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Qualitatively, this looks like a classic emerging-markets crisis: Foreign funds came flooding in, there was a sharp rise in private-sector foreign-currency-denominated debt, and then foreign money turned on its heel and fled.
Quantitatively, it shouldn’t be that bad: Turkish external debt is only 40 percent of gross domestic product (or was before the nation’s currency, the lira, plunged), and supposedly Turkish businesses aren’t all that leveraged. On the other hand, there’s a political crisis as well as a currency crisis.
Oh, and contagion among emerging markets. Lovely.
All this is happening with recovery in the West still very weak and growing deflation risk. In a recent column titled “World Risks Deflationary Shock as BRICS Puncture Credit Bubbles, Ambrose Evans-Pritchard, the international business editor at The Telegraph, went more purplish with his prose on this than I’m willing to – these economies are either fairly small (Turkey, South Africa), or not that heavily indebted (India). But this is definitely not what we needed right now. And it’s not really an accident either.
If you take secular stagnation seriously, as you should, then we have a chronic problem of too much saving chasing too few good investment opportunities, which means that people only feel prosperous when money thinks it has found more good places to go than it really has – and soon enough figures that out, with nasty effects.
Lots more on this, probably, as I get up to speed on the Bosphorus.
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