
      Syria Bashar al-Assad 17,500,658
      Tajikistan Emomalii Rahmon 9,537,645
      Thailand Prayut Chan-o-cha 69,799,978
      Turkey Recep Erdogan 84,339,067
      Turkmenistan Gurbanguly Berdimuhammedow 6,031,200
      Uganda Yoweri Museveni 45,741,007
      United Arab Emirates Sheikh Khalifa Nahyan 9,890,402
      Uzbekistan Shavkat Mirziyoyev 33,469,203
      Venezuela Nicolas Maduro 28,435,940
      Vietnam Nguyen Phu Trong 97,338,579
      Western Sahara Brahim Ghali 597,339
      Yemen Abd Al-Hadi 29,825,964

      • Wisdom Seeker
        Jul 31, 2020 at 5:06 pm

        Data from WorldPopulationReview.com/country-rankings/dictatorship-countries. I haven’t checked the whole list but the ones I’m aware of are on it.

      • MiTurn
        Jul 31, 2020 at 5:55 pm

        Trade is good, especially if you’re in the driver’s seat and can dictate terms. Where else can Western-level technology be accessed besides the West? Oh, yes, China. And I’m sure China will buy whatever it is you want to trade in order to get it. For a price of course (and in yuan rather than US dollars?).

      • MCH
        Aug 1, 2020 at 10:12 pm

        I recall a time not long ago when Erdogan was celebrated as a democratic leader who stood up to the Turkish military. The opinion was even mixed when the military attempted a coup to remove him when it was becoming apparent that he was moving toward the road of dictatorship.

        But no longer, Erdogan has suborned the military, gutted Turkish institutions from top to bottom. Removing him now would like be attempting to remove Madura from Caracas of the Ayatollah from Iran. Good luck. You’d need people with very particular set of skills… and while those people might be available, there is no will.

    • RoundAbout
      Jul 31, 2020 at 9:11 pm

      Not an expert on the Turks, the more secular western Turkey has had less children per feminism. The more conservative eastern Turkey has had more children. Thus, the imbalance changed the politics away from a secular country ( Ataturk ) to something more typical of the middle east.

      Converting the Hagia Sofia is not going to make many more friends to the north or west. Kind of sad, really. Time to pull the plug on this one…

      • Haluk duman
        Aug 1, 2020 at 6:00 am

        You re absolutely right

      • Williamston
        Aug 2, 2020 at 1:22 pm

        Excuse me but how can you relate the secularism to the number of children per family? East of turkey (Kurd land/Northern Kurdistan) in fact way much secular than the west where dominated by turks. As a result, current government and it’s supporters accusing Kurds of being infidel and supporter of America and the west.

  3. Joe
    Jul 31, 2020 at 4:57 pm

    I think they finally have caught onto this game.
    Every time they use their reserve, it gets monkey hammered and they lose it.
    At some point, you say hey wait a second here.

  4. Lee
    Jul 31, 2020 at 5:10 pm

    Turkey: The “Mexico” of Europe, but with a megalomanic dictator spending billions on trying to re-crreate the Turkish empire by wars in Syria, Libya, messing around with Cyprus, sending refugees through Greece to Europe as well as overlaying it all with a religious overtone.

    Feel sorry for the people of Turkey, but then they get the government they deserve when they voted the guy into office.

    • Faifo
      Jul 31, 2020 at 6:22 pm

      Like the RotW thinks of Trump’s US

    • c1ue
      Jul 31, 2020 at 10:37 pm

      There are huge differences between Turkey and Mexico.
      1) Turkey is a much stronger military power.
      2) Turkey is geopolitically in a prime spot: gateway between Europe and Middle Eastern/Central Asian energy
      3) Turkey sits astride Russia’s only access to a warm water sea port.
      4) Turkey is attempting to extend its gateway functions to natural gas; the Libya adventure is to build a line across the Mediterranean which Turkey controls to prevent ME/Israeli/other gas from passing.
      5) Turkey has the Turk Stream deal with Russia – which largely blocks the Black Sea route between Central Asia and Europe.
      6) Don’t forget Incirlik – one o the largest US military bases in the world. So long as Iran is country-non-grata to the US, Turkey has cards to play on that front.

      For all that, Turkey is still not a wealthy country. It also has a severe Kurd problem; 20% of Turkey’s population is Kurdish.

      Yes, Turkey’s handling of its foreign currency borrowing – largely by Turkish businesses – has been shambolic. But unlike Argentina or other countries that get disemboweled by the IMF and international bankers, Turkey has plenty of its own “Trump” cards to play from the geopolitical setup noted above.

      Note the above isn’t comprehensive. Turkey has also shown it can play the refugee game, among others.

    • Implicit
      Aug 1, 2020 at 8:33 am

      The Ottoman Empire was huge, they tried to spread as far north as Vienna.
      “…controlled much of Southeastern Europe, Western Asia, and Northern Africa between the 14th and early 20th centuries. It was founded at the end of the 13th century in northwestern Anatolia in the town of Söğüt by the Turkoman tribal leader Osman” I.Wikipedia

  5. MonkeyBusiness
    Jul 31, 2020 at 5:12 pm

    Erdogan is a totally incompetent president. When this blows up in his face, it will be some sort of cosmic justice.

    However it would be interesting to know the total exposure of European banks to this house of card.

    • Sir.PiratePapirus
      Jul 31, 2020 at 6:28 pm

      One thing with Nick’s article is his description of the Central bank of Turkey pre “Berat Albayrak”. The Central bank’s policies before Berat Albayrak where a disaster, a bureaucracy that had grown moss from slumber, double digit interest rates for years, credit policies that where inexplicable, one crisis after the other before Erdogan, rescue after rescue from the IMF, a complete incompetence and abuse of their independence. It was Erdogan that payed off IMF 100bln plus USD debts. For those who follow emerging markets and especially Turkey they would know what the IMF did there and how humiliating it was for Turkey, basically the IMF had become the defacto ruler of the land. Secondly during the currency crisis the media was complaining that Erdogan is doing foolish things by reforming the central bank and appointing Berat they called him “his son in law” as to suggest nepotism, while Berat Albayrak qualifications where never put in doubt by anyone and his involvement in politics and economy predate Erdogan and his marriage to his daughter. People warned that by not raising interest rates, and calling in IMF like Argentina did, Turkey was facing a disaster, yet when compared Turkish lira did better than Argentina by cutting interest rates from idiotically high levels and not calling in IMF.
      Turkey faces two problems, one high private debt and lack of USD funding/reserves given the fact that their spending has been tremendous for over a decade now. I suspect they will move to a more managed float and wipe clean bank’s balance sheet, which is the appropriate thing to do while bringing interest rates in line with demand for loans from SME who borrow in Lira and not in USD and in line with the economy.

      • Jul 31, 2020 at 11:55 pm

        Nah. One of Turkey’s biggest problems is inflation. It’s now 12.6% and surging. It was over 20% in 2018 – hence the high interest rates to bring it down two years ago.

        But now, the central bank doesn’t give a hoot about inflation. And foreign investors are figuring this out. Debt denominated in foreign currency gets impossible to pay off if there is a lot of inflation. And Turkey has a lot of foreign-currency debt. So, it’s facing a financial crisis in addition to a currency crisis. So the IMF came and lent it some money to bail it out. The IMF shouldn’t have done it. It should have just let Turkey default on its foreign currency debts.

        • TimTim
          Aug 1, 2020 at 12:57 am

          True.

          But you try getting the no jam today so you can have some jam tomorrow past any electorate.

    • Wisdom Seeker
      Jul 31, 2020 at 8:06 pm

      He’s been in power too long to be declared “incompetent”. He’s at least competent at staying in power, which unfortunately is all that matters.

      • Realist
        Aug 1, 2020 at 3:43 am

        Erdogan Bey

    • LB
      Aug 3, 2020 at 2:56 am

      If Trump has any quality or interest which he shares with Erdogan they may be able to agree up on a suitable modus vivendi. Could incompetence be one?

  6. Jul 31, 2020 at 5:37 pm

    So what happens in the triparty relationship if the USD/EU swings one way or the other? How are they positioned?

  7. Cobalt Programmer
    Jul 31, 2020 at 6:23 pm

    Once the “Ottoman empire” and then “Sickman of Europe” and now in deep currency circus. Turkey never had any real economy but wars, colonization (back when Europeans were still feudal landlords, Romans were gone by then) and trade. They were the fierce warriors who faced the crusaders and fighting for their “holy empire”. Today, its all military importance, tourism and trade. Once they were made sick man of Europe, they switched allegiance back and forth. Apart from the cultural significance, foods, music and expression of freedom in Islamic world, their impact on world economy is very low. Are they with Russians or NATO now? They are still dreaming about their own empire. May be they can take back their former glory with changing their currency to gold. Why dont turkey join EU and get full access to “Euro”. Its free and they also have negative interest rates.

    Psst…recent saber rattling in ME and Libya is a wrong move. Covid ain’t helping tourism either…

  8. MonkeyBusiness
    Jul 31, 2020 at 6:27 pm

    In the meanwhile, Fitch has deemed the credit outlook of this country to be Negative.

    What a joke.

    US Dollar rally on Monday?

  9. Augusto
    Jul 31, 2020 at 7:54 pm

    Erdogan will do any deal with anyone to keep in power. He may well weasel out of this economic debacle yet.

  10. TimTim
    Jul 31, 2020 at 8:34 pm

    Nick,

    I hope you guys are surviving in Barcelona. I have some elderly family friends in northern Spain and they are, quite frankly, worried about their futures for multiple reasons. Keep safe.

    Howsoever, why have you focused on Turkey’s economic woes from a Turkey-centric position?

    Why have you not commented on the exposure of US and European banks (et alia) to Turkish corporate debt?

    Is not the risks from that the bigger story?

    • TimTim
      Jul 31, 2020 at 8:38 pm

      Are not the risks from that the bigger story, I should say.

    • Curious
      Jul 31, 2020 at 10:18 pm

      Wolf,

      Any insight or thoughts on countries defaulting on their debt? Along with the ramifications to US markets?

    • Aug 1, 2020 at 12:02 am

      He did discuss the European banks’ exposure to Turkey many times in the past. But this was about Turkey, not European banks. You can get his articles on Turkey and the exposure of European banks here:

      https://wolfstreet.com/category/all/turkey/

  11. hidflect
    Jul 31, 2020 at 9:26 pm

    I wonder how many Turks are buying gold as a hedge? It would seem a no-brainer in any country that’s suffering serious, ongoing currency devaluation.

    • TimTim
      Jul 31, 2020 at 9:46 pm

      Simple, really. Depressingly so. Like Greece and Italy and, honestly, Germany and the UK.

      Those with substantial wealth probably moved all but operating capital, for, say, whatever months, abroad easter past. If not much before.

      What’s left, including state apparatus, are probably now trying to buy gold with the hand that is not holding their balls.

      or, loading the jewelry into the sedan under the grandkids booster chair as they go to visit relatives elsewhere..

      Because very state has their equivalent of FDR at some time or other…..

    • Saltcreep
      Aug 2, 2020 at 4:22 pm

      Orhan Pamuk describes the buying of Deutsche Marks by his protagonist (Mevlut) in his book ‘A Strangeness in my Mind’, where Mevlut notes his father’s lack of understanding of the ongoing and rapid inflation awhilst he just lets his savings deteriorate in a bank account.

      Once the cash flow effects of net foreign currency inflows into Turkey turn chronically negative I very much suspect Erdogan will simply mandate the conversion of all foreign currency denominated debts held by domestic entities to Turkish Lira at some given rate. Maybe together with a new, revalued Lira.

  12. John
    Jul 31, 2020 at 9:46 pm

    I simply cannot wrap my brain around how one would value one worthless fiat currency against any other worthless fiat currency. As an engineer, the only possible way that I can imagine valuing fiat currency (in paper form) is to compare the BTUs created in burning one fiat currency against an equal weight of another fiat currency. One then could determine the cost of BTUs in alternate forms of energy such as natural gas for comparison. Unfortunately, even there, the cost of natural gas is determined in some other fiat currency so I find it to be a hopeless cause.

    • Aug 1, 2020 at 12:13 am

      John,

      Before you try to extract the final BTUs from your fiat dollars by burning them, send them to me. I know how to dispose of them properly. For instructions on how to mail worthless fiat dollars to support this site, click on this link https://wolfstreet.com/how-to-donate-to-wolf-street/ 😍

      • Ghassan
        Aug 1, 2020 at 2:59 am

        🤣😂🤣

      • Aug 1, 2020 at 10:52 am

        Alas it costs more to mail those dollars than they are worth (and they might not even get there, USPS). That would be our Weimar Wheelbarrow moment of hyperinflation.

        • Joe in LA
          Aug 1, 2020 at 11:50 am

          What is with this inflation hysteria? American wages (labor costs) are going down. We have tens of millions of unemployed and, soon, a historic wave of homelessness. Direct federal aid is ending soon, if it hasn’t already.

          Plus, the lion’s share of the big Covid money (including Fed actions), went to rich people who put their money into assets like real estate and stock. Maybe this will prevent asset deflation (probably not IMHO), but it sure as heck isn’t going to result in a spike in the price of cheese.

          Inflation is not caused by a simple increase in the money supply. For an increase in the money supply to be inflationary, that money actually has to have an impact on demand. Say what you will about the Fed’s trickle down economics (evil, cruel) but, apart from certain asset categories, it’s not inflationary.

          This new money is not creating a broad-based or inflationary recovery, for the simple reason that it’s not going to very many people. If Jerome Powell gives Jeff Bezos a trillion dollars and Bezos sticks it in the bank, that doesn’t cause inflation, it just worsens inequality.

        • GotCollateral
          Aug 1, 2020 at 6:58 pm

          Yeah, so much inflation that MZMV fell off this cliff for Q2, 1.238 in Q1 to 0.949 in Q2… lol

        • Aaron gulcin
          Aug 2, 2020 at 6:59 am

          The biggest problem with US people is we are so much into other countries’ economical problems while we are working at modern time slave machines the corporate giants such as walmart, CVS etc

    • Khowdung Flunghi
      Aug 2, 2020 at 6:12 pm

      “The loss of a stable numeraire –

      In the physical world, there are constants that serve as dependable benchmarks against which to observe natural phenomena. Examples are the velocity of a falling object, the freezing point of water and the time taken for one rotation of the earth on its axis. In the economic and financial world, this degree of precision is lacking. Instead, we content ourselves with approximations, indices and averages. We pride ourselves in knowing the difference between an inflation rate of 2% per annum and 2.5% per annum. Small deviations of outcomes from expectations can trigger dramatic trading in financial instruments and result in the transfers of billions of dollars between investments. Yet, in the financial realm, can we really be sure of the value of anything?”

      From Peter Warburton: The debasement of world currency: It’s inflation but not as we know it

  13. Julian
    Aug 1, 2020 at 12:10 am

    There is not really a currency crisis in Turkey – aren’t Turkey signed up to the BRI – Belt & Road – with China.

    Checking just now the TRY & CNY are exactly at parity where they have been hovering for most of this year.

    Seems that would be a natural value for the TRY with its biggest future investor…

  14. Rajan Sood
    Aug 1, 2020 at 7:04 am

    Tayep Erdogan is following the Pakistan model.
    Islamisation of Turkey.
    He sees himself as the potential leader of the Islamic world.
    Meddling in Libya and Saudi may stretch him over time.
    Sad to see Constantine church being turned in to a mosque.
    Changing it in to a mosque won’t change its character it feels like a church having spent a few hours in this historic building.

  15. Norma Lacy
    Aug 1, 2020 at 8:36 am

    to “wisdom seeker” You have some funny ideas about “dictators.” A lot of those guys were elected. So… maybe you’re just trying to be funny.
    BTW, you left off Bolivia which currently has a dictator Anez installed by a USA financed coup against the elected president.

    • Nicko2
      Aug 1, 2020 at 9:54 am

      Yea….and odd list. Some American readers need to get out and use their passport more often, see the world.

  16. DR DOOM
    Aug 1, 2020 at 10:02 am

    Turkey is getting ripe for a coup to remove what is left of a secular government. The Patriarch of Constaininople and the First Called are in exile,again.Thank god for the huge war horses from Northern Europe that stopped the Ottomans at the Gate in Vienna.

  17. Bill A. Bong
    Aug 1, 2020 at 11:03 am

    I wanna swap line as well.

  18. Phillip LaLande
    Aug 2, 2020 at 8:11 am

    So will the next step be the Venezuelianization (hey, I made a new word!) of Turkey? We have seen what happens when a strongman is mainly concerned with lining the pockets of his cronies and denies that normal economics applies to him. But the kicker is that the European banks have a lot of Turkish debt, corporate and government, so it will be interesting to watch.

  19. Willy2
    Aug 6, 2020 at 7:01 am

    – The second line in this article reads “Foreigner investors are fleeing”. So, these investors are pulling their money out of Turkey (= a reduction of money & credit = deflation).

    • Aug 6, 2020 at 9:45 am

      Nope, not “deflation” of prices at all. But perhaps the deflation of the foreign-credit balloon and the deflation of some egos.

      • Willy2
        Aug 6, 2020 at 3:18 pm

        – Agree, Erdogan does have – like so many “authoritarian” leaders – a BIG ego.
        – Nope. Deflation is NOT defined as “falling prices” and Inflation is NOT defined as “Rising Prices”. To see the Deflation one must look at what the implications are for the total amount of debt in – in this case – Turkey.
        – Yes, prices are rising but that’s the result of the falling Lira. But in combination with wages/income flat or falling you can bet your bottom dollar that prices will start to fall very soon. Especially turkish real estate prices (= deflation).

  20. BigBBC
    Aug 7, 2020 at 4:28 pm

    Turkey is headed towards being the next failed state of Europe. When Trump is defeated in the November US elections he will have lost his strongest and perhaps only Western back stopper and that will be the beginning of the end for him. The Coup will take care of the rest of the problem.

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