Today is Wednesday, and there is a short blog post that includes the latest news from Turkey and some music. In recent weeks, due to events in Turkey, mainstream arguments against Modern Monetary Theory (MMT) have increased significantly, and until yesterday, the Turkish currency had depreciated significantly. Bankers and others (of course! They profit or protect foreign debt risks) are deafening at the screams of interest rate hikes. But the most recent monetary policy decision was on December 16, 2021, when CBRT reduced its policy interest rate (one-week repo auction rate) from 15% to 14%. The “market” cannot really understand the current government’s thinking because it runs counter to the mainstream in several ways, including lowering interest rates to reduce inflationary pressures (see Interest rate press release – From CBRT). After the government announced an important fiscal policy, huge changes took place overnight. Since the lira has appreciated by about 25% in a day, this will further confuse the market that has been forced to liquidate its positions hastily. The fiscal austerity has worked. You can’t make up these things.
The Turkish lira appreciates sharply
I wrote an article on the situation in Turkey on Monday – Turkey knows nothing about MMT-but MMT tells us a lot about why Turkey is in trouble (December 20, 2021).
It is foreseeable that the heroes on Twitter have come forward to reiterate their assertion that this situation proves that Modern Monetary Theory (MMT) is unstable.
They did not fully address the analysis I provided. This is too inconvenient for their storyline.
A person’s claim that I implied that the IMF’s intervention in the first decade of this century was part of the story is far-fetched and a typical “leftist” delusion.
How did he come to this conclusion?
So the last formal IMF plan (standby arrangement) ended in May 2008, so how can I say that the IMF will be implicated in 2021?
Simple.
The International Monetary Fund intervened in a stand-by arrangement on February 4, 2002 (ending February 3, 2005). Subsequently, a new arrangement was made on May 11, 2005, and it ended on May 10, 2008.
As explained in the blog post I quoted above, these plans forced a series of structural changes in the Turkish economy that continue to this day.
They formulated an export-oriented growth strategy (Erdogan still agrees).
The deregulation of financial markets and the privatization of many state-owned enterprises, including banks, occurred during these arrangements.
Due to deregulation and reduced supervision, reliance on large amounts of foreign currency-denominated debt has accelerated.
In those periods, the artificially high interest rate system managed by the central bank to support banks became the norm and continued to exist.
Sure enough, as Erdogan approaches the next election and begins to challenge mainstream macroeconomic policies, the policy stance is changing.
But the major changes that took place during these IMF plans have prepared Turkey for the problems it faces now.
This is undeniable.
Therefore, to disregard these observations as “leftist” delusions only to show that the commentator is indeed ignorant, despite the frequent tweets about profit margins, foreign exchange rates and all other financial market topics. language.
In any case, since I wrote that blog post, the Turkish government announced a major new fiscal move.
Among other things, the President announced that the Ministry of Finance (Fiscal Policy) will make up for any losses incurred by citizens in bank deposits denominated in lira due to exchange rate changes.
How will this work?
Assume that the bank pays 14% for a 12-month lira deposit. If the currency depreciates by 15%, then the Ministry of Finance will pay the difference.
This means that people who currently hold U.S. dollars can transfer their funds to the lira and guarantee that there is no exchange rate risk.
According to my final estimate, about half of bank deposits in Turkey are denominated in foreign currencies (US dollars, euros, etc.).
So in essence, the government is taking exchange rate risk, which is a major intervention.
Within a day, this is what happened in the foreign exchange market.
Today, the lira is back to the level of early December.
It depreciated by 35% between December 1, 2021 and December 21, 2021, but on December 22, 2021, it appreciated by 25.4% in 24 hours.
The Central Bank (CBRT) did not raise interest rates. The most recent monetary policy decision was on December 16, 2021, when the CBRT lowered its policy rate (one-week repo auction rate) from 15% to 14%.
This shift was triggered by the fiscal policy announcement.
Financial market commentary today is flooded with investment bankers who still claim that interest rates must rise.
Of course they would say this-if interest rates rise, the institutions they represent will make greater profits, and they also want to protect foreign debt risks.
Interestingly, this announcement interrupted speculators who shorted the currency.
Today’s trading volume shows that many losing positions are quickly closing (to limit losses) due to the reversal of the lira.
This is an interesting story.
MMTed MOOC-Modern Monetary Theory: Economics in the 21st Century
Earlier this year, we ran the MOOC and approximately 3,600 participants registered.
We can now offer the course again in early 2022 to everyone who asks me to have the opportunity to complete the program.
so, MMTed – You are invited to sign up for edX MOOC – Modern Monetary Theory: Economics in the 21st Century.
It is free and the 4-week course starts on February 9, 2022.
The course is offered through the edX program of Newcastle University.
Learn about MMT correctly through a lot of videos, discussions, etc.
for – More details.
Keep calm music
I like this song – Apostle – taken from the second solo album —— in the sky -After he quit Fleetwood Mac.
This album marks the return after a long period (8 years) of dealing with mental health issues.
It was released in May 1979 and has some very beautiful guitar performances on it.
Apostle was released as a single as early as June 1978 (supported by B-side’s Tribal Dance).
I heard it for the first time when I bought an album. The version in the album was re-recorded, and the original version was discontinued shortly after its release.
In this album, Peter Green was supported by another great guitarist Snowy White, who played rhythm guitar on this song (Track 9 in the album).
Apostle was created by Peter Green, as are all the tracks on the album (some of which have some collaborations).
The remastered version was released in 2005, and I believe it was released on the basis of the original single version. That version must be very beautiful.
Martin Celmins’ Peter Green biography (Castle book, 1995) is a must-read for Peter Green fans-it is a sympathy and detailed description of a troubled genius.
Peter Green is my favorite guitarist (and Jimi Hendrix).
Enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
