An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
“ As if someone having to be buying it simultaneously is some kind of owning of critics!”
But the banks are limited by regulatory ratios in what value they assign to the foreign currency in TRY terms when they do this and what is simultaneously going on to other assets on their balance sheets is in the equation (not a figure of speech) too…
In dialogic terms: “ it’s about price not quantity “…
“ The price of natural gas in Europe is now 15 times what the US is paying”
What has happened to the value of EUR loans at Turkey banks financing inventories of natural gas?
Turkey banks don’t have the TRY capital to value these gas loans at the new higher EUR prices so they have to adjust the exchange rate down in TRY terms to maintain a constant regulatory leverage ratio…
So the new (lower) exchange rate reflects the decreased Turkey terms of trade due to the higher price Turkey has to pay for gas in EUR terms…
The exchange rate is the ex post accounting abstraction that puts a value on the composite current terms of trade …
Changes in the price of imported goods in the foreign currency causes the exchange rate to adjust because the banks have fixed amount of regulatory capital over the relevant time period…
The reason the TRY exchange rate is screwed is because you Art degree unqualified climate nutters have destroyed the energy systems of Europe with your policy based on your insane dialogic thesis that providing useful forms of energy is going to somehow melt the icebergs and the water is going to come up…
The EUR loans of the banks have gone up in value, but only if the reporting currency is TRY otherwise they have stayed the same. Whether they have sufficient regulatory capital depends upon the regulations (Turkey isn't in the EU), and also whether that regulatory capital is denominated in TRY or EUR.
Turkish Banks sell EUR denominated notes too.
Nearly all the problems in Turkey boil down to entities playing currency transformation games and getting themselves into trouble. There is a lot of unresolved insolvency if you assess the entities separately via denomination. It's those firms that a bust in EUR or USD terms that need resolving, and Erdogan won't pull the trigger.
"When the exchange rate is falling, the government must sell foreign exchange to stabilise. "
This is the bit Ramanan always gets wrong, and it is because of the framing of the analysis - looking at it solely from Turkey's point of view.
But that's not the game. The reason why Bill pointed out the buying side rather than the selling side is because that is where the issue lies.
"Export-led" growth requires a constant source of demand to sustain it. Therefore the problem is not Turkey's problem, but those who sell to Turkey. And since they have the buy side in their control they have infinite capacity to solve the exchange rate issue *in defence of their exports to Turkey*.
Therefore it is important that the Turkish central bank never gets involved on the import side. A lower exchange rate promotes Turkish exports, and that is where the central bank needs to go.
The import side has to be resolved by the political authority, not the monetary one.
“ government must sell foreign exchange to stabilise.”
Yeah and then these idiots probably try to sell EUR to get MORE TRY… “to get a good deal!”
More TRY per 1EUR = weaker TRY… banks are the price setters…
It’s like the Fed idiots doing QE to foment lower rates then they keep lowering their offers for the bonds on scale “to get a good deal for the taxpayers!” which makes the risk free rates higher…
MMT: “it’s about price not quantity “, none of these idiots understand this..,they think they are running a hedge fund or wtf…
6 comments:
“ As if someone having to be buying it simultaneously is some kind of owning of critics!”
But the banks are limited by regulatory ratios in what value they assign to the foreign currency in TRY terms when they do this and what is simultaneously going on to other assets on their balance sheets is in the equation (not a figure of speech) too…
In dialogic terms: “ it’s about price not quantity “…
“ The price of natural gas in Europe is now 15 times what the US is paying”
What has happened to the value of EUR loans at Turkey banks financing inventories of natural gas?
Turkey banks don’t have the TRY capital to value these gas loans at the new higher EUR prices so they have to adjust the exchange rate down in TRY terms to maintain a constant regulatory leverage ratio…
So the new (lower) exchange rate reflects the decreased Turkey terms of trade due to the higher price Turkey has to pay for gas in EUR terms…
The exchange rate is the ex post accounting abstraction that puts a value on the composite current terms of trade …
Changes in the price of imported goods in the foreign currency causes the exchange rate to adjust because the banks have fixed amount of regulatory capital over the relevant time period…
The reason the TRY exchange rate is screwed is because you Art degree unqualified climate nutters have destroyed the energy systems of Europe with your policy based on your insane dialogic thesis that providing useful forms of energy is going to somehow melt the icebergs and the water is going to come up…
The EUR loans of the banks have gone up in value, but only if the reporting currency is TRY otherwise they have stayed the same. Whether they have sufficient regulatory capital depends upon the regulations (Turkey isn't in the EU), and also whether that regulatory capital is denominated in TRY or EUR.
Turkish Banks sell EUR denominated notes too.
Nearly all the problems in Turkey boil down to entities playing currency transformation games and getting themselves into trouble. There is a lot of unresolved insolvency if you assess the entities separately via denomination. It's those firms that a bust in EUR or USD terms that need resolving, and Erdogan won't pull the trigger.
"When the exchange rate is falling, the government must sell foreign exchange to stabilise. "
This is the bit Ramanan always gets wrong, and it is because of the framing of the analysis - looking at it solely from Turkey's point of view.
But that's not the game. The reason why Bill pointed out the buying side rather than the selling side is because that is where the issue lies.
"Export-led" growth requires a constant source of demand to sustain it. Therefore the problem is not Turkey's problem, but those who sell to Turkey. And since they have the buy side in their control they have infinite capacity to solve the exchange rate issue *in defence of their exports to Turkey*.
Therefore it is important that the Turkish central bank never gets involved on the import side. A lower exchange rate promotes Turkish exports, and that is where the central bank needs to go.
The import side has to be resolved by the political authority, not the monetary one.
“ government must sell foreign exchange to stabilise.”
Yeah and then these idiots probably try to sell EUR to get MORE TRY… “to get a good deal!”
More TRY per 1EUR = weaker TRY… banks are the price setters…
It’s like the Fed idiots doing QE to foment lower rates then they keep lowering their offers for the bonds on scale “to get a good deal for the taxpayers!” which makes the risk free rates higher…
MMT: “it’s about price not quantity “, none of these idiots understand this..,they think they are running a hedge fund or wtf…
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