One of the interesting things about emerging market crises, is that when you are in one, it doesn’t feel like a crisis at all. Turkey has been buffeted by a political crisis and mass demonstrations, which could easily have spilled over into the nightmare playing out in Ukraine. Yet the situation has been calmed by both the protestors and the government. It doesn’t mean the problems have gone away, but it means that both sides have pulled back from the brink.
Longer term, this massive country of 80 million people – a huge regional power – is clearly on the way up. Interestingly, only a few years ago, Turkey felt so insecure that it put up with put-downs from second rate EU leaders when it was applying to get into the EU. Now joining the EU appears off the agenda because the Turks are not too bothered.
The economy grew strongly for ten years, inequality shrank and Turkish companies became regional powerhouses. But the last year has been traumatic for Turkey because, along with other large emerging market economies, it has seen itself going from flavour of the month to dunce of the class. Hot money which had flowed in, flowed out again as the shorter-term hedge fund trader bet against the country.
What is going on in Turkey is also playing out in South Africa, Brazil and, to a lesser extent, Mexico.
If the global financial system is to become an instrument of geo-political stability, it will have to be reformed so that what is happening in Turkey (and elsewhere) doesn’t become the norm.
We are seeing a market-made financial crisis and yet again, the agents of disruption – the financial markets – are passing the buck. Without some form of global capital controls which prevent money flowing in and out of a country at breakneck speed, the world will lurch from one financial crisis to the next driven by greed, fear and fashion.
Last night, I looked out over the Bospherous from the lovely apartment which I am renting here in Istanbul thanks to the brilliant airbnb.com.
Across the river, the lights of Sultanahmet twinkled. To the left, at the tip of the Golden Horn, was Topkapi Palace, the royal seat of the Ottoman Sultan. Straight ahead, lit up marvellously is the Haghia Sophia, and to its right the enormous Blue Mosque. These landmarks seemed so close you could almost touch them.
This morning, as I write, they are gone. Istanbul, Europe’s largest city, home to close to 17 million people, is covered in thick, dense smog. You can see nothing. From memory, as I gaze out towards where these landmarks were, I have an idea where they should be, but everything is shrouded in mist.
The key thing when the outlook is so foggy, is to get the big things right, don’t get too bogged down in the detail and the spin and counter-spin, because when a country is in crisis (as Turkey is now), everyone is telling their own story, talking their own book and trying to pull the wool over someone’s eyes!
Last year, the Turkish economic miracle came to an abrupt end with political violence in the streets of Istanbul, Izmir and Ankara. The currency went into free-fall, as did the stock market. Prime Minister Recep Tayyip Erdogan – whose AK Party won three general elections – restructured the economy and attracted more foreign investment in a decade than in the entire 90-year history of the Turkish Republic.
This time last year he was untouchable. Today, Erdogan seems to have lost his aura of invincibility.
Istanbul is full of large posters of him with the words Iron Will’ underneath. But this 1930s-style sloganeering smacks more of desperation than confidence.
When successful quasi-autocratic leaders lose their aura, it’s hard to get it back without a big scrap. For years, Erdogan had as an ally an Islamist power base known as Gulenists – followers of a self-imposed-exile cleric called Fathullah Gulen – which, at least to the outsider, sound like a cross between an Islamic version of Opus Dei and the black Nation of Islam movement.
Originally, Gulen set up an educational system of strict religious schools, which taught a mixture of self-discipline, Islam and societal responsibility. Many thousands of graduates of these schools – Gulenists – are now in powerful positions. Until recently, they were in cahoots with Erdogan in his ”soft Islam project. This is the aspiration to combine an Islamic society, which lives side-by-side with democracy and the constitutional protection of secularism. Like all aspirations, the success of such a venture depends in significant measure, on the economy being strong, offering opportunity and generating wealth.
As the economy has fractured, so too has the alliance between the government and the cleric. My friends here are secular and are afraid that in an effort to deflect attention from corruption, the government will attack the liberals to bolster Islamic support and find someone to blame. What better target in a religious atmosphere than degenerate liberals?
Now that Turkey is experiencing an outflow of cash, the differences between all these groups have returned to the fore and the issue is whether all these various conflicting parties and objectives can be reconciled.
The apocalyptic view is that they can’t. Many commentators say it is only a matter of time before the Mullahs take over in Turkey. An ongoing economic crisis, they argue, will make this more likely.
At the heart of the economic crisis is too much debt, which constantly has to be rolled over. For example, right now how could any investor in his right mind invest in Turkish lira bonds knowing that Ankara has only $40 billion in central bank reserves (two months’ import cover), but has to refinance $210 billion in 2014 alone?
Turkey also has a $70 billion current account deficit, which is financed by offshore hot money and that has been fleeing back to the safety of the US dollar in billions every week.
In addition, as we know in Ireland, if you have had ten years of economic growth financed by massive credit expansions, when these things turn, many, many companies default. If we take out the Islamic versus secular political argument, the economic dilemmas are the same as those faced by every big emerging market country right now.
An obvious solution is to install capital controls, so that money can’t flow in, pushing up debts – and flow out again, pushing up risk. One country that has introduced controls on hot money with great success is Chile. Maybe it is time to dust of the Chilean manual of controlling the financial markets and the relentless instability which comes with too much money gushing in and out of countries as they move from being fashionable to being deeply unfashionable overnight.
As we can see in Turkey, there is far too much at stake for some of the levers of power to be in the hands of greedy hedge fund traders.
David McWilliams writes daily on international economics and finance at www.globalmacro360.com
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David you have just articulated the argument for Ireland staying in the Euro:
“there is far too much at stake for some of the levers of power to be in the hands of greedy hedge fund traders”.
@John Allen
Moon Wobble Alert:
http://www.theguardian.com/science/2014/feb/24/meteorite-moon-largest-lunar-impact-recorded
On September 11th 2013!
The plot thickens…
At the mercy of the markets implies that that the “Markets” are a malignant force of negativity. our major problem, all over the world, is the Idea that markets need to be controlled, managed, fixed, handled, or manipulated. All the aforementioned are practiced by statists everywhere. Foremost of this is the management and abuse of the money system. This also is a world wide phenomenon. As money is the medium of exchange by which information is sent and received by market participants it stands to reason that the money chosen for use must be sound. As our money is not… Read more »
G-20 swear to manipulate the markets yet again
http://articles.economictimes.indiatimes.com/2014-02-23/news/47603781_1_global-growth-economic-growth-christine-lagarde
The gold price is “fixed” twice a day in secret in London.
gold has been manipulated by countries, bankers et al for the last 100 years at least and now a consultant finds it may be manipulated 50% of the time for 10 years. Well that is a start of a discovery.
http://webcache.googleusercontent.com/search?q=cache:http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fd5e00172-9b14-11e3-946b-00144feab7de.html&ei=NM4KU6S0D_P7yAHLuIGIBA&usg=AFQjCNHaFzw47jj5Fx8c6izaXIGy-kIt5g&sig2=nxnmTWTXcVwsdGDQNyZLqA&bvm=bv.61725948,d.aWc#axzz2uDBq1WI6
Question asked 2 hours ago on http://www.lemetropolecafe.com
*Par for the market rigging course. What market is not rigged these days?…
UBS Said to Seek Immunity in Currency-Rigging Probes by EU, U.S.
It is not the markets you need to be afraid of David. It is those who rig , fix, set, and manipulate everything in sight.
I assume you agree with this activity David unless you say otherwise.
When Istanbul as settled by the Briton Constantine, The new Roman Emperor Called the city Constantinople in the early 300 ad a currency was formed there that lasted for a thousand years. That is until the Turkish invasion of the centre of the Eastern orthodox holy Catholic Church. The basic coin was the gold coin taken By Marco Polo on his journey to China. This coin was a Bezant. To his astonishment Marco Polo found the Chinese of the Great Khan using paper money. http://afe.easia.columbia.edu/song/econ/money.htm The Chinese also discovered the first paper inflation and the second and a third time.… Read more »
You can’t believe anything today and you expect markets to function properly. *Trader Rog over the weekend… the cot report on 2/21 hi bill, it’s obvious to anyone paying attention that the COT report is so fabricated as to be ridiculous. with gold and silver soaring, the commercials cannot possibly be so massively short both. the commercials just cannot reasonably be net short 92,000 gold contracts and 33,000 silver contracts. no one believes they added 20,000 more net gold shorts and 10,000 more silver shorts last friday. i don’t even bother to read it anymore. it’s just disinformation to mislead… Read more »
The US dollar is the least safe place to put your money these days. All that inflated money sloshing around the world looking for a home is coming to a bad end. “Trader and financial analyst Gregory Mannarino was bullish on the stock market a few weeks ago, but he’s now done a 180. Why the reversal? Mannarino says, “What the Fed was doing was driving cash from the emerging markets into the U.S. equity market and driving cash into the U.S. bond market, and it worked . . . This is played out now . . . and I… Read more »
Cash is going to go into commodities after that initial drop.”
Mannarino says the next crash will be no accident. Mannarino contends, “The Federal Reserve is a serial and deliberate bubble blower. They have hyper-inflated the stock market. Why? Because they are going to allow this thing to blow off . . . . This is a wealth transfer. We’ve had the pump, and now we are going to get the dump. The dump is the wealth transfer. . . .
http://usawatchdog.com/
China’s gold imports way exceed reports
http://www.forbes.com/sites/gordonchang/2014/02/23/call-sherlock-holmes-500-tons-of-gold-goes-missing-in-china/
Manager in biggest bank in the world aspires for the largest gold holdings in the world
http://www.ingoldwetrust.ch/precious-metals-aspirations-of-the-biggest-bank-in-the-world-icbc
Turkey’s gold imports hit record for 2013, up 50%
http://www.maxkeiser.com/2014/01/turkeys-gold-imports-hit-record-in-2013-what-does-it-mean/
When it comes to trade between turkey and Iran —gold is money
http://www.al-monitor.com/pulse/originals/2013/12/iran-gold-turkey-corruption-akp-gulen.html#
Off Topic 15 comments in total and 12 posts in a row Tony? Don’t you think that’s a bit crazy? On Topic DMcW: If the global financial system is to become an instrument of geo-political stability, it will have to be reformed so that what is happening in Turkey (and elsewhere) doesn’t become the norm. The global financial system is exactly what? We talk about reserve currency and markets? I think so, we talk about the legal framework that define the GFS, but not alone. Ireland being a prime example for systemic flaws as per Stiglitz, imposing high costs on… Read more »
Georg
The astounding thing is how few people can be bothered to write anything.
Without me you would be the second comment of any substance discounting a subscription to a moon wobble. (No offence to you Adam)
It is Tuesday already.
As for GFS, I recommend this recent video from Noam Chomsky, ‘How to ruin an economy’
http://www.youtube.com/watch?v=6mhj-j0z-fk
‘We are seeing a market-made financial crisis and yet again, the agents of disruption – the financial markets – are passing the buck.” It is not a market made financial crisis. Show the evidence. It is caused by the trillions of phony cash sloshing around the world courtesy of the central bankers. Inflation is the money supply expansion exponentially. the great reset is on its way. Billions impoverished while the elite cream of the top and become unimaginably wealthy. The greatest heist in the history of mankind. All courtesy of the shadowy elite behind the money system scam. To paraphrase,… Read more »
Off Topic David the official meaning of the word Dalkey in Irish is incorrect and its name and pronunciation has remained unchanged since the arrival of the first people to our shore from Africa and they were black . The name has two words meaning ‘ Safe Place to Meet ‘ ( from Wolof ) as in Dáil ( meeting place ) and Key ( safe) also found in Askeaton ( Co. Limerick) . Thus it is assumed these people settled in Dalkey before it was found proper to settle along the Liffey. Note that in your forthcoming book fair… Read more »
What Mercy Have Cows at Markets French President François Hollande has ruled out changing the legal status of farm animals, following calls by a group of prominent French intellectuals who want them recognised by law as “sentient beings”. Talking as the country’s annual agricultural fair opened in Paris, Hollande said there was no need to write new legislation that he said would achieve very little. “Much effort is already made through France’s Rural Code, which recognises animals’ ability to feel pleasure and pain to look after their welfare without the need to write it into civil law,” adding that rules… Read more »
“At the mercy of the Markets”. Yes. But you don’t explain why. Remember the film pretty woman which launched Julia Robert’s career? The plot was that the character played by Richard geer had 10 millions shares in a company that builds ships but was experiencing difficulties. They were just about to land a contract to build destroyers for the us armed farces and geer dispatched his agents to delay the contract to kill a company he had 10 million shares in Why? Because he could make more money killing the company and dismantling the assests and balance sheet than from… Read more »
Well have a good night yo’ll. I’ll be digging out from a foot of wet snow. BReeeeeer…. Bring on some global warming
Gold!
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Moon!
Many accounts in here of fraudulent dealers. Mt.Gox went down and bitcoin values are hit 70% and bounce back some, but several gold dealers are alleged to be fraudulent and the gold price continues to rise. For those who care, there is valuable info in this link http://campaign.r20.constantcontact.com/render?ca=f0f44b34-f582-4a58-9d56-217cdee3177e&c=877a32b0-427b-11e3-ad08-d4ae52a45a09&ch=8905dbc0-427b-11e3-ad3c-d4ae52a45a09 Kaye is very optimistic about 2014 and beyond. He commented on the central banks and hedge funds not caring about investors being cheated, with widespread corruption. He forecasts 2014 will be an extremely good year for the precious metals. He believes a $2000 gold price and $50 silver price might be seen.… Read more »
At the mercy of the manipulated markets Reality will overcome the “Geobbels” effect. http://blog.milesfranklin.com/how-funny-is-this Bill Holter—- “I honestly did not think that we could have made it this far, we did. “We did” this through the use of words, propaganda, false reporting, the creation of free money and “making” markets (asset prices) through the manipulation of all markets. This will not stand as “broke is broke,” spending at the “street level” is collapsing as evidenced by retail sales (Walmart), auto sales, housing etc., even luxury sales have been affected. The top .1% has become richer but they cannot carry a… Read more »
http://blog.milesfranklin.com/countdown-to-collapse
If you read this you will get a fright
If you do not read it you will be snuffed out economically
Reality is rapidly overwhelming manipulated markets. Collapsing currencies and inflation are on the march.
China declares a currency war on the US dollar and also funds indirectly the ECB via the IMF
http://www.outsiderclub.com/china-declares-war-chinese-to-sabotage-us-dollar-with-gold-and-IMF/811
Dave from Denver comments on US housing stats. All lies , lies, and more lies. No market can function with misinformation piled on pile. “Purchase mortgage applications have been dropping every week by double digits year over year, including last week. 93% of all new homes built are purchased using mortgages. So the Govt releases a report shows a 9% increase in new home sales from last year? That is outright fraud. First, the number is seasonally adjusted and annualized. Let’s see the formula. Second, supposedly new homes sales INCREASED in the northeast and the south – the very regions… Read more »
David, The writer “spengler” in the Asia Times has some very insightful articles on what is really heappening in Turkey. It literally is a “turkey”. Turkey has serious problems. Corruption has rocketted upwards under the AK party. The banks are in a very dodgy state. And the currency is very suspect. (normally, if state staitistics are found to be a joke, the currency follows). Nepotism, cronyism, racketeering, dodgy acounting, waste, malincvestment, etc are all rife. Plus our old friend “soft touch rregulation”. Massive parallels with the period when Bertie, Family Firm and the PeeDees ran Ireland. A massive ponzi debt… Read more »
When the populace at large is robbed of a significant amount of their earnings….you get deflation amongst that proportion of the populace. It is a mathematical cetainty. Because they have been improvished. Our current cowboy capitalism economic system ensures that the middle class get deflation. In fact it is absolutely certain. Therefore, it is to be expected that Mme. Lagarde will start warning about deflation, as if deflation is the problem. As if the monetary authorities not buying enough bonds is the problem. The problem is actually rigged markets. We live in an environment of incessant intellectual denial as to… Read more »