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By jimjam
#14938966
For the last seven years, Tim Lee has been warning that a financial crisis in Turkey would set off a wider calamity in global markets.

Just about nobody listened — until now.

A plunge in the Turkish lira and the prospect that the country might soon need a bailout has spurred an investor exodus in Turkey, one that gathered steam on Friday as the currency dropped as much as 16 percent. Relative to the dollar, the lira is now down 70 percent this year; one dollar buys 6.4 lira, the most ever.

There are signs of the rout spreading beyond Turkey. The stock prices of European banks, which have been big lenders to their Turkish counterparts, dropped sharply on Friday, with investors worried that a wave of corporate bankruptcies in Turkey would lead to a banking bust in the country. The currencies of China, Brazil and Mexico also weakened. And in the United States, major stock-market indexes fell more than 1 percent before recovering slightly.

Suddenly, Mr. Lee’s largely ignored prophecy — that a decade of Turkish companies and real estate developers gorging on cheap foreign debt would end badly, not just for Turkey but for the world — does not seem so outlandish.

“Turkey is the canary in the coal mine,” Mr. Lee said Friday. “We are going have another crash that will be worse than 2008 in certain ways.”

This is not a widely held view. Despite Friday’s weakness, United States stock markets remain near their highs. Anxiety about trade wars with China and Europe has been largely cast aside. Even financial markets in developing countries, which tend to swoon in unison when one of their peers implodes, recently have been doing well.

Mr. Lee, 58, made his initial call — that Turkey was in deep financial trouble — in 2011.

A soft-spoken Englishman who eschews financial television and social media, Mr. Lee started writing an investment newsletter in 2003 after two decades working as an economist for the British mutual fund company GT Management.

He writes the newsletter, called piEconomics, from a Greenwich, Conn., office where he now works alone. The publication is simple: 10 pages of dense text supplemented with the occasional chart. His subscribers are a small cluster of European investment funds.

Toward the end of 2011, Mr. Lee published an installment of the newsletter in which he predicted that Turkey would need a $100 billion bailout.

At the time, central banks all over the world were pumping money into their economies, which were struggling to recuperate from the financial crisis.

Mr. Lee noticed that Turkish banks were borrowing in dollars to make other loans to fast-growing Turkish companies. He also saw that, over all, Turkey’s economy was growing more reliant on financing from foreign investors. It struck him as similar to what had happened to Thailand in the years before the Asian financial crisis in 1997.

In his monthly notes to investors, he kept returning to the topic of Turkey and the risks there.

In a 2013 newsletter, he got more specific: The lira, then trading at 1.9 to the dollar, would crater to 7.2.

Turkish developers used borrowed dollars to pay for the skyscrapers that now define the Istanbul skyline. As the lira loses value, it becomes more expensive for them to repay their dollar-denominated loans.CreditAndrew Urwin for The New York Times
At the time, the Turkish economy was humming. The odds of a blowup looked remote. The idea of the lira ever trading at 7.2 seemed ludicrous. It was easy for people to ignore Mr. Lee’s fantastical-sounding warning.

But Mr. Lee was on to something, even if his prediction was a half-decade premature. Over the next five years, the economic situation in Turkey deteriorated, as he had anticipated.

One side effect of having trillions of dollars of new money sloshing around courtesy of central banks was that it became much easier for governments and companies in hot economies like Turkey’s to borrow money in dollars — as opposed to their own currencies — to finance their investments or other growth plans.

Today, according to the Institute of International Finance, a banking trade group, corporate debt in foreign currencies is $5.5 trillion, the most ever.

And Turkey relies on such foreign-currency debt more than any other major emerging market. Corporate, financial and other debt denominated in foreign currencies, mostly dollars, represents about 70 percent of Turkey’s economy, according to the I.I.F. Turkish companies and real estate developers used borrowed dollars to pay for new factories, shopping malls and the skyscrapers that now define the Istanbul skyline.

The threat is that as the lira loses value, it becomes more expensive for Turkish companies to repay their dollar-denominated loans. Indeed, a growing number of companies in Turkey already have said they cannot repay these loans.

“Companies there just ignored all the risks and kept borrowing in dollars,” Mr. Lee said.

And that has the potential to spread far and wide. American investors, for example, own nearly 25 percent of outstanding Turkish bonds and more than half of publicly traded Turkish stocks, according to the I.I.F.

Mr. Lee these days is far from the only one warning about the Turkish economy and financial system. The thing that really worries him and other bearish investors is that Turkey could be a signal for what lies ahead for assets and economies that were inflated by cheap debt.

“I think that most people have not thought through the broader implications of what is happening in Turkey,” said Justin Leverenz, who manages the Oppenheimer Developing Markets Fund, the largest of its kind in the United States. “I could see global growth being much weaker than people think.” Bracing for stressful times ahead, Mr. Leverenz recently reduced the fund’s exposure to Turkey to nearly zero.

If Mr. Lee’s 2011 call now looks prescient, it hasn’t won him much new business.

Lately, just as Turkey began its crack up, a number of his clients have left him.

Yes, he might have been right on Turkey. But his persistent gloom was wearing thin, especially as the markets continued to soar.

“It has been some hard sledding,” Mr. Lee admitted. “I have lost a lot of clients because I have been too bearish.”

Yet he is doubling down on his doomsday message: The river of global cash will dry up, the dollar will spike and there will be a series of financial seizures. Investors, he thinks, will flee developing economies, then Europe and eventually the American stock and bond markets.

“It won’t be a banking crisis this time around — it will be a financial market crisis,” Mr. Lee said. “And I am very confident that it will happen.”
User avatar
By Steve_American
#14940297
You say, he says, "... the dollar will spike ...".
Does that mean the dollar will be strong?
I live on US Soc. Sec. exclusively in SE Asia.
How will this effect me?
.
User avatar
By blackjack21
#14940298
Steve_American wrote:I live on US Soc. Sec. exclusively in SE Asia.
How will this effect me?

You're rich. Jump for joy. Trump has made you great again! How is all this winning treating you?

Anyway, I would jump in quite yet, but the Turkey fund (symbol: TUR) has been more than cut in half and has a strong dividend. I like buying stuff on the cheap.

MAGA
User avatar
By Steve_American
#14945556
"Steve_American wrote:
I live on US Soc. Sec. exclusively in SE Asia.
How will this (a spike in the dollar) effect me?"

blackjack21 wrote:You're rich. Jump for joy. Trump has made you great again! How is all this winning treating you?

Anyway, I would jump in quite yet, but the Turkey fund (symbol: TUR) has been more than cut in half and has a strong dividend. I like buying stuff on the cheap.

MAGA

I would not say I was rich. However, I live much better here than the poverty level I would live at in America.

Winning? So,far it has not effected me much. The dollar lost some of its value compared to 4 years ago. But, not that much.

IIRC, you and I disagree about just about everything. So, I hate Trump. You seem it like him.

As a flaming Progressive in the same mold as Pres. Lincoln, Pres. Teddy Roosevelt, and Pres. FDR, I have been appalled by the way America has been led astray by the Media and politicians for the last 35 years. This has led to the current economic inequality and this has led to the anger/rage that the American voters feel now.

The situation in Turkey gives us no insight into the problems in America with US Gov. debt because it borrowed euros and dollars, while America only borrows its own dollars. America can always pay its bills because it can in an emergency suspend the rules and create newly created dollars to make the payment.
. . . But, it seems that in Turkey a lot of the borrowing was done by the public. This is also true in America and this is going to be a big problem very soon. A repeat of the GFC/2008.

So, I ask again. How will a spike in the dollar effect me? That is, is a "spike" going to make the dollar drop in value to shoot up?

.
By Oxymandias
#14948110
@blackjack21

Yay! Trump did absolutely nothing but it's credited to him anyways! Are you just going to attribute anything good that happens to America as a part of Trump's accomplishments? Oh, Turkey did something that indirectly caused a worldwide financial crisis that will make the domestic economy of the US suffer but you can buy some stuff in China for cheap? TRUMP IS DID IT! WOOOHOOO!!!

@Steve_American

Except that Trump is also a businessman and the idea that the government can't go into debt is both alien and counter-intuitive to his business. Trump America is remarkably neo-liberal.
User avatar
By Steve_American
#14948363
Oxymandias wrote:@blackjack21

Yay! Trump did absolutely nothing but it's credited to him anyways! Are you just going to attribute anything good that happens to America as a part of Trump's accomplishments? Oh, Turkey did something that indirectly caused a worldwide financial crisis that will make the domestic economy of the US suffer but you can buy some stuff in China for cheap? TRUMP IS DID IT! WOOOHOOO!!!

@Steve_American

Except that Trump is also a businessman and the idea that the government can't go into debt is both alien and counter-intuitive to his business. Trump America is remarkably neo-liberal.

Oxy,
Except, back in Dec. he and the Repuds cut taxes, which is like a comp. cutting its prices knowing that will reduce its revenue.
Now, they are talking about cuts in spending, especially, Soc. Sec. [but down the line, not now because old voters would vote them all out of office].
This is a trick that works well at the state level [because states must balance their books], but doesn't work at the national level because the Dems. can refuse and just push the Gov. further into deficit. No big deal. In fact, more deficit spending would be good for the people.
.
User avatar
By Steve_American
#14948512
Oxymandias wrote:@Steve_American

Yeah and how does this have to do with Turkey?

I suppose it isn't.
Yet, you sort of asked me a question and I answered.

What I had said about Turkey is that MMT will not help them because they didn't borrow Turkish currency they borrowed dollars and euros.
.
User avatar
By Crantag
#14948514
Steve_American wrote:I suppose it isn't.
Yet, you sort of asked me a question and I answered.

What I had said about Turkey is that MMT will not help them because they didn't borrow Turkish currency they borrowed dollars and euros.
.

So in other words, MMT is just a bunch of useless garbage which has nothing to say about real economic situations. It is just a set of proscriptions based on a faulty idea of boundless US dollar hegemony, specifically intended for the US, and which will always rightfully be relegated to the fringes; while nevertheless serving as a platform useful for professors to publish nonsense pieces and attend nonsensical conferences so as to further their own academic careers.

Well, this is basically what I have been saying all along!
User avatar
By Steve_American
#14948548
Crantag wrote:So in other words, MMT is just a bunch of useless garbage which has nothing to say about real economic situations. It is just a set of proscriptions based on a faulty idea of boundless US dollar hegemony, specifically intended for the US, and which will always rightfully be relegated to the fringes; while nevertheless serving as a platform useful for professors to publish nonsense pieces and attend nonsensical conferences so as to further their own academic careers.

Well, this is basically what I have been saying all along!

NO ! ! ! . Absolutely NOT. Why not?

Because what MMT is saying ONLY applies to nations that can meet 3 criteria. It doesn't apply to anyone in the private sector.
1] The nation must have its own fiat currency. Both the US and Turkey have this.
2] Float its currency against all others. If it fixes it to another then it must act to protect the currency's value. The US does float the dollar, not sure about Turkey, but I think it does.
3] Only have debts in its own currency. The US does this, Turkey doesn't.

I made this as clear as glass, I thought.
Besides which, Turkey's problem is that the private sector did most of the borrowing. And it was in dollars and euros.

MMT is talking about what the US Gov. [and any similar gov., like the UK's and Aust.'s] can do.
.
User avatar
By Crantag
#14948784
Steve_American wrote:NO ! ! ! . Absolutely NOT. Why not?

Because what MMT is saying ONLY applies to nations that can meet 3 criteria. It doesn't apply to anyone in the private sector.
1] The nation must have its own fiat currency. Both the US and Turkey have this.
2] Float its currency against all others. If it fixes it to another then it must act to protect the currency's value. The US does float the dollar, not sure about Turkey, but I think it does.
3] Only have debts in its own currency. The US does this, Turkey doesn't.

I made this as clear as glass, I thought.
Besides which, Turkey's problem is that the private sector did most of the borrowing. And it was in dollars and euros.

MMT is talking about what the US Gov. [and any similar gov., like the UK's and Aust.'s] can do.
.

It's okay that you feel that way.

But most of my commentary was my own critique and not the proverbial putting words in your mouth.

Your statement of MMT's inability to address the situation with Turkey merely provided a premise.

I was really just telling you how I really feel. And I still think my statement was accurate.
User avatar
By Steve_American
#14948821
Crantag wrote:It's okay that you feel that way.

But most of my commentary was my own critique and not the proverbial putting words in your mouth.

Your statement of MMT's inability to address the situation with Turkey merely provided a premise.

I was really just telling you how I really feel. And I still think my statement was accurate.

You do know that it isn't necessary to quote anyone, right? So, please, next time don't quote me when you are not aiming your reply at me. That would be nice.
User avatar
By Crantag
#14948987
Steve_American wrote:You do know that it isn't necessary to quote anyone, right? So, please, next time don't quote me when you are not aiming your reply at me. That would be nice.

Well you see, the thing is I was responding to you.

I've said all along that I accept some contributions of MMT. But it's never really worth while to act like an acolyte of a particular research tract. Be it Marxism, neoliberalism, or MMT, or whatever else. And I say that as someone who indeed regards myself a bit of a Marxist.
User avatar
By Steve_American
#14949024
Crantag wrote:Well you see, the thing is I was responding to you.

I've said all along that I accept some contributions of MMT. But it's never really worth while to act like an acolyte of a particular research tract. Be it Marxism, neoliberalism, or MMT, or whatever else. And I say that as someone who indeed regards myself a bit of a Marxist.

OK, I can see that you wanted to aim your comment at me, but either ---
1] You didn't understand MMT well enough to see that most of what it says doesn't apply to the current Turkish situation. Or,
2] You didn't care that a more general statement (with an @Steve_American, instead of a quote) about MMT was called for. By quoting me, it seemed like you were specifically attacking MMT [and by extension me] for not having a solution for Turkey's problems. And this made you think MMT is mostly useless.

BTW, does any other economic theory have an easy solution to Turkey's problems? If not, then why do you feel free to use Turkey to attack MMT?
User avatar
By chrisw
#14977571
Turkey seems to be a basket case.

Currently is trashed yet more and more foreigners seem to be moving there to start a new life. It doesn't make sense to me.

Is it an opportunity or are they just fools?
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