Most of the "analysis" of Turkey being offered is nonsense. Speculators following it will be taking the losing side of the trade.
Alan Longbon nails it. This post is the best available that I am aware of.
The title is too limited. The article comprehensive.
Does President Erdogan understand MMT? And maybe President Putin, too? Is the world waking up?
To early to tell but the signs are encouraging.
President Erdogan realizes that that the international institutions like the IMF and the global capitalist elite they are represent are on the same neoliberal page.
Erdogan is also aware that like other central bank the Turkish central bank is on this same page. Can he crack central bank independent. The "international community" is warning him not to try.
That would be "dictatorial," you see, and undercut the currency even more — as "they" do their best to create a financial crisis to effect regime change.
BTW, this article is an excellent example of MMT analysis in action. Alan Longbon is worth following if you are not already.
Could Turkey Default? The Maths Say No
Alan Longbon
I couldn't get that through your link but I did read it. Ellen Brown has also said that rising interest rates cause inflation. Is that your view?
ReplyDelete“and undercut the currency even more”
ReplyDeleteMetaphor....
This is only vs USD in trade .... the price (in USD) of any product in Turkey that is financed in USD (intended for export) is effected by USD tariffs on that product... the USD price goes down...
It’s a problem...
Turkey stock market is down 20%....
ReplyDeleteUS stock market at/near all time highs....
Turkey adding Reserves:
ReplyDeleteThey added $6b equivalent in just one day, US gdp 20x Turkey perhaps like US adding 120b in one day.... so they are crashing their own domestic economy.... I think China may be doing the same type thing maybe lesser in scale though...
US doing the exact opposite at this point...
Link here:
https://www.reuters.com/article/turkey-cenbank-reserves/turkish-central-bank-says-lowers-reserve-requirement-ratios-idUSI7N1V400L
“With these changes some 10 billion lira, $6 billion, and $3 billion equivalent of gold liquidity will be provided to the financial system, the bank said”
They have to stop doing this or they will continue down....
Raising interest rates adds to inflation — initially. So this needs to be qualified.
ReplyDeleteConversely, central banks operate monetary policy in the NAIRU assumption that as rates rise, investment becomes more costly and in time if rates are jacked up high enough, growth with slow down and the economic will contract. Firms will lay off workers and this will reduce wage pressure.
This acts typically through the housing channel, since it is a major sector drawing investment funds. As interest rates rise, the monthly nut increases and unless incomes keep pace, fewer people will be able to get loans on the housing they desire. This dampens new home construction, which is a significant portion of investment.
At this point, banks can relax credit standards though, and extend loans that are unsustainable at the level of income. Why would a bank do this. They assume that rising housing prices will offset, since housing price is relative to the amount banks are willing to lend.
So the answer to the question whether increasing interest rates fuels inflation, the answer is yes, but with qualification.
Policy tradeoffs.
“At this point, banks can relax credit standards though, and extend loans“
ReplyDeleteTom they have to liquidate loans (risk assets) as the CB has just added 10b lira in non risk Reserves...
Matt, I was responding to the general question that GLH asked me: "Ellen Brown has also said that rising interest rates cause inflation. Is that your view?" and not the situation in Turkey.
ReplyDeleteCountries can easily avoid the problems created by regulation, especially international regulation, but not following them.
Erdogan would probably like to see the Turkish cb kicked out of the club, too.
A lot of non-Western countries are getting feed up with the BS, especially now that the cards are on the table and it is coming down to raw power and exerting control over other sovereign nations.
This is leading toward kinetic war.
“A lot of non-Western countries are getting feed up with the BS”
ReplyDeleteWell they have a funny way of showing that they are going right to the CB playbook...
Erdogan is probably saying “hey! freeze the rates and provide more bazillions of reserves to our banks so they have more to lend out!”
ReplyDeleteHere China now doing it too:
ReplyDeletehttp://www.globaltimes.cn/content/1115451.shtml
“China's central bank Wednesday injected 383 billion yuan (about 55.5 billion US dollars) into the market via the medium-term lending facility (MLF) to maintain liquidity. “
Not good ....
So far, erdogan doesn't have control of the Turkish central bank.
ReplyDeleteNeither does Putin of the Central Bank of Russia.
I don't know about Xi and the PBOC.
But Russia and China have weathered their storms quite well in comparison with the West.
Erdogan has said publicly he doesn't want the cb to raise rates. He wants to fiscal policy to address the crisis instead of monetary policy.
ReplyDeleteI don't know about his view on overt money financing, or if he knows about it. Maybe someone has clued him in on MMT.