As predicted, the Turkish Economy has maintained its downward trajectory.
Many different indicators attest to this.
For instance, measured against the Dollar, the Turkish Lira has continued to lose value. Since the start of 2021, it has lost more…
As predicted, the Turkish Economy has maintained its downward trajectory.
Many different indicators attest to this.
For instance, measured against the Dollar, the Turkish Lira has continued to lose value. Since the start of 2021, it has lost more than 50% of it’s purchasing power.
There’s a chart you can look at which shows the situation very clearly. The inflation rate steadily increased and then it suddenly took steeper course late last year and has maintained that ever since.
The inflation rate in Turkey now is at 61% - and it’s increasing by more than 5% per month. This inflation is in large part due to energy price increases. The cost of importing energy has effectively more than doubled Bear in mind that Turkey’s energy requirements are bought on international markets and paid for in Dollars, so the rise in the cost of energy and the fall in the value of the Lira is a double whammy.
The situation in Turkey has been made worse by its poor balance of trade - Turkey imports more than it exports. This is never good for an economy. It puts a country at a real disadvantage.
All that said, much of the problems that Turkey is experiencing are directly due to President Erdogan’s moronic Monetary policies - currency creation and exceptionally low interest rates. I’ve done a couple of videos about Modern Monetary Theory for anyone who is interested in this matter.
In any event, an analogy for the situation in Turkey springs to mind … Turkey is a tanker, or container ship heading full steam into a harbour. It’s only a matter of time before it crashes. The alarm should be sounding and the appropriate action should be taken.
In order to avert a disaster, President Erdogan needs to take action. Rather than have the engine running full steam ahead, he should put the engine in reverse and also change course completely, steering the ship away.
In Economic terms, he needs to put an end to currency creation and raise interest rates to above the level of inflation and keep them there until the economy has recovered.
This won’t magically transform the situation. These measures will take time have their effect.
The turning circles of big tankers, or container ships are not small. They take time to turn and they take time to come to a stop. So too with an economy. We are talking months, maybe years.
So, even if he were to take this course of action, the ship might yet still crash into the harbour.
Unfortunately however, I don’t think that this course of action will be taken. I therefore expect the Turkish economy to crash into the harbour in a couple of months with untold consequences.
Why do I say a couple of months? Well, the cost of energy imports for the first quarter of 2022 were $25 Billion. Turkey’s foreign currency reserves are $15 Billion. So Turkey will soon run out of reserves to pay for their energy requirements.
When the foreign reserves are gone, Turkey will not be able to buy the energy it requires to operate. Without oil, or oth
