Economies are funny things. I just noticed that I forgot to tie today’s video into one of the central messages of this “Markets Are Dumb” series. That’s the importance of Confidence to markets. I sometimes think that’s all there is to them. In our last installment on the Turkish economy I talked about how the fundamentals of the Turkish economy had been disastrous for half a decade. Everybody knew this. All the experts agreed. Yet the Turkish economy kept trucking along, and sometimes putting up very impressive growth numbers. How did it happen? Confidence.
The Turkish people weren’t exposed to the basic facts of their economy, and their misplaced faith, or confidence, kept the wheels spinning. The growth this led to prompted international investors to keep pouring money it. It seems that this perpetual motion machine may finally have stopped. As today’s video makes clear, Trump can’t be held responsible for any of the disastrous choices that Turkish policy makers have made over the past decade. But he is the guy who finally punctured that last bubble of confidence. And that’s actually pretty important.
Video Transcript after the jump…
Hey there. So did Donald Trump kill the Turkish economy?. The first answer is no, no he absolutely didn’t, Turkey’s economic problems are the responsibility of the Turkish government, full stop. But in a small way, Donald Trump may have helped push Turkey over the edge. Let’s talk about what happened.
For the past two years, Andrew Brunson, a Christian evangelical pastor and US citizen, has been detained in Turkey. He is accused of somehow participating in the failed July 2016 coup against the Turkish government. I suppose it’s just possible that he was involved in some way, but it strikes me as really unlikely. Two years later the Turks have failed to make their case against Brunson, and the United States has lost its patience. To make matters worse, Erdogan made it clear in a speech last September that Brunson is being held as a hostage for the extradition of somebody they want. Fetullah Gulen, a cleric living in Pennsylvania, is the alleged mastermind of the 2016 coup attempt. Last September, Erdogan explicitly stated that he wanted to do a swap. This was really really dumb.
Erdogan’s statement took Turkey, a US ally with some very serious and legitimate grievances to be addressed, and reduced it to the level of a hostage taking criminal state. Erdogan does this sort of thing over and over again. The Turks are absolutely right to be angry about the US relationship with the PKK in Syria, the lack of support for Turkey’s legitimate government during 2016’s coup, and a bunch of other issues as well. But instead of making this case in a rational way, Erdogan seems to be auditioning for the role of this decade’s Saddam Hussein. If Captain Ottoman Slap over here wasn’t such a blowhard, Gulen probably would have been extradited to Turkey already.
People tend to underestimate this Brunson Issue. It can’t really be about one Christian missionary could it? Actually it could. Trump loves strong men like Erdogan, and at the outset of his administration he was largely seen as more open to working with Turkey than Obama was. But Trump is now dealing with constant news about his habit of paying for sex with women he’s not married to. He really needs to do something for the Christian Fundamentalists that support him, and Brunson fits the bill. This year has seen some intense negotiating between the Turkish and US governments, but in early August they broke down. On August 10th Donald Trump used his twitter feed to announce that he was doubling tariffs on Turkish Steel and Aluminum exports to the United States. The turkish economy then went into free fall. The currency immediately lost lost 8% of its value and the Turkish stock market suffered as well.
This was a real hit for the Turkish economy. But I think there’s been a real problem with the way this has been reported. It’s actually playing directly into Erdogan’s hands. The headlines have been all about Trump’s actions. Sure, around paragraph three, they’ll get to the underlying problems with the Turkish economy, but that’s not what the headlines say, and that’s not what Erdogan’s been saying either. Trump may have tipped things over, but as I stated in my video on the topic last June, the Turkish economy has been on life support for a long time now.
Bouyed up by Foreign investors and the balooning debt of its own people Turkey’s Zombie economy has managed to limp on for like five years now, but that’s all now ending. Trump’s tweet did bring about an 8% fall in the price of the Lira, but it had already fallen 38% this year before August 10th. And Trump’s tweet really isn’t even the worst thing that has been done to Turkey’s economy since my last video in June.
It varies from country to country, but the 2nd most important person in most of the world’s governments is the official that oversees the economy. In well-run economies this is the head of an independent central bank, like Jerome H. Powell, the Chair of the US Federal Reserve. Turkey doesn’t really have an independent central bank anymore. I mean it exists, but it isn’t really independent. Under Turkey’s new Constitution an all-powerful minister of finance and treasury has been created. On July 9th Erdogan announced that he is giving this position to his son-in-law Berat Albayrak. This is a disaster.
The appointment instantly prompted comparisons to Jared Kushner, Donald Trump’s constantly failing son-in-law. Now it’s deeply embarrassing that Kushner has any role in government at all, but it’s important to note that he doesn’t really do much, and he doesn’t have much real power. This Albayrak thing is far, far worse. It would be like Trump appointing Kushner as the head of the Treasury Department And the Chair of the Federal Reserve.
It’s worth noting that so far, Albayrak hasn’t been a disaster. He seems to have a much better understanding of what’s necessary than Erdogan does. He’s managed to stabilize things a bit in recent weeks. Also we are all hoping that he will be able to do a better job of standing up to his father-in-law than anybody else has. But this is a really sad thing to be hoping for. A country’s government and economy should not be run by an extended family. That’s not democracy. Heck it’s not even a well-run dictatorship. That’s just Monarchy. Things will get much worse for Turkey before they get better. And it’s the Turkish government that’s to blame, not Donald Trump.
Thanks for watching, please subscribe, and if you want a free essay on a completely different topic, you can sign up for my e-mail list here.