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Thread: Turkish Central Bank raises benchmark rate from 7.75% to 12%

  1. #1

    Turkish Central Bank raises benchmark rate from 7.75% to 12%

    http://www.zerohedge.com/news/2014-0...y-expectations

    Anyone here think it's a coincidence that emerging markets (2nd world economies) are all getting BLASTED since the taper? All over the world 2nd world nations have been getting HAMMERED from the words "10bn $/yr reduction" were outered out of the mouthes of Fed officials.

    Turkey just made the right decision, long term. Some others will choose the PRINT option and will get whacked even harder then the ones choosing to raise rates.
    Last edited by jct74; 01-28-2014 at 04:58 PM. Reason: title
    "Like an army falling, one by one by one" - Linkin Park



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  3. #2
    Sorry the title is off...I thought it was 4.25% to 12%.

    7.75% to 12% for a 4.25% hike.

    Still a very big policy change!
    "Like an army falling, one by one by one" - Linkin Park

  4. #3
    Thanks for the title change!
    "Like an army falling, one by one by one" - Linkin Park

  5. #4
    Quote Originally Posted by Seraphim View Post
    ...
    7.75% to 12% for a 4.25% hike.
    ...
    [nitpick]It's a hike of 4.25%. That represents a 54.83% increase.[/nitpick]

    Yeah, that's a huge move.
    I compiled a "brief" history of events since October 2008 that are defining the global currency war and the role that gold is playing:

    Tin Foil Hats, Economic Reality and the Total Perspective Vortex

    Also, have you contacted your Congressional Rep and asked them co-sponsor Ron Paul's Rep. Paul Broun Jr.'s HR 1098 77: Free Competition in Currencies Act?

  6. #5
    This is one of the things Peter Schiff has been talking about. As countries try to "keep up" with US currency devaluation they will get hit with high price inflation and have to bail out and raise rates. This will put downward pressure on the dollar. The US can "win" the printing race because we have the world's reserve currency and will feel the effects (price increases) last.

  7. #6
    Quote Originally Posted by Madison320 View Post
    This is one of the things Peter Schiff has been talking about. As countries try to "keep up" with US currency devaluation they will get hit with high price inflation and have to bail out and raise rates. This will put downward pressure on the dollar. The US can "win" the printing race because we have the world's reserve currency and will feel the effects (price increases) last.
    So when we finally crash, we will be surrounded by a world that hates us. I mean more than they already do.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  8. #7
    Quote Originally Posted by Acala View Post
    So when we finally crash, we will be surrounded by a world that hates us. I mean more than they already do.
    *shrug* So we'll just have to chant "USA! USA! USA!" a little louder, wave our little made-in-China American-flags-on-sticks a little harder, and have some politicans tell us how gosh-darn wonderful & "exceptional" we are, and it will all be okay ...


    Frédéric Bastiat (1801-1850)

    • "When law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law." - The Law (p. 54)
    • "Government is that great fiction, through which everybody endeavors to live at the expense of everybody else." - Government (p. 99)
    • "[W]ar is always begun in the interest of the few, and at the expense of the many."
      - Economic Sophisms - Second Series (p. 312)
    • "There are two principles that can never be reconciled - Liberty and Constraint."
      - Harmonies of Political Economy - Book One (p. 447)

    · tu ne cede malis sed contra audentior ito ·
    MOFA (Make Orwell Fiction Again)

  9. #8
    A difficult spot for them. They are doing it to attract more money and to prevent further devaluation of their currency but raising rates will make it even harder for business and individuals to borrow in their very much still struggling economy.

    Their current inflation rate is running about 7.5% http://www.inflation.eu/inflation-ra...on-turkey.aspx



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  11. #9
    Quote Originally Posted by Zippyjuan View Post
    A difficult spot for them. They are doing it to attract more money and to prevent further devaluation of their currency but raising rates will make it even harder for business and individuals to borrow in their very much still struggling economy.

    Their current inflation rate is running about 7.5% http://www.inflation.eu/inflation-ra...on-turkey.aspx
    Which is why the market should set interest rates not the government.

  12. #10
    Bob Murphy on this subject:

    Is Turkey Benefiting from an Attack of the (Visible) Bond Vigilantes?
    http://consultingbyrpm.com/blog/2014...igilantes.html

    (28 January 2014)

    In addition to claiming that the bond vigilants are invisible (i.e. nonexistent), Paul Krugman has also argued that even if investors around the world suddenly lost confidence in Treasury bonds (because of fears over Uncle Sam’s profligacy), it would actually be good for the economy. For Krugman’s argument to apply, a country needs to (a) have excess capacity, (b) have its own currency, and (c) have debts largely denominated in that currency. These conditions apply to the US and Japan, which is why Krugman quite clearly said that these two economies would benefit if investors suddenly lost confidence in their bonds.

    In this context, what are we to say of the situation in Turkey, where the central bank just jacked up interest rates quite sharply to stem the depreciation of its currency? Well, it issues its own currency (the Turkish lira), and its unemployment rate hit 9.9% in December 2013, slightly higher than the annual average rate (according to IMF) of 9.8% in 2011. (It had fallen in 2012.) Meanwhile, just eyeballing the chart from this forex website, the lira fell against the USD by easily 10 percent over that period (it depends when you start), not counting the rapid plunge this month.

    Does the Turkish government / central bank have a lot of foreign-denominated liabilities? I have no idea. But at the very least, it looks like we now have to add Turkey to the list of countries (such as Greece) where Krugman et al. will need to explain why, “It can’t happen here.”

    In case anyone is curious, here is a screenshot of Turkish consumer price inflation rates and unemployment rates, from 2001 to 2012, from the IMF:



    What does the above data mean? Who knows? I can definitely tell you an Austrian story where the above data are just what we’d expect to see, and Krugman can definitely tell you a Keynesian story that does the same thing.

    Krugman on Turkey
    http://consultingbyrpm.com/blog/2014...on-turkey.html

    (30 January 2014)

    As faithful readers know, I was wondering how Krugman would deal with the fact that the Turkish central bank felt compelled to sharply raise its interest rates across the curve, in order to fend off an attack from the Visible Currency Vigilantes. (I am now clarifying that this is a more accurate description than “Bond Vigilantes” in the case of Turkey.) Well now we know:

    “OK, did we need this? Turkey? Who was paying attention to Turkey?”

    Yes, he’s being “funny,” but he really is admitting that the gurus didn’t see this coming, and that he himself needs to do more research before saying anything substantive.

    However, lacking detailed information, Krugman is confident enough to offer this general reaction:

    If you take secular stagnation seriously, as you should, then we have a chronic problem of too much saving chasing too few good investment opportunities, which means that you only feel prosperous when money thinks it has found more good places to go than it really has — and soon enough figures that out, with nasty effects.

    So, it’s just as I said in my post: Austrians (and other small-government people) will say this just shows the dangerous game the world’s governments have been playing, while Krugman can blame it on too much saving.


    Frédéric Bastiat (1801-1850)

    • "When law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law." - The Law (p. 54)
    • "Government is that great fiction, through which everybody endeavors to live at the expense of everybody else." - Government (p. 99)
    • "[W]ar is always begun in the interest of the few, and at the expense of the many."
      - Economic Sophisms - Second Series (p. 312)
    • "There are two principles that can never be reconciled - Liberty and Constraint."
      - Harmonies of Political Economy - Book One (p. 447)

    · tu ne cede malis sed contra audentior ito ·
    MOFA (Make Orwell Fiction Again)

  13. #11
    "So, it’s just as I said in my post: Austrians (and other small-government people) will say this just shows the dangerous game the world’s governments have been playing, while Krugman can blame it on too much saving."

    Krugman is either selling snake oil or truly an idiot.

    Savings rates in the West have not been this low...ever....When you include debt saturation on top of that - it drops functional saving rates NEGATIVE.

    Reality is the OPPOSITE of what Krugman is saying it is...good grief...

    Quote Originally Posted by Occam's Banana View Post
    Bob Murphy on this subject:

    Is Turkey Benefiting from an Attack of the (Visible) Bond Vigilantes?
    http://consultingbyrpm.com/blog/2014...igilantes.html

    (28 January 2014)

    In addition to claiming that the bond vigilants are invisible (i.e. nonexistent), Paul Krugman has also argued that even if investors around the world suddenly lost confidence in Treasury bonds (because of fears over Uncle Sam’s profligacy), it would actually be good for the economy. For Krugman’s argument to apply, a country needs to (a) have excess capacity, (b) have its own currency, and (c) have debts largely denominated in that currency. These conditions apply to the US and Japan, which is why Krugman quite clearly said that these two economies would benefit if investors suddenly lost confidence in their bonds.

    In this context, what are we to say of the situation in Turkey, where the central bank just jacked up interest rates quite sharply to stem the depreciation of its currency? Well, it issues its own currency (the Turkish lira), and its unemployment rate hit 9.9% in December 2013, slightly higher than the annual average rate (according to IMF) of 9.8% in 2011. (It had fallen in 2012.) Meanwhile, just eyeballing the chart from this forex website, the lira fell against the USD by easily 10 percent over that period (it depends when you start), not counting the rapid plunge this month.

    Does the Turkish government / central bank have a lot of foreign-denominated liabilities? I have no idea. But at the very least, it looks like we now have to add Turkey to the list of countries (such as Greece) where Krugman et al. will need to explain why, “It can’t happen here.”

    In case anyone is curious, here is a screenshot of Turkish consumer price inflation rates and unemployment rates, from 2001 to 2012, from the IMF:



    What does the above data mean? Who knows? I can definitely tell you an Austrian story where the above data are just what we’d expect to see, and Krugman can definitely tell you a Keynesian story that does the same thing.

    Krugman on Turkey
    http://consultingbyrpm.com/blog/2014...on-turkey.html

    (30 January 2014)

    As faithful readers know, I was wondering how Krugman would deal with the fact that the Turkish central bank felt compelled to sharply raise its interest rates across the curve, in order to fend off an attack from the Visible Currency Vigilantes. (I am now clarifying that this is a more accurate description than “Bond Vigilantes” in the case of Turkey.) Well now we know:

    “OK, did we need this? Turkey? Who was paying attention to Turkey?”

    Yes, he’s being “funny,” but he really is admitting that the gurus didn’t see this coming, and that he himself needs to do more research before saying anything substantive.

    However, lacking detailed information, Krugman is confident enough to offer this general reaction:

    If you take secular stagnation seriously, as you should, then we have a chronic problem of too much saving chasing too few good investment opportunities, which means that you only feel prosperous when money thinks it has found more good places to go than it really has — and soon enough figures that out, with nasty effects.

    So, it’s just as I said in my post: Austrians (and other small-government people) will say this just shows the dangerous game the world’s governments have been playing, while Krugman can blame it on too much saving.
    "Like an army falling, one by one by one" - Linkin Park



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