Turkey: Hyperinflation And Mass-Migration Crisis Inevitable

Authored by Mike Shedlock via MishTalk,

Turkey isn't close to hyperinflation yet. But the path it's on is a guaranteed way to get there.

As Erdogan tightens his grip on finance and the central bank, Investors Fear Turkish Currency Crisis.

The Turkish lira fell around 4% against the dollar late Monday after Mr. Erdogan appointed his son-in-law as finance minister and put in place measures that could curb the independence of the country’s central bank. Investors also sold Turkish shares and debt, with yields on its dollar bond maturing in October 2028 rising from around 6.8% last week to about 7.15% recently, according to Tradeweb. Yields rise as prices fall.

“There’s a real risk that this spirals into a full-blown currency crisis,” said Paul McNamara, a portfolio manager at GAM Holding . “It’s got so many red flags that we’ve associated with economic crises…in the past.”

In such a crisis, a sharp slide in a currency threatens the government and local companies’ ability to pay foreign debt. Turkey has one of the highest levels of external debt for a developing country, at 53.4% of gross domestic product, according to data from the International Monetary Fund. Local companies have raised billions of dollars, leaving them and the wider economy vulnerable to a slide in the lira, which would make paying off that debt more expensive.

The lira has lost a fifth of its value this year as investors sold ahead of Mr. Erdogan’s June re-election, concerned he would erode the central bank’s independence and usher in looser monetary and fiscal policies. Mr. Erdogan has described high interest rates as “the mother and father of all evils,” stoking fears that his preference for lower rates could prevent the central bank from supporting the currency and tackling inflationary pressure.

Mr. Erdogan fanned those fears on Monday. After taking the oath of office for a new five-year term, the government issued a decree that stipulated that the president would appoint the central bank governor, deputies and monetary policy committee members for four-year mandates.

Just a Start

Al-Monitor reports Erdogan Son-in-Law Takes Finance Ministry Post with Promises, Hush Orders

Just when you thought he couldn’t get any more audacious, Turkey’s President Recep Tayyip Erdogan put his son-in-law in charge of the country’s finances and issued new decrees that will radically reshape the way the country is run within hours of being sworn in on July 9 for a second term.

An emergency decree scrapping a five-year term limit on the Central Bank governor issued prior to Erdogan’s inauguration had already signaled his determination to continue to meddle in the bank’s affairs. A new decree announced on June 10 allows the president to appoint the Central Bank governor and his deputies along with the body’s monetary policy committee for a period of four years.

One of Albayrak’s first moves, was apparently to secure the censoring of several tweets by Turkish journalist Pelin Unker of the opposition daily Cumhuriyet. “

Pressure on Turkey’s beleaguered media is unlikely to ease. The Press and Information Directorate, which issued press credentials to Turkish and foreign reporters, has been abolished and its authority transferred directly to the president.

Hyperinflation, a Political Event

Hyperinflation is primarily a political event, not a monetary one. More accurately, the first leads to the second, not the other way around.

Studies

  • Weimar Germany: Demands for war reparations following WWI set in motion finances that could not be repaid. Germany turned to the printing press.

  • Zimbabwe: Prime Minister, Robert Mugabe confiscated land to give to the people. The result was white flight and capital flight. The country collapsed as did the currency.

  • Venezuela: To fight poverty, presidents Hugo Chávez and Nicolás Maduro took over the oil industry and gave cheap gasoline to the people. In US dollar terms, gasoline is now a penny a liter. But you will not find any at that price.

Turkey on Venezuela's Path

  1. Erdogan jailed political opponents

  2. Parliament effectively made Erdogan prime minister for life

  3. Erdogan took over the press

  4. Erdogan took over the courts

  5. Erdogan took over finance

  6. Erdogan about to take over the central bank

Hyperinflation Nearly Inevitable

Venezuela did not hop straight into hyperinflation and Turkey likely won't either.

However, if Turkey remains on the same path, which seems highly likely, hyperinflation is the inevitable outcome.

Another Mass-Migration Crisis Coming

When hyperinflation or extreme enough inflation does happen, million of Turkish citizens and refugees will flood into Greece.

The EU is not remotely prepared for such an event.

Comments

hgfhfgjuyjjhgj Lordflin Thu, 07/12/2018 - 06:52 Permalink

 

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In reply to by Lordflin

OliverAnd Lordflin Thu, 07/12/2018 - 09:13 Permalink

You have it all wrong buddy. Its yours now because there is no one from the original owners to claim it back. In the case of of Greece, Ponto, Cyprus and Armenia the owners are still around. As such the lands are occupied lands. In case you did not know the Turk people are people of central Asia just north of Iran. With Mongolian organization and Islam control they spread death and destruction to the Middle East, Northern Africa and Southeastern Europe. When their miasmatic empire collapsed they left their people behind, thus the Muslims in Southeastern Europe and Palestine; Palestinians are Christians not Muslims. Learn some history. 

In reply to by Lordflin

monad Lordflin Thu, 07/12/2018 - 09:39 Permalink

You have taken your brainwashing well. Now take this moral imperative with which you have been indoctrinated to its ultimate conclusion and kys immediately for your sins. Or, you can realize this is irrational bullshit and deprogram yourself. Start by identifying the culprits who are having you on, then study what they studied in order to play you.

In reply to by Lordflin

Quantify Lost in translation Thu, 07/12/2018 - 07:06 Permalink

All immigration should come to a halt. Overpopulation is the worlds number one issue. Until those countries that continue to grow their populations are forced to deal with their own population problems they will continue to breed irresponsibly. Clearly, assertions that the Earth might be able to support a population of 10, or even 15 billion people for an indefinite period of time at a standard of living superior to the present are not only cruelly misleading but almost certainly false. Notwithstanding our current addiction to continued and uninterrupted economic growth, humanity must recognize that there are finite physical, biological, and ecological limits to the Earth's long-term sustainable carrying capacity. And to judge by the growing concerns about maintaining the quality, stability, and/or sustainability of the Earth's atmosphere, water, forests, croplands, fisheries, and so on, there is little if any doubt that many of these limits will soon be reached, if they haven't already been surpassed. Since at some point the damage stemming from the mutually reinforcing effects of excessive human reproduction and over-consumption of resources could well become irreversible.

In reply to by Lost in translation

Radical Marijuana Quantify Thu, 07/12/2018 - 11:54 Permalink

Overshoot in a nutshell is that Globalized Neolithic Civilization was deliberately driven by maliciousness maximization to develop in the most unsustainable ways possible.

The Turkish trend toward the centralization of political power is another example of how short to medium term successes lead to longer term failures, as the article above predicted (in understated ways.)

In reply to by Quantify

dlweld Quantify Thu, 07/12/2018 - 12:30 Permalink

Don’t forget - it's about the children! too many. Makes me think of the Disney ride - "It's a Small World After All" - after 15 minutes of circulating through that ride with that song playing over and over and over and tons of animatronic kiddies waving and waving at me - I started to think, yes, it is a bloody small world after all. If you‘re in Disneyland give it a whirl – see if it works for you .

In reply to by Quantify

Enrabard Quantify Thu, 07/12/2018 - 19:29 Permalink

There is no overpopulation anywhere. The world can contain much more people. What we lack is hardworking population and industry focused on farming in lands that are now unused. Jews are planting tomatoes on a f&^%%$g desert irigating it with unsalted sea water. It's not a big deal anymore. But of these muslim states doesnt do anything to prepare their countries for selfdependancy then it's their fault and their problem - not other smarter nations. Most of lands in the world are unused - it waits for a good smart owner. Syria was dependant on oil while doubling in population every 30 years - it's not normal, but it is no problem if you invest heavily in farming and technology instead of wasting petrodollars on keeping nonproductive citizens in passiveness. 

In reply to by Quantify

skbull44 Enrabard Fri, 07/13/2018 - 07:30 Permalink

You seem to know little to nothing about food production and the soil required for it. It takes decades/centuries for soil to be 'created' naturally without the use of fossil fuel-based fertilizers (that actually speed the rate of soil degradation when added continuously). One can't just start farming on 'unused' land. We are already using a lot of marginal land that is ONLY producing because of vast quantities of 'oil/gas' being added. In fact, we are degrading arable soil at a much faster rate than it can be created.

 

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In reply to by Enrabard

halcyon Squid-puppets … Thu, 07/12/2018 - 05:19 Permalink

No Turkey isn't going the way of Venezuela, unless the CIA economic hitmen intervene, in which case all bets are off.

And that debt/GDP ratio (even though it's nearly useless measure) is much lower than most developed countries, incl. Germany.

The problem with Turkey is the non-Lira denominated debt. However, they can always convert, default and devalue the remaining. Been done before.

 

In reply to by Squid-puppets …

I hate cunton halcyon Thu, 07/12/2018 - 05:21 Permalink

There has been no earth shattering event since Hiroshima and Nagasaki.   Some guys walked on the moon, interesting but little more.  Y2K was a lie.  The world trade center was big, but not to the whole world. The internet and computers have changed how people shop, bank and get information,  but it wasn't an earth shattering change, it crept stealthy in.  A plague is coming. Not necessarily a medical one.

In reply to by halcyon

RedBaron616 I hate cunton Thu, 07/12/2018 - 06:48 Permalink

I am sure there is someone on here claiming this is all about the CIA. They don't seem to understand that tyrants have a way of destroying a country rather quickly, usually in no more than a couple of decades or less. If you understand how long it takes to make a successful country, destroying one in that timeframe is breathtaking. Any educated Turks will start slowly leaving Turkey, just like Venezuela. The trickle will become a flood as those with education and skills exit.

In reply to by I hate cunton

OliverAnd RedBaron616 Thu, 07/12/2018 - 09:37 Permalink

What CIA? They can't even stop hackers from hacking into emails of important people in the USA. The CIA like many other public institutions has become a private one where positions are filled by family and friends. The lira 10 years ago was 1.15 and today it is 4.87. 10 years ago Turkey was in bed with US, UK and Israeli officials. At the start of this century (2002) the IMF stepped in and saved Turkey from economic collapse. Today there will be no IMF and Turkey will collapse. Iran, Russia, Pakistan, Venezuela, Zimbabwe, etc. cannot save them because they have issue of their own. I have visited Turkey numerous times; when you visit them and travel throughout the area and not simply Konstantinople or along ghe Aegean you will understand why this is an internal issue and not an external one. My advice to Greece is to lock down their borders completely accepting absolutely no one. Turks can migrate back to where they came from going through Iran.

In reply to by RedBaron616

gmak halcyon Thu, 07/12/2018 - 05:53 Permalink

Go read a decent book on economics - preferably from the Austrian school [Hayek Von Mises, Rothbard etc] - and then come back and have a decent chuckle at what you wrote about the CIA economic hitmen.

 

Hyperinflation is the result of emotion - loss of confidence in what is going on economically in the country, by the people of that country and now the financial markets of the world. If no one wants the currency, you have to offer a lot of it to get anything... hence, hyperinflation.

In reply to by halcyon

Ghost who Walks Quantify Thu, 07/12/2018 - 08:36 Permalink

I must have missed that in the article?

All I read was that a Psychopath who wants power over everybody is exercising that power. He is appointing relatives and proxies to all the key institutions, and has already purged the Military, Civil Service, Judiciary and the Media.

So when things start to go bad, and it reflects on his sense of self, we can expect even more drastic actions to bend the country to his will. He will use the arguments of Economists; "We haven't done enough of this yet to get the right result!" Then if he is allowed to, he will demonstrate why leaving many things to the populace to control is a superior course of action, compared to leaving it to a Dictator.

At some point there will be a change. Erdogan dies and takes the blame, and the next regime comes in to clean up the mess. He is an excellent example for the people of other countries to watch and learn from.

Smart people learn from the mistakes of others.

In reply to by Quantify

Quantify OliverAnd Thu, 07/12/2018 - 19:34 Permalink

He tried to modernize the country by attempting to make it secular and bring it into the 21st century.

I have no religion, and at times I wish all religions at the bottom of the sea. He is a weak ruler who needs religion to uphold his government; it is as if he would catch his people in a trap. Mustafa Kemal Ataturk

 I have to say he had some good ideas.

In reply to by OliverAnd

Tiny Ripple Thu, 07/12/2018 - 05:13 Permalink

I see so many doom articles about Turkey in ZH lately. I think it is a campaign and it is not difficult to see whose behind it. Meanwhile GDP growth of Turkey for 2017 was 7.5%. Debt to GDP ratio of the government is 28.8%,  which is one of the lowest in the world.

RedBaron616 Tiny Ripple Thu, 07/12/2018 - 06:53 Permalink

No campaign. The wannabe Hitler in power does it all by himself. Taking over the central bank because you don't like high interest rates and appointing your son-in-law in charge of finance? And you think this is a campaign? Are you an Erdogan troll?

Trying reading the article.

"Turkey has one of the highest levels of external debt for a developing country, at 53.4% of gross domestic product, according to data from the International Monetary Fund."

In reply to by Tiny Ripple

I Feel a littl… RedBaron616 Thu, 07/12/2018 - 17:22 Permalink

"Trying reading the article."

What if it's bullshit?

"Turkey has one of the highest levels of external debt for a developing country, at 53.4% of gross domestic product, according to data from the International Monetary Fund."

Purely as a result of the devaluation of their currency, planned in order to make the debt unpayable in order to steal from them.

In reply to by RedBaron616

OliverAnd Tiny Ripple Thu, 07/12/2018 - 09:54 Permalink

The 2017 results are based on 2016 data. Back then the Lira was worth 3 liras/USD. Today it is 4.87/USD. I would hope that the economy would grow in such circumstances when the local currency devalues so drastically. 7.5% economic growth is in this case is very anemic when you consider in the currency devaluation. It wouldn't surprise me that what you are talking about is reported in Liras and not USD. While there may have been a 7.5% increase in liras, with the devalued currency it was with less investment and more to do with inflation. Why would a nation with 7.5% growth have such a HUGE level of external (foreign currency) debt? People should be flocking to revert their currency to Liras and not the other way around.

In reply to by Tiny Ripple

Brayn_FL Thu, 07/12/2018 - 05:13 Permalink

Zerohedge is pushing for hate propaganda against Turkey.

Turkey is improving economy and its among the 11th top economies in the world. Globalists are trying to destabilize the currency because Erdogan is brave and not in the hands of globalists. This is the reason why we see many articles attacking Turkey as no before. Turkey has more than two millions of Syrian refugees feeding them and paying for them. The western media is two-sided. In one side they pretend to support democracy and they arrange coups if that leader does not fulfil their agenda. Erdogan is elected by his people. They have the right to choose whomever the want. If the country is under coup, we will see the western media praises the coup like what happened in Egypt and their elected leader in prison right now but the mainstream media is silent of that. There is no fairness. It is not understandable why all of this hate is directed to Turkey. If Turkey is under corrupt regime, we will not see all this hate. By the way, Turkey is about to open one of largest airports in the world.

Cluster_Frak Brayn_FL Thu, 07/12/2018 - 05:24 Permalink

Is that you Erdogan?

You've got Kurd problem on your southern flank, same with the Syrian problem. Then you are picking up fights with Greece, a NATO ally, which only shows NATO is obsolete. You kicked out German military, another NATO ally. You used rapefugee crisis to extort bribes from Europe. Shall I continue, or do you want more truths?

In reply to by Brayn_FL

RedBaron616 Brayn_FL Thu, 07/12/2018 - 06:54 Permalink

Read the article for a change.

 Turkey has one of the highest levels of external debt for a developing country, at 53.4% of gross domestic product, according to data from the International Monetary Fund.

Just because you open one of the largest airports in the world doesn't mean it will be successful. Always thought I wanted to visit Turkey. No more, not with this madman in charge.

In reply to by Brayn_FL

OliverAnd Brayn_FL Thu, 07/12/2018 - 10:06 Permalink

Turkey has 2 million refugees because Europe send them billions to feed them. Without the refugees the economic collapse will accelerate. The airport you are talking about was created so that Erdogan can put his name on it. The firms that are involved are going bankrupt. The largest firms in Turkey are going bankrupt because of their foreign debt. Erdogan is selling many public infrastructures so to finish that airport. Who is going to use the airport? You of all cannot see it that Erdogan and his group of thugs have enslaved you and you grand childrens children so that he may live in palaceS, have his name on an airport, be driven in a Maybach and flown in a private commercial jet. He showed up in the NATO meeting in a Maybach while his counterparts from England, Germany, Franch, Netherlands showed up in the available vehicles provided by NATO. Who does he think he is? Oh the Sultan of people that accept slavery. Enjoy what is coming you deserve it.

In reply to by Brayn_FL