Late last week, the lira weakened past the 16 per-dollar mark for the first time ever, prompting Turkey’s central bank to pledge a four-month cycle of interest rate cuts. This was apparently not enough to convince investors to leave their money in the markets, though.
Ever since that time, Turkey’s stock market has been plummeting while the lira crashed to as low as 17.14, bringing the week’s declines to 17 percent. Just in 2021 alone, the lira has lost more than half of its value.
For the fourth time since September, Turkey’s central bank cut its benchmark one-week repo rate. The latest shaving reduced it by another 100 basis points, bringing it to 14 percent.
This is all taking place at the demand of Erdogan who ordered the central bank to lower borrowing costs amid surging consumer prices (inflation). Zero Hedge is calling the policy “Erdoganomics,” suggesting that the only possible outcome from it “is the collapse of Turkey’s economy and hyperinflation.”
“The resulting sell-off accelerated a 54% plunge in the currency so far this year as real rates fall further below zero with inflation now standing at an annual 21.3%,” the outlet further reported.
Erdogan orders 50 percent minimum wage increase to combat hyperinflation
Another Erdoganomics “solution” includes raising the minimum wage in Turkey by 50 percent, starting in 2020. Erdogan says this will fix the problem, but we all know that it will only drive even more inflation while increasing production costs.
Erkin Isik, the chief economist at QNB Finansbank, says that inflation in Turkey will likely accelerate by at least another 2-8 percent in 2022 if Erdogan’s order is followed.
When the lira plunged to 17 recently, Turkey’s central bank reportedly spent an additional billion or so dollars intervening – its fifth intervention just in December alone.
“Needless to say, this intervention like all those preceding it, had a half-life of just a few minutes, and shortly after the USDTRY was trading back at just shy of all time highs,” Zero Hedge reported.
Following another sudden plunge in stocks, Turkey’s benchmark stock index Borsa Instanbul 100 was halted entirely, though “temporarily,” according to officials.
“Trading of equities, equity derivatives and debt repo transactions were ‘halted temporarily’ at 4:24 p.m. in Istanbul after the index reversed gains and fell as much as 5%, according to a public filing,” reports indicate.
“Trading was scheduled to restart at 4:54 p.m., however we are confident it will only lead to more selling.”
This is clearly a hyperinflationary situation with no positive outcome – not just for Turkey but for the entire world. (RELATED: Ron Paul has been warning about this type of thing for many, many years.)
Have we arrived at a situation in which contagion from the Turkey, China (Evergrande) and other teetering economies will finally hit right here at home in the United States (which is also a teetering economy)? Time will tell.
“Basically all financial garbage is going to crash down to fair value,” wrote one Zero Hedge commenter.
“In this collapse of the Turkish lira, wealth is not getting destroyed,” wrote another. “It is merely being shifted into the dollar, i.e., Turkey is being sacrificed to support the dollar based worldwide banking cartel. Erdogan merely brought it on by trying to oppose the system.”
“The real question is: Which country is next on the menu?”
“A miniature version of the coming dollar collapse,” wrote yet another, suggesting that this is just the next domino to fall in a very long line of dominoes. “Watch and learn.”
More related news can be found at Collapse.news.
Sources for this article include: