Turkey is finding itself stuck between a rock and a hard place as investors flee, desperately trying to get their funds out of the country before the bottom falls out of the market.
Yesterday, the Lira suffered a monumental loss, dropping by the most we have seen in over a decade. This comes on the back of already significant losses, as momentum gains and the fiat currency takes hit after hit, seemingly unable to recover.
We have seen this before, and we will see it again, time after time, as long as countries continue to put their faith in fiat currencies, currencies that at the end of the day are intrinsically worth nothing.
Investors are waking up to this realization, at least in regards to the Lira, as they become increasingly skittish about Turkey's Central Bank and their unwillingness to act on this crisis. Unlike in the United States, the Central Bank of Turkey does not have the ability to freely print fiat currency out of thin air and not suffer massive repercussions, a privilege that the United States abuses on a regular basis, due to their reserve currency of the world status.
Compounding their troubles, or at least for the ruling party, an election looms just over the horizon, and one that the current President Erodgan hopes of winning.
Sadly for him, the timing of this meltdown couldn't of come at a worse time, as elections are set to take place on June 24th. Fortunately, for Western officials, the timing of this couldn't of been better, as hostilities between President Erodgan and Western leaders have been mounting for years, with many labeling him as a "dictator", or a "tyrant".
Regardless of your position on this, the timing of this meltdown is indeed questionable, as it now puts his reelection in doubt.
As stated in the opening of this article, Turkey is indeed stuck between a rock and a hard place, as their growing debt levels are beginning to cripple their economy, due to their weakening fiat currency.
Debt repayments for Turkish corporations continue to grow as their currency continues to decline. Over the next few months, they will need to pay roughly $600 million Lira more for foreign currency notes maturing due to this drop in the Lira.
As you can imagine, this will cause even more investors to flee the Turkish market and the sucking sound of funds leaving the market will continue to magnify, creating a self-fulling prophecy and ultimately an outright currency crash, such as that recently seen in Argentina, unless something can be done and done fast.
Undoubtedly, this ongoing crash played a huge contributing factor in Turkey's recent decision to repatriate of their gold reserves, as they scramble to shore up their defenses and get any form of real, hard money that they can get their hands on.
Unfortunately, we have watched this scenario play out time and time again, and will watch it many more times before the world finally comes to its senses and makes the only logical move that can be made to stop this madness, a return to a hardback form of money, a return to gold.
- Source, As First Seen on the Sprott Money Blog