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The Emerging Market Contagion Threat

How Turkey & the other EM countries can crash the world
Friday, August 17, 2018, 7:11 PM
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Executive Summary

  • The dangers of contagion from Turkey
  • Which other countries pose an even bigger threat?
  • How I'm accelerating my personal preparations
  • Why the next crisis will happen swiftly when it arrives 

If you have not yet read We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History, available free to all readers, please click here to read it first.

It's Time To Talk Turkey

“Talking turkey” is an idiom which means to talk serious business or to talk frankly.  So let’s talk Turkey. 

Turkey, the country, is currently in a major currency crisis and heading towards a sovereign debt crisis.  

Its self-inflicted wounds include piling on massive new debts and making a big bet that the US dollar would continue to weaken, which it did not.

The huge predicament facing Turkey is that many of its debts are denominated in dollars and euros. So as the Turkish lira fell, those debts became more and more expensive for their holders to service. Just this year alone, the Turkish lira has fallen by nearly 40%(!) against the dollar.

Imagine that you're a Turk with a mortgage denominated in US dollars. Suppose it was for $200,000 and your payment in local currency was 5,625 lira ($1,500) for the month at the beginning of the year.  Today, your payment would be 9,090 lira (still $1,500) to account for the dollar translation.

Ouch!

That’s happening to businesses and consumers alike across Turkey.  To help ease the pain, the authorities are busy allowing inflation to run rampant which gives people more lira to work with. But that’s a two-edged sword that also causes the value of the lira to continue to fall against external currencies.  So it buys a bit of time, perhaps, at the risk of a full blown currency collapse that leads to a major sovereign debt crisis.

The effects are already rippling through the European banking system. We see that clearly here in...

 

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