Posted on 10/03/2022 6:02:15 AM PDT by FarCenter
The Turkish central bank has baffled traditional economists over the past year with its unconventional approach to monetary policy in the wake of capital outflows, currency depreciation and raging global inflation.
While the standard playbook now being deployed by most Asian nations recommends raising interest rates to deter consumption and investment in such circumstances, the Turkish central bank has been doing the exact opposite.
While most Asian central banks view raising the supply of money in their economies as inflationary, their Turkish counterpart sees this as a way to raise output and employment levels.
Until recently, Turkey was playing by the book and raising interest rates to try to rein in inflation. This led to significant economic turmoil and a number of major Turkish companies were forced into debt restructuring or bankruptcy. Unemployment passed 14% in late 2019 while consumer demand for cars and credit dried up.
Turkish President Recep Tayyip Erdogan publicly rebuked the central bank's stance and fired three successive governors between 2019 and 2021 before settling on former legislator Sahap Kavcioglu.
As governor, Kavcioglu has embraced Erdogan's ideas, cutting the country's benchmark interest rate by almost 6 percentage points over the past year even as inflation has risen to exceed 80%.
On other fronts though, the central bank's approach appears to be having a positive impact. Unemployment has fallen back to 10%, and the country's foreign reserves were 20.2% higher in July than in September 2018. Industrial output has been on the rise for much of this year.
...
Globalization has effectively pegged almost all currencies to the dollar. Consequently, Fed rate rises regularly roil emerging markets, causing global capital to flock back to the U.S. and currencies in Asia and elsewhere to depreciate. This phenomenon has been seen repeatedly, including with the 1973 Yom Kippur War, the 1991 Gulf War, the Asian financial crisis, the dot-com bubble, the great financial crisis and COVID.
It is vital that Asian central banks realize that raising interest rates as much as the Fed does will squeeze their policy independence and may not protect their depleting foreign reserves much. Raising interest rates will also impede household consumption and deter domestic industry from creating jobs. Higher rates will also increase debt burdens, further weighing down activity.
Asian central banks should be defending their monetary independence vehemently and not worrying too much about currency depreciation. They need to ensure that the impact of monetary normalization is gradual and does not impede economic recovery. The crucial lesson is that interest rate adjustments are just a means to an end and not the solution to all problems.
The unnoted result is that Turkey is on the cusp of economic failure as a nation.
Erdgan is running around the world seeking salvation but is failing.
The Arabs have offered succor but pride would not allow Erdogan to accept it
A Turkish version of MMT - Modern Monetary Theory?
For the record MMT is nonsense and has no historical evidence of being effective! I believe Yellen is a proponent.
“While most Asian central banks view raising the supply of money in their economies as inflationary, their Turkish counterpart sees this as a way to raise output and employment levels.”
I thought we had settled all of this decades ago. I guess not.
FarCenter
Since Feb 22, 2022
You join FR and two days later Russia invades Ukraine. Just a coincidence I’m sure. LOL.
—”While most Asian central banks view raising the supply of money in their economies as inflationary, their Turkish counterpart sees this as a way to raise output and employment levels.”
Long, long ago I heard Milton Friedman answer a question on this issue.
In the blink of an eye, he responded, “If that were so, hyperinflation countries would be the world’s leading exporters. And they are not...”
I enjoy the articles you post but on some, I’m blocked.
So I ask for you to post an ARCHIVE of the website, a quick process.
Open a separate window and go to: https://archive.ph/
... and paste the URL into the box, click save.
Usually, very quickly it will generate an archive (PHOTO) of the article.
No paywall, no blocking.
Here is the archive link to the article you posted.
https://archive.ph/LQbz4#selection-2691.0-2691.183
Thank you.
I expect to see more of these MMT-type articles showing up over the next few weeks in an attempt to justify a fed “Pivot” on interest rate policy. Gotta goose the market averages leading up to election day.
I am still trying to piece together a rationale as to why anyone should take MMT seriously other than ideology demands it!
It is like communism...it has ALWAYS failed when it has been tried, but it is only because it was not instituted correctly. “We” know how to do it correctly.
P.S. < /s > in case anyone missed it.
Like communism\socialism it’s a religion!
MMT seems very consistent with the Great Reset.
High rates of inflation leave the economic/political elite in control of hard assets while impoverishing the middle class who have accumulated monetary asset.
But a key aspect of the article is effectively divorcing national economies from the financial control of the Federal Reserve and the dollar.
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