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Turkish Lira Crumbles To New Record Low As Erdogan Blames Fed Not Politics

Tyler Durden's picture




 

"It is wrong to link [the Turkish Lira's] fall to the corruption probe," blasted Turkey's Prime Minister Erdogan, explaining that the Lira's fall "is linked to the Federal Reserve's actions." Since the taper was announced the Lira has collapsed over 12%, trading at 2.269 to the USD, a record low for the troubled nation's currency. Of course, the timing is useful for the PM to explain his nation's demise (as it is also proving a good excuse for Thailand - with massive outflows amid its riots; and Ukraine) but it seems the problems on the streets of Turkey are anything but going away. Today's drop in the Lira (the 7th in a row) follows a somewhat surprising "disastrous for their credibility" decision by the Turkish Central Bank to leave rates unchanged (and still warn of inflation).

 

RBS on the Central bank's decision:

Today’s actions are reflective of a central bank that knows it has to tighten policy but has its hands tied behind its back by politicians

 

Decision is “disastrous for central bank credibility. Negative for TRY

 

Erdogan says an “interest rates lobby” is seeking to attack Turkey’s economy and undermine his govt by forcing Turkey to raise interest rates

 

 

Chart: Bloomberg

 

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Tue, 01/21/2014 - 11:59 | 4351645 viator
viator's picture

"Turkey was not in line to become an economic power of any kind: it lacked the people and skills to do anything better than medium-tech manufacturing. Its Islamists never were democrats. Worst of all, its demographics are as bad as Europe’s. Ethnic Turks have a fertility rate close to 1.5 children per family, while the Kurdish minority is having 4 children per family. Within a generation half of Turkey’s young men will come from families where Kurdish is the first language."

"Turkey’s currency is in free fall, and that’s just the beginning of the country’s troubles: about two-fifths of corporate debt is in foreign currencies, so the cost of servicing it jumps whenever the Turkish lira declines"

http://pjmedia.com/spengler/2013/12/27/the-end-of-erdogans-cave-of-wonde...

Tue, 01/21/2014 - 12:04 | 4351659 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Blaming others for your disasterous policies is what politicians do. They are masters of this behavior.

How do you know a politician is lying? His/her lips are moving.

Tue, 01/21/2014 - 13:36 | 4351666 SafelyGraze
SafelyGraze's picture

OT -

Yale is offering 'free' online courses, including Robert Shiller's Financial Markets class

joe-bob sez check it out

 

Tue, 01/21/2014 - 15:03 | 4352394 SWRichmond
SWRichmond's picture

Cue Putin with an offer of a couple of $Billion-equivalent in loans...

Shit changes when Turkey changes sides.  Big time.

Tue, 01/21/2014 - 21:03 | 4353875 jerry_theking_lawler
jerry_theking_lawler's picture

Turkey doesn't have large energy reserves....so its primary attraction is its 'geography'....aka pipelines, etc.....in the ruskies crosshairs for sure.

Tue, 01/21/2014 - 23:01 | 4354255 StychoKiller
StychoKiller's picture

It's like watching a bunch of penguins crowding around the edge of the ice, waiting for the first one to jump in; after all, there be hungry leopard seals in the water!

Tue, 01/21/2014 - 12:09 | 4351672 Ghordius
Ghordius's picture

yes, two-fifths of corporate debt is in foreign currencies, but it's the export industry that carries that debt. and their pricelists are... mostly in EUR

your source is very suspect, in my eyes. just look what spin the end of the article has:

"Now that Turkey is coming unstuck, along with Libya, Egypt, Lebanon, Syria, and Iraq, we should conclude that the entire project of bringing stability to the Muslim world was a hookah-dream to begin with. Except for the state of Israel and a couple of Sunni monarchies that survive by dint of their oil wealth, we are witnessing the unraveling of the Middle East. The best we can do is to insulate ourselves from the spillover effect."

Tue, 01/21/2014 - 13:10 | 4351863 viator
viator's picture

My source:

http://en.wikipedia.org/wiki/David_P._Goldman

http://www.amazon.com/How-Civilizations-Die-Islam-Dying/dp/159698273X/

Goldman's columns under the nom de plume Spengler have had a wide following for years.

And what makes the statement at the end of his article"spin"?

Tue, 01/21/2014 - 14:36 | 4352270 JR
JR's picture

Yes, the statement is spin. And in recent years, the warmongers who have pushed the US/Israeli war machine throughout the Middle East are the champions of spin - spinning the American nation, its politics and its economy into a downward spiral.

How ironic that this Zionist propaganda should suggest that we “insulate” ourselves the region when its very purpose is to manipulate and overrun the sovereign peoples of these Middle Eastern countries, from Iraq to Turkey.

The project of bringing “stability” - including killing individual, innocent villagers by the tens of thousands, burning them in their homes, and buying or assassinating their political leaders - was to open the doors for American corporations to rape the resources and establish tyrannical control over any local business that dared compete.

No, this is not stability; but it certainly is spin.

Tue, 01/21/2014 - 14:25 | 4352059 macroeconomist
macroeconomist's picture

One problem with your argument Ghordius is that the export industry is heavily import-dependent; roughly 60% of inputs are imported in the export industries. This is the result of years of deindustrilization after 2002, when there was an abundance of cheap credit (in the form of carry trade) to finance immense current account deficits. The Central Bank watched a massive real appreciation to unfold for over ten years due to political pressure.

 

They are so useless at the Central Bank that after the crisis in 2008, they came up with a genius idea called "reserve option mechanism" as a non-conventional monetary policy, which means that banks can keep required reserves partially as foreign exchange. While this was justified on the basis of "providing stability to the Turkish Lira" (since banks would not have to convert carry trade foreign exchange to liras and back to yen/euros/dollars), it also removed the exchange rate risk completely, and totally broke the link between policy rate (which stands at 4.5%), bond rates (+10%) and the carry-trade funded credit expansion (consumer credits at 1%, mortgages at 2%). So the policy rate is more or less useless now, credit creation has gone off the roof and household debts are above pre-2008 US levels, current account is at -7%, and export sectors have either become importers of the same good, or are very heavily dependent on imports of intermediate goods as I said above, reducing the effectiveness of depreciation on improving the trade balance..

Tue, 01/21/2014 - 14:57 | 4352361 Ghordius
Ghordius's picture

does this 60% apply to Turkey or is it more of a general number? inputs like oil, priced globally in USD, might be an example. yet I'm talking about Turkey and the price calculation view of Turkish exporters, of which I know a few. if you export in EUR or USD, you can import your inputs in USD and have a financial structure that allows you to carry foreign debt

and eurozone producer experience before the EUR was along those lines, too. simplified, your market designates the type of debt you can carry. good to see you back, btw

Tue, 01/21/2014 - 15:58 | 4352685 macroeconomist
macroeconomist's picture

Thanks, good to be back, I had no time to comment recently.

This is a rough number for Turkey, and the vast majority of imports are intermediate goods (as well as oil). Funnily, the largest item in turkish exports is cars!! Here is a nice recent study on this: www.iai.it/pdf/GTE/GTE_WP_03.pdf

You have a point about the debt structure, but on the other hand, most of Turkey's exports are to EU, therefore restricting demand conditions. And there are already news coming from the industry that the buyers are asking for discounted prices since Euro has skyrocketed in the last 12 months, forcing the exporters to share some of their profits...


Tue, 01/21/2014 - 13:29 | 4351915 Kirk2NCC1701
Kirk2NCC1701's picture

The problem with politicians and other pathological liars, is that the few times that they DO speak the truth, even the truth seems a lie.

In this case, it IS true that Turkey got in bed with diseased partners and is now reaping the consequences. [cue 'Lie down with dogs' by Alan Parsons Project]

Tue, 01/21/2014 - 14:00 | 4352072 JR
JR's picture

These are tricks by the international bankers to shuffle the money while you’re standing there; and the minute they’re in charge of the money, they end up with the value and you end up with nothing.

I talked two years ago with a recent immigrant from Turkey - selling rugs in a low-traffic pop-up store. Formerly worth $10,000,000 in Turkey after years of hard work and personal sacrifice, he ended up with nothing but debt and emigrated to the U.S.. He had borrowed on the basis of his equity, in good faith, he said, to expand his business but was wiped out by the manipulations of foreign exchange… 

Here’s how it goes…

Rate Swings Sting Europe's Borrowers by Gordon Fairclough | WSJ 

Updated July 27, 2010

BUDAPEST—Dezso Kocs's family restaurant was booming in 2007. To build a bigger kitchen and renovate the dining room, he and his wife borrowed the equivalent of $150,000.

It's a decision they now regret. Like many Hungarians then, they took the loan in Swiss francs, since the interest rate was far lower than if they had borrowed in their local currency, the forint. But after the global financial crisis hit in 2008 and the forint plummeted, the Kocs's monthly payments nearly doubled.

At the same time, their business dried up as recession-hit consumers ran out of money to dine out. The couple exhausted their savings and borrowed more money, but couldn't pay their loan. Now their lender is moving to foreclose on their home. "We never thought it would turn out like this," Mr. Kocs says.

Households and small businesses across Central and Eastern Europe are sinking under the weight of foreign-currency debts.

It's a sign of how the problems facing the region's financial system go beyond the borrowing by spendthrift governments that has been the main focus of investors…

Hungarian households collectively have about $32 billion in outstanding foreign-currency debt, mostly in Swiss francs and euros, according to the Hungarian central bank. Aside from local players, about a half-dozen foreign banks—from Austria and elsewhere in Europe—have a significant presence in Hungary.

The larger international lenders generally are viewed as diversified enough that troubles in Hungary aren't likely to pose a serious threat. Regulators say banks operating in Hungary have shored up their finances and are in better shape to withstand further shocks than at the start of the financial crisis.

But consumers' debt woes are acting as a brake on the region's economic recovery as households use income to pay off loans instead of spending, damping domestic demand. The foreign-currency borrowings also constrain economic policy makers since swings in interest rates and currency values can drastically change the fortunes of indebted households and companies…

Tue, 01/21/2014 - 12:00 | 4351648 Stoploss
Stoploss's picture

A politicized FED??

Who knew?!!

Tue, 01/21/2014 - 13:18 | 4351658 BuddyEffed
BuddyEffed's picture

Will this Turkey deep fry in a Greece like a cooking kettle of fish?

Tue, 01/21/2014 - 13:40 | 4351958 Doña K
Doña K's picture

......and will be served with swiss cheese and a danish to make you feel hungary

Tue, 01/21/2014 - 12:10 | 4351667 JustObserving
JustObserving's picture

Fed may not have liked Turkey buying all that gold.

Same thing happened to the Indian rupee when Indians were buying gold like crazy.

And Thailand's baht has been slippng too this year as they ramped up gold buying.

Buying gold brings you bad luck, possibly, courtesy of the Fed.

Tue, 01/21/2014 - 12:19 | 4351693 Ghordius
Ghordius's picture

so you are buying Erdogan's version? interesting. note that he makes a difference between the actions of the FED and the pressure from the "interest rates lobby" (which are banks)

Tue, 01/21/2014 - 13:41 | 4351971 Doña K
Doña K's picture

You blame the FED you burn

Tue, 01/21/2014 - 12:53 | 4351799 earleflorida
earleflorida's picture

'fed may not have liked turkey buying all that gold'

the BIS (Basel boys crossdressing FRB's) got its panties in a bunch when... "TPTB", implicitely said, let it go?!?

Abu Dhabi and Basel (Switzerland) knew the day of Iran/ Turkey's inception-- afterall, they are the clearinghouse for the world's CB's (Commodities do count!!!)

Question is:   "Turkey: What is Iran Doing with Turkish Gold?"      1/15/13   by Dorian Jones              http://www.eurasianet.org/node/66405  

Tue, 01/21/2014 - 12:09 | 4351674 BandGap
BandGap's picture

I seem to recall Turkey owning shit load of gold. Anyone know what that would play in all of this?

Turkey will start to lean Russian, and the Kurds will get their much desired independence soon. The Kurds are the ultimate Middle East Wild Card.

Tue, 01/21/2014 - 12:40 | 4351765 flyingpigg
flyingpigg's picture

BandGap, a lot of the Turkish gold is privately owned. if Turks have money they typically put it in gold or real estate. They don't trust the banks and inflation is high. 

Tue, 01/21/2014 - 13:43 | 4351975 Kirk2NCC1701
Kirk2NCC1701's picture

Turkey is truly in the tipping ground between the East and the West -- both geographically, and culturally.

They've played this role well since their Ottoman days and will probably continue to do so -- with bumps and 'adjustments' along the way.  Having said that...

I am mindful that the Brits put a puppet-King in place after WW2, and made him a part of the West, i.e. part of the British control (City control).  At the end of the day (in the final analysis), the extent to which they are not Anglos (Brits or Americans) nor under Tel Aviv control, they are the sovereign equivalent of the "Useful Tool".  Their populace and their leaders know this, but the latter are too well ensconced in their comfy lifestyle and too addicted to power, to leave the Anglo-American-Israeli alliance completely.

I suspect that they will divest themselves of the Fed control slowly, and shift toward a more Eurasian clientele.  The extent to which they turn their backs on the City and on Wall St (GS), their inner turmoil will be fomented by these interests. 

Like I said, they are between a rock and a hard place, where only the most gifted, visionary and bold leaders can emerge successfully.

Tue, 01/21/2014 - 19:27 | 4353537 earleflorida
earleflorida's picture

wwi was fought only, and for... the 'ottoman empire', total partition-- which, btw was the nascent`nucleus for the me!

the diaspora of the european ashkenazi jews wanted their home back. the jews now control the brit's via rothschilds family and sassoon family, thus co-conspiring with usa rockefellers family which controlled most of us industry ( a monopoly on me oil helps?) forced wilson into wwi. these people i mention are the 'masters of the universe', period!

the jews got israel and lots of oil and the rest of the me was divvied up... !

please realize that history timeline's don't lie, when we've had a century to analyze the data.

Ref::    http://en.wikipedia.org/wiki/Partitioning_of_the_Ottoman_Empire

http://www.sparknotes.com/biography/wilson/section10.rhtml

Note: WWI and Wilson::   April 7,1917 -1919 {([Spanish] Influenza Pandemic of 1918)(     http://virus.stanford.edu/uda/    )} 

Lastly, the 'creme de la creme'....   the Balfour Declaration signs over Israel Nov. 9, 1917 to 'Lord Rothschild"!!! almost exacly seven (7) months to the day after Wilson declares war April 7,1917...         http://en.wikipedia.org/wiki/Balfour_Declaration_1917

and there you have a Turkey weaved in silk-gold slowly 'kurd'ing'?!? 

Tue, 01/21/2014 - 15:04 | 4352357 The.Harmless.Who
The.Harmless.Who's picture

 

Wild card indeed...

 

The kurds are known as the second zionists of the middle-east - and not because they fell "victim" to gas attack by a "dictator" either. 

 

They are like the Khazars, a wondering tribe that came, saw what they liked, and became a cancer to their hosts. 

 

 

Tue, 01/21/2014 - 13:47 | 4351676 Colonel Klink
Colonel Klink's picture

I always like to see the leaders back biting each other when things start getting tough.  Canibalism at it's finest.

 

One canibal to the other, Does this clown taste funny to you? 

Other canibal, No but this politician tastes like shit.

Tue, 01/21/2014 - 12:14 | 4351683 Ulterior
Ulterior's picture

curve looks very similar to USD/JPY, doesnt it? :D

Tue, 01/21/2014 - 12:20 | 4351703 Calculus99
Calculus99's picture

Useless fact for the day -

In Turkey, Turkey's are called 'American birds'.

Tue, 01/21/2014 - 13:01 | 4351818 Colonel Klink
Colonel Klink's picture

And by American birds, what you really mean is DODO birds.  Since the vast majority of our population are like DODOs.  Stupid and letting other nations breed in our nest.

Wed, 01/22/2014 - 05:29 | 4354785 Ulterior
Ulterior's picture

lol, they should really be called Aztec birds...

Tue, 01/21/2014 - 12:57 | 4351813 Paracelsus
Paracelsus's picture

Agreed.It has to do with the Gold purchases,which enables Iran,which has nuke program that the Israelis hate.Where is Colonel Kurtz when you need him?

The bit about the FED printing is true,but only in regards to US Dollar failing as a reserve currency with no backing (Gold).

I think the original plan was for some kind of global domination,but this got screwed up schedule-wise by the meltdown and FED bailout.Now they are in a corner and no one trusts us or wants to buy our debt.Compare this to the 1950 era,before the war in Indochina.There used to be integrity,honor and leadership in the American power structure.

Tue, 01/21/2014 - 13:15 | 4351873 abatis
abatis's picture

If I knew the T-lira was going to crash I would have held off buying a turkish drum mower and two kangal bitches. I keep forgetiing to BTFD so I can get moar from my benbucks.

Tue, 01/21/2014 - 13:24 | 4351875 Kirk2NCC1701
Kirk2NCC1701's picture

It seems that Erdogan is waxing 'liracally'.

Bana bir nehir agla ('Cry me a river'... not to be confused with 'Crimean river').  ;-)

Tue, 01/21/2014 - 14:08 | 4352116 Matt
Matt's picture

Over the last year, CAD is down against USD about the same amount as Turkish Lira, so what's the big deal? Stephen Harper just got proclaimed BFF by Israel. I don't think these claims by Turkey are accurate.

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