US Federal Reserve Policy and the Turkish Lira

https://www.al-monitor.com/originals/2021/12/turkish-central-bank-intervenes-curb-unhealthy-lira-losses 

https://www.aljazeera.com/economy/2021/12/3/lira-crash-slams-turkeys-factories-farmers-and-retailers

The value of the Turkish Lira has plunged and given the country's debt burden, Turkey is facing rapid inflation. President Erdogan has attempted radical measures but some economists believe the sweeping moves have been reckless and have only exacerbated the problem.

It's interesting in some respects as the artificially low interest rates are being tied to the devaluation of the Lira. The same warnings have been issued to the architects of the US economy and indeed the Federal Reserve has signalled that changes need to be made. The US economic boom is selective and artificial, benefitting the investment class as the Federal Reserve continues to pump money into the system through bond and mortgage-backed security purchases and other means – effectively a scenario in which the US economy is being propped up by the Federal Reserve and market optimism is being artificially driven by soaring stock values and the seeming guarantee of endless money and returns. With interest rates at near zero, money is moving (a major goal to counter the post-2008 capital/credit freeze) but the Federal Reserve's governing board has in some respects tied its own hands in the face of crisis – a reality that has already hit Turkey.

There's no doubt that the acute inflation of the moment has been driven by the Covid crisis and the damage it has caused to shipping and transport-related logistics. But inflation antedated Covid even if the numbers were fudged or obscured. The present economic stresses reveal more fundamental problems – problems that have also reared their head in the case of Turkey and its economy. And yet the Turkish economy and its planners do not wield the same kind of flexibility and power that is available to Washington and Wall Street.

Western coverage has remained scornful of Erdogan's claims that the economic crisis has been manufactured by the West – the same forces that sought to oust him in the failed 2016 coup attempt.

It's interesting reading the coverage because the arguments utilised to discredit Erdogan's economic policies (and thus blame him for Turkey's plight) could just as easily be directed against the US Federal Reserve and the policies of presidents from Obama to Trump, and Biden. 

A case in fact can be made for Turkish economic woes being partly rooted in a campaign led by the United States. And yet the architects and implementers of such policies wouldn't have dreamed that Erdogan would play into their hands – cutting interest rates, introducing tariffs against US goods and commodities, and exacerbating the problem.

Through sanctions and other punitive economic measures the US has sought to harm the Turkish economy and the Lira has been in a state of crisis since 2018. Turkey's Sovereign Debt is largely in dollars and the weakened Lira has basically increased the value and the burden of that debt. The only solution was to keep the economy growing but Covid among other things has put a damper on that. Some economic sectors have recently roared back, but with the currency crisis, the gains are short-lived and hollow at best – and will not improve the plight of the working class.

The Trump administration used Andrew Brunson as a symbol, a wedge to increase the pressure on the Turkish economy. Turkey's purchase of Russian S-400 missile systems has also provided an opportunity to for Washington to boycott or curtail trade with the NATO-member nation and put pressure on allies to do the same. A weakened Turkey will lead to the ouster of Erdogan who is hated by Washington. Turkey will either be neutralised and thus of little value to Russia and China in terms of Mediterranean, Balkan, and Middle Eastern geopolitics, or a new government will be installed and Ankara will move solidly back into the Washington-NATO camp. That's the plan – neutralise Erdogan with a hope of removing him. The US-backed 2016 coup failed. This is now effectively plan B.

Others have suggested that a key reason behind Washington's war on Turkey is because Erdogan has attacked the Petrodollar system and has suggested gold as a replacement. In 2018 Turkey also issued its first Yuan-based bonds, a signal to Washington every bit as stark as the S-400 purchase. As historians have noted, any leader who attacks the Petrodollar order is marked for destruction by Washington and one way or another is brought down. Men like Hugo Chavez and Saddam Hussein immediately come to mind.

Again, I do not doubt the US is doing all it can to make the Turkish economy scream. Washington intellectuals openly speak of removing Erdogan and the economic crisis is likely to place him in a difficult place in the upcoming 2023 election. And yet Erdogan is not helping his own cause. His insistence upon low interest rates (directed at his middle and working class base) does not work in an inflationary environment. Inflation persists and the currency is devalued.

Covid may or may not wind down in 2022, but regardless, the economic effects will continue for years to come and there are always those who look for ways to exploit and capitalise upon such crises.