US intent on making Turkish currency weaker

President Donald Trump seems to think that Turkey has been trying to take advantage of us by having an economic crisis that’s sent their currency tumbling ... so he’s taken steps to make it tumble even more?

Why yes, yes he has.

Now, if none of that makes sense to you, don’t worry: It shouldn’t. This might be the dumbest crisis ever. Turkey, you see, has hurt itself with bad policies, tried to blame foreigners for this fact, but then, unbelievably, seen Trump seem to vindicate their scapegoating by trying to bring their economy down in retaliation for them bringing it down themselves. It’s a comedy of errors that couldn’t be less funny for the Turkish people.

It all started with Turkey’s own mistakes — or, more accurately, with Turkish President Recep Tayyip Erdogan’s. He subscribes to the completely backward theory that lower interest rates cause lower inflation, which, now that he’s given himself the power to pick the country’s top central banker and made his son-in-law the finance minister, is actually being put to the test. It’s not going well. The predictable result is that this has made inflation get out of control — it’s up to 15.9 per cent when they’re supposedly trying to keep it to 5 per cent — because the central bank has been so slow to raise rates, and, in fact, refused to do so at its most recent meeting.

Far worse than that, though, is that this has also sent Turkey’s currency on a downward spiral that threatens to destroy their entire economy. Why is that? Well, there are three things to understand. The first is that Turkey needs to borrow a lot of money from overseas; the second is that the Federal Reserve’s rate hikes have made holding money in the United States attractive enough that it’s hard for Turkey to get what it needs without sweetening the pot for investors by raising rates itself; and the third is that, as a result of all its past borrowing, Turkey has foreign currency debts equal to 30 per cent of its economy. Put these all together, and you get a pretty classic emerging markets crisis: Money has been leaving Turkey because it can now get good enough returns elsewhere, which is then pushing down the value of their currency so much that their dollar debts are getting harder to pay back. Indeed, through Thursday, the Turkish lira had lost 32 per cent of its value against the dollar just since the beginning of the year.