I've been watching the situation in Turkey with astonishment. To appearances, Erdogan believes that higher interest rates cause inflation. Thus he refuses to raise them.
This is the physical world equivalent of believing gravity makes things rise. Or that water pouring in makes a ship float, not sink.
It will be very, very difficult for Turkey unless someone can convince him he is wrong. And he has created a system where no one can tell him that.
Edit: I seem to be getting downvotes. But this actually is his repeatedly stated belief. You can find dozens of similar references.
No, just propaganda trying to make him look dumb. Anyone with basic econ knowledge knows that raising rates has a dampening effect of economic growth, as it crowds out investment. Turkey is caught in a very difficult spot.
he said the exact words many times in many of his speeches / rallies. this doesn't prove that he "actually believes" this though. it may be just one of his / his team's mind games to divert attention.
just google "faiz enflasyon erdogan" (Which means interest rate, inflation, erdogan in turkish) and be amazed how many different instances he said it, and his ministers confirming his views.
What does it matter? With authoritarian populist leaders, what they "actually believe" isn't even a meaningful concept. A defining characteristic of authoritarianism is that truth gets fuzzy in order to serve the interests of the state, and the defining characteristic of populism is to just go with whatever pleases the mob. So when you combine the two, you get policy made up on the spot but enforced with religious fervor, which is what's happening here.
I mean, take Trump: he's a raging ball of id who just yells whatever pops into his head at random and agrees with whoever spoke to him last. What he "actually believes" is probably, to use programming jargon, undefined.
My assumption was that he's keeping rates low to avoid raising interest costs for his government and cronies. But it might be that he actually just misunderstands economics and everyone is too scared to tell him so.
My personal belief is that he is well-aware but would rather scapegoat external "forces". The problem is that you can't really keep that ball in the air long enough to fix the underlying problem.
> Erdogan believes that higher interest rates cause inflation.
I don't think he does.
Proof: https://tradingeconomics.com/turkey/interest-rate He hiked interest rates by 10%. Making the central bank rate around 18%. You'll pay 22-25% to borrow in Turkey. That's an insane rate. At which most businesses will simply collapse.
How much should he raise the interest rates? To 100%? I don't think that will work either.
Interest rates hike do cause short-term inflation. Long-term, they'll just bankrupt businesses. And no, I'm not a genius. I don't have a solution to this vicious circle the economy has entered. It looks like it is about to wind down either ways with lots of damages.
"Interest rates hike do cause short-term inflation"
Do you care to expand? This is the first time I'm hearing somebody say this. I've always believed it is exactly opposite; raising interest rates motivates people to save more and borrow/ spend less: because people are spending less there is less demand and so it removes the upward pressure on prices.
At least what I experienced is that businesses raise prices as their interest goes higher. I'm obviously talking very short-termish (first few months).
Thst was before the election June election though, done by the central bank. After the election Erdogan took control of the central bank and appointed his son in law to be treasury and finance minister.
Turkey's central bank hiked rates before Erdogan won re-election which consolidated a lot of his power; including power of appointing central bank governors. You could make an argument for central bank independence back then. It's much harder to do so now.
The rest of what you wrote runs contrary to real world economics.
This is the truth we live in. And yes, he is known to forego reason in order to get votes.
To clarify: Islamic perspective on interest rates is that it is sinful (actually, giving credit is what is presented as sinful, but meanings are lost in translation)
However, the Quran doesn't present a perspective on whether interest rates can be used as a leverage against high inflation rates. I guess they were too busy trying to calculate how many male witnesses are the equivalent of female witnesses.
Interest is sinful in all Abrahamaic religion. The Quran mentioned that lending money is social act and shall not be made a business.
You can sell items by installment directly, but you must be the direct seller and the buyer actually pay to you, not to the bank who covers the buyer money and paid it to you.
Theres a lot of verse in the Quran that explain about how to trade, loan, etc.
I don’t think Aristotle predate Abraham, who could have been mythical anyways (Aristotle was real of course). Abrahamic religion copied a lot from other religions/myths at the time (like the flood coming from the Epic of Gilgamesh), surely sentiment against usury could have been one of those.
But then again, Jews became the bankers of Europe because Christians at the time were against it as well.
In the Jewish Torah Jews cannot charge one another interest but they may charge non-Jews.
AFAIK Islam adopted the same interpretation, but perhaps it applies to everyone Islamic or not.
As wealth increased over time and people wanted to borrow a lot of money to for example, build factories, the Rabbis had to make constructs that enabled lenders to charge "rent" on money -- "the heter iska"
> This is the physical world equivalent of believing gravity makes things rise
No, it isn't. At least it's not as clear cut as you want to make it look like with the hyperbole.
Higher interest rates have both deflationary and inflationary effects. The mainstream only acknowledges the short or medium term effect on borrowing and consumer spending. But interest rates are just another price of the economy. Higher interest rates also means higher costs for businesses. And they add to the government deficit, which is also inflationary.
Maybe Erdogan is looking at Argentina, where the current interest rate is above 45% and whatever anti-inflationary effect it could have had has long ago dissapeared.
> Higher interest rates have both deflationary and inflationary effects.
Higher interest rates by definition reduce the rate of money in circulation by encouraging saving over spending (higher cost to borrow money). Maybe in your mind that leads to deflation, but empirically it doesn’t.
We're specifically talking about interest rates as a monetary policy tool. Endogenous inflation is difficult to unpack, but it's generally agreed that the government can override endogenous inflation and set monetary policy within a fairly narrow band. In Western countries with reliable central banks, this is exactly what happens.
Turkey can't change geography. They have to deal with Russia since Russia has interests in the region and a long, long history there. They also have to deal with Iran, Turkey can't start trouble with Iran each time USA /EU decide to. In the end, US /EU can cut a deal and Turkey remains on horrible terms with a neighbor.
Russia is a bad, bad partner. They have no money (compared to the West) and really no tech. They have cool weapons and oil though but are unreliable there too...
Depends on whether you consider Daesh and YPG the owners of Syria.
While Europe went crazy not to take in more than a few hundred thousand refugees who were desperately trying to escape death, Erdoğan accepted more than 3 million although many Turks didn't want them.
I think the primary thing that counts here is that the lives of the millions of people are now saved.
> Depends on whether you consider Daesh and YPG the owners of Syria.
Is Erdogan the owner of Turkey or are Turks the owners of Turkey? Are Kurds the owners of Kurdistan or are YPG or Assad or Daesh or Erdogan the owners of Kurdistan?
"Last month Turk Telekom, a big telecoms group, announced a second-quarter loss of almost a billion lira as it was hit by a surge in the cost of financing foreign-currency debt.
And, then, in the space of a week, the lira lost a fifth of its value against the US dollar, as Turkey entered a full-blown currency crisis.
The slide has sorely hurt businesses that for years took advantage of longer maturities and lower interest rates to borrow in euros and dollars rather than Turkish lira."
> Eschew flamebait. Don't introduce flamewar topics unless you have something genuinely new to say. Avoid unrelated controversies and generic tangents.
An economy is like water, you can push it around for a while but eventually the volume will be too great and it will go where it wants. It doesn't matter what you believe or desire, an economy or currency or similar will go where the environment allows it. People (especially authoritarian dictators) always think they can ignore this. Usually it winds up bad the people who live in such a country.
It would be ironic if Turkey ended up in a similar financial crisis situation to Greece. Although the mechanics are different since they have their own currency.
>that Turkey will not climb out of its hole until the country enacts major structural reforms that would undo many of Mr. Erdogan’s constraints.
>Those would include allowing a free press, an independent judiciary and returning powers to Parliament
Not that it wouldn't be nice to see those reforms, but it seems like they just slipped that claim in without much justification. China does fine with an autocratic system, as do others. I'm just puzzled that this wishful thinking that economic prosperity is necessarily connected to political freedoms still persists. Would be nice it if were true, but doesn't seem so.
>I'm just puzzled that this wishful thinking that economic prosperity is necessarily connected to political freedoms still persists.
China is doing well for now. In the long term it's going to suffer because the free flow of ideas is suppressed. And without that there's a double whammy of no innovation and learned helplessness.
Most formerly communist countries suffer from this to an extent.
The idea is that political freedom begets, enables and protects economic freedom and subsequently entrepreurship and dynamism flows. I think it's generally accepted that the western democratic economies are more dynamic than those of more repressive states. I also think that China is a strange one. Based on my anecdotal experience, people seem quite free at a micro level in China and incredibly entrepreneurial and resourceful.
> I'm just puzzled that this wishful thinking that economic prosperity is necessarily connected to political freedoms still persists.
That's because it's true in ~188 out of 190 on-going instances where oil isn't involved. It's fair to say it's true 99% of the time.
US, Canada, Sweden, Finland, Denmark, Ireland, Britain, France, Germany, Italy, Spain, Japan, South Korea, Australia, New Zealand, Switzerland, Netherlands, Austria, Belgium, Israel (this list keeps going)
Versus what?
China... and? Maybe Singapore, a tiny island nation.
Denmark has nearly three times the GDP per capita of Saudi Arabia. Czech has four times the GDP per capita of Iran. That isn't going to change, if anything the disparity will increase between the liberal order and the authoritarian order. China is more of a historical one-off than anything.
The US has at least 10x the GDP per capita of Cuba, and six times that of Russia. South Korea has ~15 times the GDP per capita of North Korea. Australia has 40 times the GDP per capita of Myanmar.
The economic prosperity rankings are overwhelmingly dominated by nations that are more politically free than not. The least politically free nations tend to be hyper impoverished (again, with only a few exceptions for petro states). As such it's not wishful thinking, it's reality.
Your list contains a large number of West European nations, which had the fortune of... being in West Europe. I.e., the fact that they are wealthy and free are more likely explained by past history, rather than one causing the other.
South Korea is an interesting case: it used to have a worse economy than NK, started rapid economic expansion while under a corrupt dictator, suffered through another, and could not really be called a "democratic" country until 90s. So maybe prosperity eventually causes democracy, but it's a slow process.
It’s less freedom than stability. Dictatorships are unstable. Governments are meant to be immortal; dictators are not. Investors aren’t fleeing Turkey’s autocracy. They’re fleeing Erdogan’s volatility.
China balanced autocracy and stability. Xi has undone China’s term limit requirements, however, which makes me less optimistic going forward.
Sad to see economies fail in the same way time and again.
Simple lessons to prevent this:
1. Only take on debt or issue bonds in your own currency.
2. Only borrow for short-term extra spending (like a disaster).
3. Every couple of years all debt should be annulled. That way people don't walk around with a mountain of debt. And companies only give loans for what they can reasonably expect to be paid back within said ”sabbat year”.
4. Need more money than you earn? Chance spending habits instead of ”plastering over” problems by taking on more debt.
5. Taxation should be fair and easy to understand.
6. All expenditure should be fair and easy to understand.
Taking on debt in your currency means you won't be able to access international markets, and international market are not just going to allow you to sell bonds in your currency without an extremely steep interest payment, some players won't even invest due to the enormous risk they would be taking.
Your point 3,4 makes it seem you are unaware of how money or wealth works - would you like it if every three years the govt just striped you of your ownership of your house ? All debt is someone else's saving, introducing a ”sabbat year” on the debt side also reflects on the ownership side - it would not be possible to own anything long term.
Your point 4 would mean companies like Amazon, FB, Google would literally be impossible to create. Its very hard to distinguish between good and bad debt ( its the reason analysts are paid so well ).
> Only take on debt or issue bonds in your own currency.
That means that the borrower would control how much he owed, as governments of nations with their own national currency are able to devalue their currency.
Understandingly, potential lenders do frown upon that possibility.
Similarly, lenders don't accept judicial arbitration in the jurisdiction that the lender controls.
The whole thing reminds me of a discussion I had around agile development and then the Cynefin framework came up [1]. At first I was skeptical but over time I realized the value of it.
Anyways, I have the feeling Erdogan thinks that the whole “economy thing” is at most complicated not complex and treats it like that. Good luck with that approach.
I became much more forgiving about political structures since I started working with distributed system. The ways things go wrong in distributed systems even before you inject free will is staggering.
The link has worthwhile content, and was entertaining. Thanks!
Historically, this devaluation is pretty insignificant. It only halved in value. The current Turkish Lira is actually the second iteration. The first Turkish Lira at one point had the following value:
1995 – 1 U.S. dollar = 45,000 first Turkish lira
2001 – 1 U.S. dollar = 1,650,000 first Turkish lira
That's 36 times less in about 6 years! Eventually they replaced the first Turkish Lira with the current (second) Turkish Lira. It seems a lot of Turkish people should still remember the previous Turkish lira. The second Turkish Lira was the most stable between 2006-2015 or so.. but historically the Lira has always been hugely unstable.
THere's one fact that people seem to have forgotten:
1USD=1.5TRY back in 2002.
Turkey has an inflation that's about 10% (reported, let's go with that).
1.1 ^ 16 * 1.5 = 6.8 - meaning 6.8TRY would be equivalent to 2002's dollar. US economy and dollar gained more strength in the meantime.
6.8 try/usd is not crazy. The previous exchange rate probably was.
A lot of debt is held in foreign currency and imports just got a whole lot more expensive in a handful of days. This is a serious blow, especially if Turks lose confidence in the lira. I can assure you that Erdogan is getting nervous. He can talk about boycotting Apple and buying Samsung all he wants; both phones are now unaffordable for a lot of people who were planning to buy one. Those people aren't going to be terribly happy about Erdogan's flirt with Russian missile systems.
For sure. Exchange rate fluctuation of this magnitude is never good. I know companies that worked with dollars are finding excuses not to bill their clients because of exchange rate volatility (if they bill now, and dollar rises after, the seller/biller would take a loss).
I'm not understanding this line of reasoning. Are you assuming the US didn't have inflation in that time? I know it would be less than the lira but even still I'm not sure there would be a direct correlation.
Us inflation is 1-2%.
I over-simplified the logic, but turkish lira lost 10% of its value every year while the us lost 1%. All things equal the exchange rate would track that. Of course it's not this simple, if turkey's lira were more valuable because of our political position, export industry etc, equation would skew, but most of the economic boom in turkey came from construction.
This situation could happen to any country. Since I am no financial/economic expert, I would like to learn from the community how this all happened? How a country A can destabilize country B's currency/economy so easily? I know Turkey has external debt but so on the US.
Turkey elected a strongman. He used the state to buttress his own power. That made necessary, but politically-difficult decisions (like raising interest rates), impossible.
> Turkey has external debt but so on the US
Few Americans borrow in non-U.S. dollars. And the U.S. government only borrows in U.S. dollars. This works because the dollar works. Investors and exporters trust it to retain value.
The lira, on the other hand, isn't trusted. So when the Turkish government wants to borrow money, investors aren't willing to accept being paid back in lira. (And the government, in any case, needs hard currency to pay for imports. Because the people selling Turkey imports don't want to be paid in lira, either.)
In the world's current economic situation it pretty much is mostly all about the U.S. and the dollar.
Most of the global trade is conducted with the dollar and he can mess up other currencies in a similar way.
I wouldn't call him a genius, he's quite the opposite.
>why didn't previous presidents think of it
They probably did, but were likely smart enough to figure out that a trade war with the world will trigger a backlash that the US won't be able to handle.
The world will seek an alternative to the US dollar, and I think it will happen very soon if Trump continues doing what he does.
Erdogan has been heading that way for a long time. US is just the latest addition to the growing line of Turkey's allies-turned-enemies, following Israel and Europe. The West was willing to overlook his arrogance and hostile rhetoric for a time, but in transforming Turkey from a strong democracy to weak autocracy he crossed a red line. The West doesn't want countries like that in EU or even NATO. We now realize that we are better off supporting Kurds, who are long overdue their own state, and that the EU is much better off setting up barriers for Turks so that they can no longer invade their territory with their hostility and rudeness and a pan-Turkish, Muslimisation agenda. (I am generalizing, of course, not all Turks are like this.)
Trump didn’t cause Turkey’s problems. Decades of debt-driven growth, an imbalanced reliance on exports and incompetent administration (in defending property rights and monetary policy) caused this. Investors aren’t dumping Turkish assets because the U.S. levied light sanctions. They’re selling because Erdogan installed an incompetent son-in-law as central banker.
Erdogan travels a well-worn path. Most dictators don’t leave office peacefully. They die horribly or die in power. Their nation’s economies therefore transform into a mechanism for preserving their power. Longer-term and broader concerns, in turn, atrophy.
Erdogan was taking care of the mess done by previous governments. He was not 100% successful but took a good degree turn of what was given to him. In this same thread I learnt about the launching of Lira 2.0. Previous was very weak.
> Erdogan was taking care of the mess done by previous governments
Initially. Now he’s making his own. The present policy of printing money to buy currency with which to pay debts is unsustainable. Putting family and cronies in positions that are meant to be independent makes people sell.
The tariffs and the sanctions were just the proverbial last straw. Turkey was heading to a economic crash anyways. The latest US-Turkey stuff just pushed it over the edge.
But yes, the US is in a very strong position vis a vis almost every other nation in the world. Trade wars in general are not good economic policy, but the truth is that they will generally hurt the counter-party more than they hurt the US .
I'm not American (or Turkish) so this is somewhat removed.
I think that Turkey's slide in to authoritarianism can be directly traced to the US' Kissinger-esque approach to diplomacy, particularly in the Middle East. I'm not saying the alternative would have been better everywhere, or even in Turkey. But... still.
There is simply no relationship between American friendship and liberalism, rule of law, protection of minorities or any other "moral" standard. The US will not downgrade it's relationship or do anything, in response to stealing an election, commiting a political purge, etc.
Turkey has never been a fully liberal democracy, with basic freedoms held to a basic democratic standard. Ironically though, at the beginning of erdogan's premiership it was pretty close, closer than it had been certainly.
As it gradually slipped into its current state, there were no consequences... not even a scholding.
Oddly, Trump's wildman diplomatic tactics that constantly and hyperbolically upgrades and degrades the US' "friendship status" other states... the inconsistency allows for flexibility.
I doubt much liberalism will result directly from Trump (it's just not something he seems to care for) but the re-write get of the rules... That will probably be permanent. It may allow the US out of its fairly constrained diplomatic policies, which (I now believe) are far too consistency and convention oriented.
Tldr... If the US had started reacting sharply when Erdogan started jailing journalists, rivals and activists....Turkey might still be a free country.
A huge portion of why Turkey is such a mess right now is the United States' Syria policy. Turkey, by mere proximity, shared an unbalanced burden in the Syria fallout and the United States did nothing to aid them. This allowed Erdogan to seize more power and encouraged him to grow closer to China and Russia.
I don't think the Syrian civil war is the US' doing. They are involved, but not more than Turkey itself.
In any case, the US did make (also in Iraq) an enormous concession to Turkey. Iraqi Kurdistan was not allowed to declare independence, despite clearly needing it and being an extremely loyal, reliable and effective US ally, something that cannot be said of any others in the ME lately. Syrian Kurdistan had to basically surrender to Assad to avoid a Turkish Attack. Again, the US totally had-faced a genuine, ideological ally... as a favor to Turkey.
These have been Turkey's primary concerns in those wars, and they got what they wanted.
My point is that they shouldn't have. The US is a powerful country. They were in a position to make these decisions ideologically, rather than transactionally.
I think Turkey's NATO membership should have come into question, when Erdogan clearly stepped back from "free/democratic."
How could you say that US involvement in Syria was not more than Turkey’ when anything and everything in the region is dictated by the US?
So breaking apart a country and not letting the ethnic groups not form independent countries is a great concession to you?
I don't think Erdogan gives a f* if US pressurizes him to follow democratic procedures, considering how he dealt with the Washington DC protests. Plus Turkey is a key NATO ally against Russia, and they know it. This lets them gain leverage on the US government and get away with anything Erdogan pleases to do.
IDK... Erdogan is far more of a "pulpit bully" than he was.
At the start of his reign he was negotiating for EU membership, and topics like that were firmly on the table. In fact he absorbed all sorts of slights and insults before finally giving up. Some of those were genuine slights, double standard requirements that were not being asked of christian majority countries.
This incident though, it really reflects a certain diplomatic norm, a quid quo pro, transnational diplomacy.
I know the "Pastor Affair" is largely just an excuse or trigger for this argument. But, he was arrested and trialed kangaroo style, as were thousands of people picked up during the last major purge. The US asked to have their (almost certainly falsely convicted) citizen back. Turkey treated this as a good opportunity for a quid quo pro transaction.
You want this priest back. We want things too. How about you extradite some dissidents. We'll release you innocent priest.
That transnational norm is... normal. IE, the US deals this way in the middle east. I realize diplomacy will always have very big realpolitik aspects to it. I realize that moralizing and such are no basis for diplomatic relations. But, if you stop even paying lip service to the idea of values, morals and such.... I think you lose out of that too.
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[ 2.9 ms ] story [ 157 ms ] threadThis is the physical world equivalent of believing gravity makes things rise. Or that water pouring in makes a ship float, not sink.
It will be very, very difficult for Turkey unless someone can convince him he is wrong. And he has created a system where no one can tell him that.
Edit: I seem to be getting downvotes. But this actually is his repeatedly stated belief. You can find dozens of similar references.
https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...
Is there evidence he actually believes this?
I guess he could be lying, but it has certainly rattled the markets.
https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...
here is a turkish source (not even an opposition one): https://www.haberturk.com/erdogan-faiz-ne-kadar-dusuk-olursa...
just google "faiz enflasyon erdogan" (Which means interest rate, inflation, erdogan in turkish) and be amazed how many different instances he said it, and his ministers confirming his views.
I mean, take Trump: he's a raging ball of id who just yells whatever pops into his head at random and agrees with whoever spoke to him last. What he "actually believes" is probably, to use programming jargon, undefined.
My assumption was that he's keeping rates low to avoid raising interest costs for his government and cronies. But it might be that he actually just misunderstands economics and everyone is too scared to tell him so.
I don't think he does.
Proof: https://tradingeconomics.com/turkey/interest-rate He hiked interest rates by 10%. Making the central bank rate around 18%. You'll pay 22-25% to borrow in Turkey. That's an insane rate. At which most businesses will simply collapse.
How much should he raise the interest rates? To 100%? I don't think that will work either.
Interest rates hike do cause short-term inflation. Long-term, they'll just bankrupt businesses. And no, I'm not a genius. I don't have a solution to this vicious circle the economy has entered. It looks like it is about to wind down either ways with lots of damages.
Do you care to expand? This is the first time I'm hearing somebody say this. I've always believed it is exactly opposite; raising interest rates motivates people to save more and borrow/ spend less: because people are spending less there is less demand and so it removes the upward pressure on prices.
https://www.bloomberg.com/news/articles/2018-07-10/erdogan-g...
The rest of what you wrote runs contrary to real world economics.
To clarify: Islamic perspective on interest rates is that it is sinful (actually, giving credit is what is presented as sinful, but meanings are lost in translation)
However, the Quran doesn't present a perspective on whether interest rates can be used as a leverage against high inflation rates. I guess they were too busy trying to calculate how many male witnesses are the equivalent of female witnesses.
You can sell items by installment directly, but you must be the direct seller and the buyer actually pay to you, not to the bank who covers the buyer money and paid it to you.
Theres a lot of verse in the Quran that explain about how to trade, loan, etc.
It predates Abrahamic religions. Even Aristotle complained about lending and interests as being "unnatural".
But then again, Jews became the bankers of Europe because Christians at the time were against it as well.
Jews actually had few other job options left to them. Antisemitism was really really widespread throughout entire Europe.
AFAIK Islam adopted the same interpretation, but perhaps it applies to everyone Islamic or not.
As wealth increased over time and people wanted to borrow a lot of money to for example, build factories, the Rabbis had to make constructs that enabled lenders to charge "rent" on money -- "the heter iska"
No, it isn't. At least it's not as clear cut as you want to make it look like with the hyperbole.
Higher interest rates have both deflationary and inflationary effects. The mainstream only acknowledges the short or medium term effect on borrowing and consumer spending. But interest rates are just another price of the economy. Higher interest rates also means higher costs for businesses. And they add to the government deficit, which is also inflationary.
Maybe Erdogan is looking at Argentina, where the current interest rate is above 45% and whatever anti-inflationary effect it could have had has long ago dissapeared.
Higher interest rates by definition reduce the rate of money in circulation by encouraging saving over spending (higher cost to borrow money). Maybe in your mind that leads to deflation, but empirically it doesn’t.
I'm not saying I believe higher interests causes inflation, but I believe your logic is flawed.
Argentina’s currency jumped after that interest rate hike, btw, and the inflation rate for 2018 has been lower than that of 2017.
https://www.statista.com/statistics/316750/inflation-rate-in...
The inflation in 2017 was 25%. With a lot of luck in 2018 will be < 32%.
1. https://www.bloomberg.com/view/articles/2018-08-14/erdogan-i...
Russia is a bad, bad partner. They have no money (compared to the West) and really no tech. They have cool weapons and oil though but are unreliable there too...
Is Erdogan the owner of Turkey or are Turks the owners of Turkey? Are Kurds the owners of Kurdistan or are YPG or Assad or Daesh or Erdogan the owners of Kurdistan?
I was reading that a lot of corporate debt is in USD /EURO. So the loans are a lot more expensive now and many will go kaput. https://www.ft.com/content/0661a1b0-9f08-11e8-85da-eeb7a9ce3...
"Last month Turk Telekom, a big telecoms group, announced a second-quarter loss of almost a billion lira as it was hit by a surge in the cost of financing foreign-currency debt.
And, then, in the space of a week, the lira lost a fifth of its value against the US dollar, as Turkey entered a full-blown currency crisis.
The slide has sorely hurt businesses that for years took advantage of longer maturities and lower interest rates to borrow in euros and dollars rather than Turkish lira."
https://news.ycombinator.com/newsguidelines.html
The volumes of debt are also very different. Greece had a LOT more debt when they defaulted.
https://en.wikipedia.org/wiki/2001_Turkish_economic_crisis
>Those would include allowing a free press, an independent judiciary and returning powers to Parliament
Not that it wouldn't be nice to see those reforms, but it seems like they just slipped that claim in without much justification. China does fine with an autocratic system, as do others. I'm just puzzled that this wishful thinking that economic prosperity is necessarily connected to political freedoms still persists. Would be nice it if were true, but doesn't seem so.
China is doing well for now. In the long term it's going to suffer because the free flow of ideas is suppressed. And without that there's a double whammy of no innovation and learned helplessness.
Most formerly communist countries suffer from this to an extent.
That's because it's true in ~188 out of 190 on-going instances where oil isn't involved. It's fair to say it's true 99% of the time.
US, Canada, Sweden, Finland, Denmark, Ireland, Britain, France, Germany, Italy, Spain, Japan, South Korea, Australia, New Zealand, Switzerland, Netherlands, Austria, Belgium, Israel (this list keeps going)
Versus what?
China... and? Maybe Singapore, a tiny island nation.
Denmark has nearly three times the GDP per capita of Saudi Arabia. Czech has four times the GDP per capita of Iran. That isn't going to change, if anything the disparity will increase between the liberal order and the authoritarian order. China is more of a historical one-off than anything.
The US has at least 10x the GDP per capita of Cuba, and six times that of Russia. South Korea has ~15 times the GDP per capita of North Korea. Australia has 40 times the GDP per capita of Myanmar.
The economic prosperity rankings are overwhelmingly dominated by nations that are more politically free than not. The least politically free nations tend to be hyper impoverished (again, with only a few exceptions for petro states). As such it's not wishful thinking, it's reality.
South Korea is an interesting case: it used to have a worse economy than NK, started rapid economic expansion while under a corrupt dictator, suffered through another, and could not really be called a "democratic" country until 90s. So maybe prosperity eventually causes democracy, but it's a slow process.
I'd add to this the exploitation of resources throughout the world
China balanced autocracy and stability. Xi has undone China’s term limit requirements, however, which makes me less optimistic going forward.
Taking on debt in your currency means you won't be able to access international markets, and international market are not just going to allow you to sell bonds in your currency without an extremely steep interest payment, some players won't even invest due to the enormous risk they would be taking.
Your point 3,4 makes it seem you are unaware of how money or wealth works - would you like it if every three years the govt just striped you of your ownership of your house ? All debt is someone else's saving, introducing a ”sabbat year” on the debt side also reflects on the ownership side - it would not be possible to own anything long term.
Your point 4 would mean companies like Amazon, FB, Google would literally be impossible to create. Its very hard to distinguish between good and bad debt ( its the reason analysts are paid so well ).
I agree with your last two points.
That means that the borrower would control how much he owed, as governments of nations with their own national currency are able to devalue their currency.
Understandingly, potential lenders do frown upon that possibility.
Similarly, lenders don't accept judicial arbitration in the jurisdiction that the lender controls.
Anyways, I have the feeling Erdogan thinks that the whole “economy thing” is at most complicated not complex and treats it like that. Good luck with that approach.
[1] https://en.wikipedia.org/wiki/Cynefin_framework
The link has worthwhile content, and was entertaining. Thanks!
See https://en.wikipedia.org/wiki/Turkish_lira#First_Turkish_lir...
6.8 try/usd is not crazy. The previous exchange rate probably was.
Turkey elected a strongman. He used the state to buttress his own power. That made necessary, but politically-difficult decisions (like raising interest rates), impossible.
> Turkey has external debt but so on the US
Few Americans borrow in non-U.S. dollars. And the U.S. government only borrows in U.S. dollars. This works because the dollar works. Investors and exporters trust it to retain value.
The lira, on the other hand, isn't trusted. So when the Turkish government wants to borrow money, investors aren't willing to accept being paid back in lira. (And the government, in any case, needs hard currency to pay for imports. Because the people selling Turkey imports don't want to be paid in lira, either.)
This is interesting. But, the world is not all about US. My question is, can Trump do same with some European country?
Why did not previous Presidents think of it and opted for traditional war? This trade war is more safer for Americans.
>why didn't previous presidents think of it
They probably did, but were likely smart enough to figure out that a trade war with the world will trigger a backlash that the US won't be able to handle. The world will seek an alternative to the US dollar, and I think it will happen very soon if Trump continues doing what he does.
US Chamber of Commerce after Turkey imposition of the tariff on US goods.
https://www.cnbc.com/video/2018/07/03/us-chamber-of-commerce...
Trump didn’t cause Turkey’s problems. Decades of debt-driven growth, an imbalanced reliance on exports and incompetent administration (in defending property rights and monetary policy) caused this. Investors aren’t dumping Turkish assets because the U.S. levied light sanctions. They’re selling because Erdogan installed an incompetent son-in-law as central banker.
Erdogan travels a well-worn path. Most dictators don’t leave office peacefully. They die horribly or die in power. Their nation’s economies therefore transform into a mechanism for preserving their power. Longer-term and broader concerns, in turn, atrophy.
Initially. Now he’s making his own. The present policy of printing money to buy currency with which to pay debts is unsustainable. Putting family and cronies in positions that are meant to be independent makes people sell.
But yes, the US is in a very strong position vis a vis almost every other nation in the world. Trade wars in general are not good economic policy, but the truth is that they will generally hurt the counter-party more than they hurt the US .
If you aren't paying attention to crypto now is the time.
I think that Turkey's slide in to authoritarianism can be directly traced to the US' Kissinger-esque approach to diplomacy, particularly in the Middle East. I'm not saying the alternative would have been better everywhere, or even in Turkey. But... still.
There is simply no relationship between American friendship and liberalism, rule of law, protection of minorities or any other "moral" standard. The US will not downgrade it's relationship or do anything, in response to stealing an election, commiting a political purge, etc.
Turkey has never been a fully liberal democracy, with basic freedoms held to a basic democratic standard. Ironically though, at the beginning of erdogan's premiership it was pretty close, closer than it had been certainly.
As it gradually slipped into its current state, there were no consequences... not even a scholding.
Oddly, Trump's wildman diplomatic tactics that constantly and hyperbolically upgrades and degrades the US' "friendship status" other states... the inconsistency allows for flexibility.
I doubt much liberalism will result directly from Trump (it's just not something he seems to care for) but the re-write get of the rules... That will probably be permanent. It may allow the US out of its fairly constrained diplomatic policies, which (I now believe) are far too consistency and convention oriented.
Tldr... If the US had started reacting sharply when Erdogan started jailing journalists, rivals and activists....Turkey might still be a free country.
In any case, the US did make (also in Iraq) an enormous concession to Turkey. Iraqi Kurdistan was not allowed to declare independence, despite clearly needing it and being an extremely loyal, reliable and effective US ally, something that cannot be said of any others in the ME lately. Syrian Kurdistan had to basically surrender to Assad to avoid a Turkish Attack. Again, the US totally had-faced a genuine, ideological ally... as a favor to Turkey.
These have been Turkey's primary concerns in those wars, and they got what they wanted.
My point is that they shouldn't have. The US is a powerful country. They were in a position to make these decisions ideologically, rather than transactionally.
I think Turkey's NATO membership should have come into question, when Erdogan clearly stepped back from "free/democratic."
That's interesting, what's your source for that?
edit: typo
At the start of his reign he was negotiating for EU membership, and topics like that were firmly on the table. In fact he absorbed all sorts of slights and insults before finally giving up. Some of those were genuine slights, double standard requirements that were not being asked of christian majority countries.
This incident though, it really reflects a certain diplomatic norm, a quid quo pro, transnational diplomacy.
I know the "Pastor Affair" is largely just an excuse or trigger for this argument. But, he was arrested and trialed kangaroo style, as were thousands of people picked up during the last major purge. The US asked to have their (almost certainly falsely convicted) citizen back. Turkey treated this as a good opportunity for a quid quo pro transaction.
You want this priest back. We want things too. How about you extradite some dissidents. We'll release you innocent priest.
That transnational norm is... normal. IE, the US deals this way in the middle east. I realize diplomacy will always have very big realpolitik aspects to it. I realize that moralizing and such are no basis for diplomatic relations. But, if you stop even paying lip service to the idea of values, morals and such.... I think you lose out of that too.