Turkey's Crazy Inflation Problem - What the Hell is Happening with the Lira?
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- Опубликовано: 19 май 2024
- Intro: 00:00
Interest Rate & Inflation Theory: 03:35
How Turkey Got Here: 05:37
Why is Turkey Lowering Rates?: 07:02
Why It's Not Working: 08:51
How Turkey's Coping: 11:55
Takeaways: 12:52
Today's video is on the crazy inflation being experienced in Turkey, and the sad reason behind it.
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Sure the Turkish economy is worse than yesterday, but at least it's better than tomorrow.
Underated comment.
LOL
lol, is that turkish dark humor?
Lmfao, sad but true
hahahahahahah
I love how Erdogan cut 6 zeros from Turkish Lira in 2006 just to slowly introduce them back 15 years later on. Great video, you at least have one Turkish viewer.
Hey. Do you know if Ukraine situation has direct impact on Turkey's economy? Does Turkey buy something in large amounts from Ukraine like wheat which export is now halted?
@@Byrzzaa There is a recent video on the channel "TLDR News Global" which explains the trade relations between Russia and Turkey. I learned that the country of origin where most tourists come from in Turkey is Russia. So the tourism sector of Turkey is going to suffer I believe
@@hennievanwyk8214 Zero chance Erdoğan blocks Russian tourists. We are too dependent on foreign income. Turkey, I think, was one of the first countries to open borders after the first round of lockdowns.. The horrible economy is even worse without that cash. The Bosphorus was closed to war ships but I don’t think there was anything else done.. even that seems like it’s more symbolic than actually imposing punishment on Russia. I mean.. you don’t have to sail though the Bosphorus to go from Russia to Ukraine.
@@Byrzzaa I do not know the exact quantities but large amounts of grain(both for human and animal consumption) comes from Ukraine. Turkey imports large amounts of gas and oil from Russia as well. Should not be as badly effected as Europe as it has a functional relationship with Iran and is close to Azerbaijan, but still terrible prospects for inflation.
Yeah Turkey's tourism got a bad hit during corona crisis especially because of non-existence of Russian tourists and now the recovery from that is going to happen more slowly. I speak Russian so I'm quite aware of trade between Turkey and Russia but I'm interested if they have any major trade agreements and deals with Ukraine too.
Plain Bagel: ... so that we can learn from the mistakes that have been made, and hopefully avoid it from happening i n the future.
Me: quietly laughs / sobs in current events
I'm using devalued currencies on steam, paying like 1/10 the costs lol
Not as smart as the rich who go take out loans in that countries currency, then purchase realestate in the U.S.
Love from Turkey, thanks for the great content as always. I Hope that everything will get better when this tyranny upon us is no more.
Erdogan must go. western capitalism doesn't work like islamic values.
I hope the best for you.
Turkey Rusia China are doing deDollarization and next Saudi then Opec then the world and the Dollar will fall 🤣🤣, i think it was all planned, Erdogan already knew it, thats why he want its people to change Dollar with lira even if Lira value going down againts Dollar the government will pay the rest
I’m a simple citizen of the world living in Istanbul but when the price of the cheapest pasta increased by 50% in one day beginning of 2022, I was sobbing in the supermarket. The Turkish people and the lovely Turkish animals (beyond the stray cats and dogs) deserve better. The hopelessness of the situation coupled with so many injustices, even direct insults, is just too much. By selling property to foreigners in €$ and making it impossible for Turkish people to ever own or even rent a home, I fear we will become homeless in our own beautiful home country.
I think they deserve it, they voted for erdogan anyway.
So sorry for this, I really hope your situation becomes better soon
This is exactly what’s happening in my country, Turkey. Educated people living there going bonkers about all these non-sense economic actions that the government took. The reverse of the economy in Turkey will be so difficult.
Great content!!👍🏻
Argentina?
Wonder if the loss of talented individuals able to emigrate to other parts of Europe has an adverse effect on Turkey as a country
@@longhornmed Turkye isn’t a full member of the Europeon Union. Than again a lot has been going on so I maybe out of the loop.
no it won't. if we get a better, more reliable/sane government, if the rule of law is acknowledged and applied, investors are ready and waiting to rush in because we have huge potential. remember how the usd/try rate dropped significantly with the news of erdoğan's son in law leaving the central bank seat ? it only takes a bit of good news and a change of government for us to skyrocket from here.
Turkey is not Europe
For the Turkish people the REALLY scary thing is that interest rates have a lagging effect on inflation. i.e. the inflation they are seeing now is the results of the early reductions in interest rates. Inflation in Turkey will continue to get worse even after the government stops reducing interest rates. Therefore the worst of inflation is yet to come in Turkey.
What makes this worse is that rising interest rates around the world after a period of devaluation of the Turkish currency will be the worst possible combination. Any business (or government department) with foreign debts will have to pay higher interest with a currency that is worth less on the FX markets. Being a net importer of oil is effectively the same. The current situation with oil prices will be amplified in a country like Turkey and could easily destroy their economy. It is quite feasible that Turkey could regress so much that their economy is effectively destroyed.
Turkey really needs an election with a candidate that isn't bonkers on the ballot paper.
The world is more than willing to loan to turkish citizens at natural agreed upon rates, & thereby increase their productive capacity.
Creditable investors from everywhere are more than willing to fund their accumulation of imports, needed to build demanded infrastructure.
Entrepreneurs from everywhere are willing to branch their businesses out into these countries to get ahead of competition, & with the aid of lenders/investors everywhere.
They just *can't* properly do this under their stupid policies.
This immediate problem they're currently experiencing is a long overdue result of this lack of productivity.
The only way to viably get demanded goods & services is to offer something of equal value. Proper finance moves future purchasing power (caused by an increase in productivity) to the present, to fund that very productivity's creation. If their government simply got out of the way & let that happen without any distortions, then their problems would fade away in time.
Their economy is hanging by a thread & is *already* in shambles. The islamic countries have been propping them up for too long.
They need to default, cut spending, raise rates, & let the market properly restructure.
@@austinbyrd4164 Yes, it will take a brave move but the only way to solve this is probably to accept just how bad things are take the pain of an economic reset. The longer things like this go on the more painful it is when it comes.
@@hbeau1900 turkeys elections aren't rigged.
the problem is there isnt any good opposition. the 2nd largest party is dumb af, and their leader is even dumber than the whole party.
Turkey Rusia China are doing deDollarization and next Saudi then Opec then the world and the Dollar will fall 🤣🤣, i think it was all planned, Erdogan already knew it, thats why he want its people to change Dollar with lira even if Lira value going down againts Dollar the government will pay the rest
high interest rate caused foreign products to be cheaper, but local products will be more expensive and make its people who buy local product will suffer(the poor),, high interest rate make the rich get richer and the poor get poorer,,rich people will lend their money to bank and the bank will lend money to a local companies and local companies will make a products and the products will be more expensive because the companies have to pay high interest rate to bank,, and the rich who lend their money at bank will get more depending on how high the interest rate is
Phenomenal summary of what is happening there. Thank you for sharing!
Hi Richard, this is a very good analysis done by you. Hope you would make more such vids in future
By far the best video you’ve put out in ages. Well done mate!
Wow, I hadn't thought about foreign-currency denominated loans as a basis for a debt spiral.
Yeah, denominating your debt in foreign currencies is pretty fatal
@@grimaffiliations3671 At least, it makes any volatility a lot more painful.
@@Lawofimprobability I remember when the Greeks and Italians foolishly let go of their sovereign currencies in order to adopt the Euro. Losing their powers as the currency issuer made them quickly lose control of their interest rates
@@grimaffiliations3671 Yup. I consider that to be the end of the "we can't control costs but we can devalue so we are still competitive" policies that kept those countries viable.
This is what crashed Asia, in part, in 1997
Fantastic video. More of this type of macro/geopolitical stuff please
Thanks for explaining the economic situation in Turkey in an understandable way. Hopefully the situation will improve.
Unless erdogan and his party become history, no
Great insight, and a very important topic to adress. Thank you.
Love your content my guy! Keep up the good work..
Great video man, please make a video about the economic situation of Argentina. I've been your subscriber since you were in the 25k follower. Keep it up
Do not torture the poor man
I have been waiting for this one!
I would absolutely really enjoy a video about fractional reserve banking, I really would like to see an educated opinion on it, and I really think it's something that deserves more discussion than it gets
I would love to see an analysis video on Iran. The leaders jn this country don't even believe in economics. We have had like 40% yearly inflation since way back before pandemic lol
This could be a series where he goes through the world countries and discusses their economic profile
Why don't you buy usd stablecoins?
@@johndoe1646 or just buy USD if you want USD?
@@jduff18 “economics explained” has a similar series, done about a dozen episodes now
@@thomasa5619 How would an Iranian do that? They're completely shut-off from the banking system
I found this video very interesting, thank you for your great work :)
the title of the painting behind you should be "a picture says a thousand words"
I like that you do look beyond the scope of the regular topics concerning the US. As being from Germany I can tell you in our history inflation is a word not really liked here. First money printing will not really appear to be a problem (think 1918 - 1921) then it suddenly snaps and there is no holding back (1922-1923). I think Turkey is heading this way.
The tricky part is that there are always several legitimate explanations for certain events, proving a cause and effect relationship in macro economics is difficult.
I've heard the money printer story of Germany before, but I've also heard that it was an intentional inflation meant to screw over the French, who were demanding war reparations from the Great War. Which sounds a bit more plausible to me personally than money printing just getting out of hand over time, with there being a good amount of evidence one could use to argue either side of the case.
Years of quantitative easing does seem to indicate that the inflation story was not as simple as people had assumed. In general I find monetary policy over valued for its effect on the economy, there are always multiple causes for events after all. I look at a country like Argentina or turkie and see those inflation crisis as a result of the people with capital not having faith in their government, rather than problems with the money supply.
just like the US
@@shawnjavery well, the Germans couldn't repay theyr reperations without printing money and at the same time supporting theyr citizens that dint work as french annexed a part of Germany because they could not pay them due to economic problems. And we'll, the system for money printing back then wasn't the best in Germany eighter.
@@xman7695 That is true, strictly speaking, but my point is you can make a lot of different cause and effect narratives out of historical events. The one about the dangers of money printing is one inherently supporting the importance of central banks as key institutions, and also advocates for their independence.
Which i find suspect, because there's also other interpretations of the event, the story of it being done intentionally to screw over the French for reparations I find a lot more realistic, as opposed to people just being irresponsible printing money.
I think it's important because people are generalizing that case to a modern inflation crisis like Turkie. But what people think happened is a matter of interpretation not fact.
Turkey Rusia China are doing deDollarization and next Saudi then Opec then the world and the Dollar will fall 🤣🤣, i think it was all planned, Erdogan already knew it, thats why he want its people to change Dollar with lira even if Lira value going down againts Dollar the government will pay the rest
Thank you for the video 🖤
As the famous economist Notorious BIG famously stated "Mo money, Mo problems". Now we get to hear that tune again from the cover band Notorious RTE.
Its mainly being caused by pandemic related supply side issues
@@grimaffiliations3671 it isn't in Turkey. Their serious problems started in 2018
@@seadkolasinac7220 I was referring to the US
4:49
You got it inverse. Expanding the money supply lowers rates. Lenders, with an artificially inflated pool of loanable funds, compete to lower the cost & burden of borrowing. In the process they don't need as much savings (which are a liability), so they offer less interest on savings.
Thank you Richard. You’re awesome 😎
I am a doctor in turkey and my montly income avarage around 1-1.3k dolars. If i want to buy a normal Toyota i need work and save like 10 years. Thats why doctors and other educated persons leaving turkey. Be wise when you guys choosing your presidents. Wish us luck. Current inflation is around %160
Erdogan is muslim brotherhood's pion, no?
Amateurs! Month over month inflation pace in Iran is 40%
That is not true. 40% is the yearly inflation rate
Don’t worry, the rest of the world will accompany you
By TUIK it has reached over 50% and by independent anaylitics over 120%. Hehe.
Wait, this isnt a good thing. Shit.
@@TheCharlCoal Let's say *%61* For TUIK
@@pashadoge475 yeah.
Thanks for the great content
As another commenter has pointed out, increasing interest rates also has inflationary pressures. 1) increasing interest rates increases the amount the government pays on its bonds, which is an interest income channel to the private sector. 2) increasing interest rates increases the price of forward contracts as risk-free rates are baked in
Bonds are usually sold at fixed rate, so only the new one would be more pricy to pay off, this wouldn't be a problem if economics stabilizes and it will eventually attract investors in the country.
@@MaruskaStarshaya yes it's new bond issues as bonds roll over, but the gov also pays interest on reserves and also through the reverse repo facility which are short term cash rate and respond immediatley to rate hikes
thank you for doing this for your fellow turkish followers
Great breakdown. As people have mentioned real inflation is even higher
This is a fantastic channel. Please help Richard by watching the RUclips ads.
Are you a bot
So close to 500k subscribers. You totally deserved it Richard. Every investor can get something good from your channel. At age 22, your excellent content motivate me to start investing. Keep going!!
Thanks for explaining Turkey. What are your analysis of Egypt, Lebanon and Venezuela
I was sad when Louis Vuitton announced they were raising prices due to inflation. Looks like this’ll be the year to make some cut backs. Darn you inflation!!!
Would you consider doing a sort of blackbox investiguation of Venezuela's inflation? Maybe as one of your History videos? :)
It saddens me that my country is in this situation. Although inflation in the country is very high. There is a very serious opportunism. They sell the products more than they should be. No matter how hard the government tries, these opportunists do not stop. These problems of Turkey are entirely caused by the administration. Although we are a country that experiences 4 seasons, most of the food comes from abroad. And it comes in dollar terms. The higher the dollar rises, the harder the Turkish citizens are. I hope this beautiful country sees good times, respect.
with interest rates so far below inflation, anyone with means can borrow Lira, buy dollars, sell a few dollars later to pay the loan, and keep the rest, and just keep doing this.
Yep glad you said oil . It’s at the heart of the problem.
Brilliant analysis. It's now 54.4 %. What we experienced last 6 months tells me it's going to be around 100% coming summer or autumn months. Producer price index is already 105 % and it'll surely have an effect on consumer price index coming months. Most distressing for people with fixed salary income is that we are losing money in real terms and there is no investment method which can cope or overcome inflation.
It's 54% *officially*
Independent analysts put it over 80%...
Well, you could put all your lira towards buying lira shorts.
@@shouryasanjeev9284 You know they are right when the economists calculating it are landing in a jail cell.
Hi Richard, I love your videos and I am currently writing my dissertation on how social media can influence financial literacy and investor behavior, and I would really appreciate if you could spare 20-30 mins for an interview for this project. Thanks in advance and keep up the good work, Adorján
The new type of account mentioned is designed to protect depreciation against foreign currencies not inflation specifically
I love Turkey! Very balanced assessment.
Do central banks take into account the fact that many expenses are deflationary or prevent inflation from getting worse? Because that is the exact consequence of many austerity measures. I'm not saying indiscriminate low interest rates are good, but I am saying that printing money to keep important services funded is a valid alternative to higher taxes.
You should make a video about the inflation in lebanon but the problem is that is not even inflation but worst
you are very funny :)) but, continue to serve in this way.
Can you do a video on Russian sanctions and the impact? In particular on financial markets / Russian assets.
Hi Richard I have a video idea, that if you can discuss nationalization of Chinese stocks and what it could mean for investors, wether there is history of payout for Chinese stocks, knowing which is key in risk diversion.
I wish you make more videos of other countries with extreme economy, I would like one for Iran for example.
Thank you…
Some say that the leader has his supporter base in real estate developers who would jump the ship when interest rates rise, so he IS in fact acting rationally, just in interest of himself, not the country
Can you do a video on the Fed's decision to pursue an average inflation rate of 2%? I think they're the only ones who are content with 7% inflation for one year rather than 3% inflation for 5 years. It feels like they're sacrificing their mandate to stabilize prices because they couldn't hit their inflationary goals in the past.
Most economists agree that a 2 percent inflation rate is the best especially for a developed country and you can't have inflation too high for a longer period of time since inflationary expectation would set in which will make reducing inflation harder.
You were talking about inflation being about consumer prices, but when talking about Turkey you focused a good bit on currency exchange. With the dollar, even though the US had a lot of inflation, it has not lost any value in comparison to other currencies. Does that mean other currencies lost the same value, or is US inflation only in consumer prices (more-so caused by low supply of goods rather than a weaker currency).
yeah thats stupid. Compare any, especially european currencies to dollar, basically all have lost value.
USD rises with inflation and with uncertainty
The Plain Bagel: "Turkey has a crazy inflation problem"... Lebanon: "'Am I a joke to you??"
Higher Interest rates are necessary to lower bonds prices and asset prices Because it forces the speculators to liquidate their bloated assets.
The relationship between interest rates and inflation is complex. The 'all other things being equal' caveat is key. Raising rates raises costs for business which if they are able will be passed on as higher prices -ie inflation, if there is a loosening of lending standards and/or increased deficits then raing interest rates can actually increase the propensity for inflation whilst giving the impression of fighting it.
Sure, if the interest rates are raised enough to discourage private bank lending and without enough increase in public debt then it will depress aggregate demand and reduce inflation, but only at the cost of growth, ala Paul Volker's actions in the early 80's .
A smaller effect is as rates increase so do bond yields paid to the private sector from the government, so yes Erdogan and the Islamic school has a point about interest rates giving passive income streams largely to the rich.
Monetary policy is ultimately a poor substitute for fiscal policy which can remove inflationary bottlenecks by tackling them directly. Note Jpan has almost no inflation despite massive defictis and zero interest rates, the reason is private debt has remained flat since the early 90's bubble burst.
Sounds like someone understands MMT
@@M0stlyHarmless9 I come mostly from the Georgist school and analysis of people like Michael Hudson who are adjacent to MMT, but I agree with a lot of MMT itself too.
Sometimes imo MMTers seem to over emphasise the inflationary potential of interest rate rises, so are simplistic in the other direction.
Where MMT is 100% correct though is monetary policy is a pretty useless lever, which at best can tweak but evenutally comes up against the fact land/house prices are in an exponential bubble, fed primarily by private debt, and sensitive to rate rises*.
Right now in the US there is a struggle between rising rates, falling fiscal support and still fairly robust growth in private debt mostly mortgages.. Given the global pressures made much worse by the Ukraine situation, I really doubt the Fed will manage more than a couple of hikes this year before a inversion and stock market rout forces a pivot so the effect will be neglible in either direction, the US more than others has enough momentum from good demographics for credit growth to keep the economy out of recession.
Central banks should remain at ZIRP, and fiscal policy should be employed to tackle inflation. But you need to have robust fiscal policy before you can denude central bank monetary policy.
As a Georgist, taxing economic rents is key to that (though I'm open to a Job guarantee I don't see nearly as much potential as taxation), so a land value tax is the biggest reform to that end, many MMTers are sympathetic to LVT often through Hudsons influence, I've spoken to Mosler online and he supports a single tax on property for example.
*As a side note, historically and on average land prices have cycled every 18.6 years in the US and elsewhere (see Hudson's colleague Fred Harrison's work)and given the datas conformity to cycle dynamics it does look as if we're on for another GFC around 2026/7 .
@@schumanhuman i've seen Mosler dicuss the issue. I think he prefers a property tax over LVT because the LVT is broadly pro-development, which may or may not be what you want. Either would be good in my opinion, though.
I think Mosler over-emphasizes the inflationary potential of interest rate hikes more than other MMT economists. He probably does this because the interest income channel is not really recognized as inflationary by mainstream econ. the forward pricing channel is also largely ignored. Bill Mitchell is more moderate on this and always says marginal interest rate adjustments have a mostly indeterminate effect on the general price level
@@M0stlyHarmless9 Yes Mosler has environmental concerns, I think it's different for americans because their houses are so damn big, here in the UK average sizes are about 1/2 of the US. A single tax on property would still be pretty good but really a bigger cause of pollution is urban sprawl not home size, and as far as it is a problem you can tackle that with planning limits, or just insist on higher environmental standards for larger houses, a broad tax on improvments has the problem that carbon neutral houses are more expensive to build, so would incur a higher property tax - the exact opposite of what we would want, though of course there could be exemptions made there too.
I don't read Mitchell's stuff that often as it's often pretty long but I mostly remember agreeing with his recent analysis on Turkey and he does seem more naunced on interest rates vis a vis inflation.
Japan already had low interest rates before the bubble burst and was limited in what it could to offset deflation. This resulted in a deflationary expectation setting in. People don't ask for raises and businesses don't push their prices up.
Japan's government also made some errors with its taxation policies which hampered growth.
Not to disagree with you but you neglected to mention these.
I keep hearing this "Erdogan doesn't understand economics" everywhere and it plain doesn't make sense.
By all means he is an experienced politician. IF it was in his interest to govern the economy well, he would have the right advice and he would apply the right policies. The problem is, at this point, those right policies are not great for him.
Instead, he must be gaining more by driving the economy into the ground. I can come up with 2 theories why:
1- He is a populist but that doesnt provide an economic power base to him. All his cronies with economic influence are in the construction sector. Construction is the number 1 sector that benefits from low real interest rates.
2- Turkish businesses are highly indebted in foreign currency, but the government has a very low debt. When some of these businesses go under as a result of this crisis, his government will be ready to use its balance sheet and save these companies. He can then of course ask anything he wants in return.
Fled human capital working as an economist abroad.
Source : trust me bro
Weren't a lot of Turkish bonds in foreign currency too?
Exactly, can't discuss the economics here without looking into the politics either. I'm biased of course with my experience in IPE.
I would add further by saying that Erdogan is looking to consolidate his base even more and blaming all their current troubles on the greedy West. He's being further bolstered now by the recent Russian activity in the Black Sea. Western governments may look to ease his financial woes in exchange for more focused coordination and intelligence sharing regarding the Black Sea.
@@ejridnsmzkdyeldbalgndlduxi2149 you don't need source to look up and see his cronies got richer after these "horrible" decisions. He hold power for 20 years in a democracy purged his political opponents and survived a coup attempt and used that to consalidate his power furthermore. He is not a fool to be able to do all of this. What's best for the country(him giving up power) is not the best for him, so he won't do it. Every move he does is aimed towards maintaning power, not the well being of his citizens, that's why it is so baffling to see his moves.
I regret not buying usd/try 2 years ago, when i was too lazy to find a good broker who offers the pair 😭
Still, feeling so sorry though for the turkish people. I hope you found a way to hedge for it, high inflation is such an awful, unnecessary man-made thing 😐
People in Turkey like Russia are selling things online in USD and not their native currency. So prices are not actually dropping.
It is incredibly sad to see my country making the headlines like that :( .
So you’re turkish with a french user name talking about tanzania ? How did you come up with that lol
@@TheRedNick12 I loved a girl who is 1/8 Tanzanian from her great grandmother's side but I've failed my french and it sounds like I love a Tanzanian man :D. French is just because I'm learning french and I like it. by the way, there is an African Turk community in the Aegean part of Turkey.
update: I've managed to change my name after 8 months. ı know love a Tanzanian girl instead of a man :D
Assuming money isn't newly printed/minted. How do loans backed by that currency increase a country's money supply? Internationally backed loans?
👏😐
Best wishes to the families of Turkey
As an argentinian who's being following your channel and respects your opinion I would love to hear your take in argentinian economy
Why does that lamp in the bottom left look so familiar?
self-fulfilling expectations will be hard to brake
No worries, the whole world will feel high inflation soon. Throw in some slow economic growth and we have the wonderful stagflation. It feels like the 1970s again but with low interest rates yay!
Remember folks: ”you will own nothing and you’ll be happy”
Price of food already increassed here since we import much of our wheat from ukraine
😃
Would you believe that my father didn't understand me what I was talking about stagflation despite him living through it. The economic lessons of the past are so easily forgotten.
@@Lawofimprobability how could he possibly forget economic hardship???
@@frivolousarguments8578 He was used to the poverty of rural life post-WWII so I my guess is that he didn't recognize the declining wealth of people since both the initial state and the stagflation both looked opulent. His mind also is geared towards political "solutions" for poverty as looking out for the "little guy" despite having been a bureaucrat himself.
He aspires to big-picture solutions but doesn't have the inclination to do detailed analysis of the steps involved so probably considered stagflation a fiscal curiosity to be ignored instead of as disproving a major economic theory of the time.
you know the hit point of this video is 3:07 when he says "there is lot to learn from Turkey's situation" yeah because there is literally no country on earth would do the exact opposite of the economy teaching.
This is one of the primary reasons the founder of Turkiye made the country secular and protected it from religious influence.
Seems like Turkiye is sliding backwards into dangerous territory now.
Please make a video about Sri Lankas economy
8:30 And that's why you cannot just apply one part of a system; you need to implement most, if not all, of the system. If Erdogan truly want to go for the Islamic Finance route, he'll also need to demand loaning fees to increase significantly, and greater prudence in giving out loans, not just decreasing interest rates. That is, of course, one of the many ways that might offset the problem of rising prices in the country. The move he made is incompetent at best, and devious at worst, just prescribing Islamic Finance in name, but doing so for a more nefarious reason.
Islamic is far more complex than it seems. Just removing interest rate on a country that utilises western economics can prove to be harmful especially without any preparation or forethought.
Using medieval books as the inspiration for 21st century finance policy will inevitably lead to disaster. And even more medievalism will certainly not make things better.
@@nikolaykaradzhiev1889 actually read some of the Islamic finance. It has lot of modern economics in it. From stocks and shares to investment and taxation.
What surprising how old it is. 600 ad. Yet it has lots of modern economics,medicine,finance and etc lessons. History says it heavily influenced world economics and medicine.
The people long ago aren’t dumb as we think they are. For example quarantine is old practice to isolate diseases. It’s a really old practice not like 1000ad more like 300 or more or less.
@@patrickiamonfire965 I do not imply that people were dumb at all but the 10th century caliphate economy was based on farming, very basic trade and warfare centered around a royal court. Banking or FIAT currencies did not exist whatsoever.
Interest which is prohibited by Islamic finance is actually essential to stabilize a FIAT currency as it is the lending itself that increases the money supply thus growing inflation, more interest = fewer loans = less inflation.
Islamic banks do not charge interest only on paper, they participate in "profit sharing" with businesses which in the end becomes the same as interest. Banks are just more discouraged to offer bad loans but at the same time they can't support startup enterprises and small businesses nearly as well nor can they lend to private individuals.
@@nikolaykaradzhiev1889 got your point. They’re economy was more than farming. After all they traded with several nations.
Economics is very difficult subject. They’re isn’t a tested method entirely so you have to rely on history. In knowledge so far it’s business shares not profit. They own a portion of the company. However those are modern interpretations. They would legally punish the person who took the loan if they delay the payment if they have the capability to pay or force them to pay. No late fees or profit sharing. There is loan forgiveness though. But that applicable to those who truly cannot pay.
I cannot explain the whole system it’s too complex and I’m still learning myself.
Fascinating overview of the situation in this NATO(NINO) member state.👍
NATO membership isn't relevant to this shit
One thing that I wondered about interest rates and inflation: Shouldn't they be equal in the long run?
When thinking about the time value of money, aka "Do you want 1000 bucks now or in 1 year?", there are two ways to think about it:
1) Due to inflation the value of money will decrease, so I should get it now to be able to buy more stuff with it.
2) I could invest that money, so I would have more money in 1 year.
Both led to the same conclusion: Now is better than in 1 year.
However, especially in Europe with negative interest rates, this no longer applies. Basically storing that money for a year with 0% interest rate is actually better than investing it at a risk-free rate of -0.5%. This feels somehow wrong.
You should do a vid on Argentina
Erdoğan says "Interests are bad" yes I agree with him but also as a turkish citizen I can say "Inflation" is much more worse. Normal people doesn't understand and care about interest rates but everyone talks about the everyday rising prices of goods.
yeah inflation sucks in short term.
Maybe in 5 years or 10 you have recovered, good luck.
What do you not understand? The whole system is false!!! There is no currency! It has no intrinsic value. They are manipulating until Turkey gives in. I understand this as an American.
Hi, how are the dollar reserves used to stabilise the currency ??
The country used its US dollars to buy Turkish Liras, basically adding extra demand for the currency and helping to strengthen its exchange rate. However, the government only has a finite pile of US dollars on hand, so this is not a sustainable strategy for supporting the currency's exchange rate
Can you please make video to explain fixed and floating exchange rates .? Bahamas has fixed exchange rate 1:1 with usd. Why other countries don’t do that .? What are advantages and disadvantages.?
Ok, so, in a nutshell, the advantage is that your currency(and perceived stability) is bolstered by the peg(so it is very unlikely that the currency used by the Bahamas will go out of 1:1 unless they do something phenomenally stupid), but it limits your ability to engage in monetary and fiscal policy as, for example, if the US is raising rates, that will effect the Bahamas even if they don't like it, and if the Bahamas are having a recession, it makes it very hard to increase lending, borrowing, or effect interest rates unless the US is onboard.
Fixed interest rates put your country in danger, floating exchange rates give your country the monetary flexibility to avoid crisis
is this inflation compared to USD or inflation of goods and services inside the country?
Most Turkish figures are actually higher then what the government says. You literally have to live there to see it. Unemployment rate probably near 40%. As far as printing money, probably top 3 for their economy. It looks like itll turn into something like the russian rubble sooner than later unless major changes occur. Corruption is huge. To change Turkey itll take 15-20 years under good circumstances
“Increasing interest rates makes the rich richer and the poor poorer” *proceeds to bankrupt the poor*
Private borrowing in foreign currency, its the 1997 Asian Financial Crisis, except it wasn't caused by hot money.
All discussions of "inflation" need to define whether the subject is Monetary Inflation (defined as raising the ratio of the total amount of money in circulation to the amount of goods and services available [aka GDP]), or whether the subject is Price Inflation, defined as increasing price levels. Failure to do so insures confusion, misunderstanding and ignorance.
This sounds awfully familiar watching from Argentina
How do you cope with high inflation in Argentina? I mean, what every-day strategies (steps) you take in order to protect yourself from high inflation?
Hey man Im currently living in Turkey and during last three months gas prices tripled in here
Could you please tell us how people cope with this situation. Do people get higher salaries each month as prices go up? How about companies - is there a problem of bankruptcy?
@@darroz3146 they just made %30 raise minimum wage and this is second time they did a raise this year. Companies go well expecially the exporters but working class got ripped.
@@ogunozkan9838 Thank you. I just can't imagine prices going up so much so fast. Inflation is around 80% in Turkey, some ppl say that over 100%. this pay rise doesnt Compensate inflation, does it?
So they just increased mininum salary %30. Actually company owners and mostly expoters are happy because they now sell easier to overseas. They work 24 hours to even in holidays like China. However most of the please which are between %60 and %80 of the population can not even fullfill their vital needs. Actually everybody now waits for the elections which held in 11 months.
@@ogunozkan9838 What are Erdogan's chances to win elections? I've noticed that house prices have soared 100% lately in Turkey and I was just wandering how young people manage to buy a house or an apartment. Is there a national social assistance (cash benefits) for young people to buy it?
Isn't the Turkish interest rate still really high by global standards? Like 14% while a lot of the west had below 1%. I get each economy is different but seems strange that Turkey has such high inflation- is the government just printing a lot of money?
Erdogan later realized it was not a good idea to decrease the interest rates. So his government introduced “compensation”, which means the interest rates stay low but the government pays you more to compensate from the losses caused by inflation. So he practically increased the interest rates for the lenders, but it doesn’t sound like a sustainable solution.
When your president brings religion into finance what can you expect 😂
Shut up
@@samsonsoturian6013 he's telling the truth.
@@sitaroutreachministry6289 shut up
This has nothing to do with that u islamophobic idiot.
The religious finance theory isn't that bad.
If you're doing it wrong though every way to do finance leads to problems... One will just spend money because they're speculating that the central bank will lower rates/does quantitative easing and let the other countries safe you from going bust (cough EU) while others just let their central bank lower interest rates while fucking up at politics and stuff.
Every action has consequences.
If Erdogan would fully go through with Islamic finance, their situation might have been different as borrowing cost would still increase, just not through interest rates.
I hoped you would make it a Five minute history lesson
Why does every banker in the history of the world have that same green lamp?
Turkish Real Estate and Stocks are pretty cheap right now for holders of foreign currency. 🥳
Raising interest rates would be terrible considering the inflation is in specific areas and isnt being caused by general overheating. It would actually worsen inflation. For example, inflation in the housing market is one of the biggest causes of current inflation, and increasing supply would really help ease that. But the construction industry is one of the most sensitive industries to rate hikes. So raise rates and you can forget about increasing supply
what do you mean 'raising supply' lol, they are *constantly* building and have been doing so for years. If anything there's too much supply / overproduction in housing. Outside of the centres of the big cities, there's tons of new apartment blocks that sit half empty and have extremely low rents. You can visit these places and see that.
There is already abundant supply. It isn't making the situation better.
@@seadkolasinac7220 not talking about turkey
7:23 spending & investment doesn't increase the amount of demanded goods & services in the economy. It doesn't increase productive capacity at all.
*What* we spend on is what matters. Cheap credit is inherently inefficient for efficiently allocating resources.
What the hell is happening with me? 🤨
Greece approves of this message!
Couldn't happen to a more devout muslim.
Do video about ruble.
So Turkey has increase interest rates by 30% or something like that ever since last year. Since then inflation has became a lot worse. Interest rate as a tool to control inflation is a lie. Inflation is caused by the quantity of credit creation & also whether demand of goods & services meets supply or not.
How can I short Turkish Lira?
Yep. I am
@@samsonsoturian6013 You are the Turkish Lira?
Have someone loan you a sum denoted in lira. (And then use those liras to buy dollars fi)
time to go on vacation in turkey!
Why don't they just short their own currency???
Did infer Turkey as being part of Middle East @ 3:01
The lessons is simple .
Be your own independent state .
Own 5% in gold of your total assets and you will be protected from government stupidity .
"Interest rates make the rich richer, so let's make everyone poor by destroying their savings and the value of their salary"
interestingly, low interest rates have increased inequality, because the rich keep most of their wealth in assets. Also the wealthy can afford to borrow to speculate, which tends to make them richer.
Well the turkish government and erdogan is against interest rates and are cutting them, thats part of why the value of the money is going down.