Vincent van Gogh The yellow house (The Street), Arles 1888
“Whatever it takes” is still popular. But there are limits. They’re cutting off FX trade and injecting liquidity. But what if they’re called on this? It’s only Monday… As I write this the lira has lost another 6.6% so far for the day.
• Turkey Central Bank To Take ‘All Necessary Measures’ For Stability (AFP)
Turkey’s central bank on Monday announced it was ready to take “all necessary measures” to ensure financial stability after the collapse of the lira, promising to provide banks with liquidity. “The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary,” the bank said in a statement, vowing to provide “all the liquidity the banks need”. The statement came after the Turkish lira hit record lows against the dollar amid a widening diplomatic spat with the United States. The detention of US pastor Andrew Brunson since October 2016 on terrorism charges has sparked the most severe crisis in ties between the two NATO allies in years.
The central bank announced the series of measures on Monday, a day after Erdogan’s son-in-law Berat Albayrak, who is treasury and finance minister, announced an action plan was in the pipeline. “In the framework of intraday and overnight standing facilities, the Central Bank will provide all the liquidity the banks need,” the bank said. The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues. It said with the latest revision, approximately 10 billion lira, $6 billion, and $3 billion equivalent of gold liquidity will be provided to the financial system. The nominally independent central bank has defied pressure to hike interest rates which economists said would curb the fall of the lira.
“I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars… You should know that to keep this nation standing is… also the manufacturers’ duty..”
• Turkey Pledges Action To Calm Markets (BBC)
Turkey has pledged it will take action to calm markets after the lira plunged to a new record low in Asian trading. The details would be unveiled shortly, the country’s finance minister told Turkish newspaper Hurriyet. “From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market,” Berat Albayrak said. The lira lost 20% of its value versus the dollar on Friday. It had already fallen more than 40% in the past year. The latest blow came on Friday, when US President Donald Trump said he had approved the doubling of tariffs on Turkish steel and aluminium. Concerns about contagion prompted investors to sell riskier assets on Monday including emerging market currencies and stocks in Asia.
Mr Albayrak said the country would “act in a speedy manner” and its plan included help for the banks and small and medium-sized businesses most affected by the dramatic volatility in the lira. His assurance came after Turkey’s president blamed the lira’s plunge on a plot against the country. “What is the reason for all this storm in a tea cup? There is no economic reason… This is called carrying out an operation against Turkey,” he said. Recep Tayyip Erdogan once again urged Turks to sell dollars and buy liras to help boost the currency. “I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars… You should know that to keep this nation standing is… also the manufacturers’ duty,” he said.
It’s starting to spread. And hurt.
• Euro Drops To One-Year Low On Lira Crisis Contagion Fears (G.)
The Turkish lira fell almost 9% in early trading on Monday and the euro hit a one-year low as investors feared that the country’s financial crisis could spread to European markets. Despite defiant words by the Turkish president Erdogan over the weekend pledging as yet unspecified action to reverse the slide, the currency slipped alarmingly against the US dollar on Monday. In early trading it reached an all-time low of 7.24 before bouncing back after the country’s banking regulator announced late on Sunday night that it would limit the ability of Turkish banks to swap the battered lira for foreign currency. Asian stock markets were also down on Monday. The Nikkei in Japan lost 1.7%, Hong Kong was off 1.8%, Shanghai -1.7%, Sydney -0.5% and the Taiwanese bourse fell 3%.
The FTSE100 was expected to open down 0.4% later on Monday morning while Germany’s Dax 30 was set for a 0.65% fall. The euro dropped 0.3% to a one-year low against the US dollar on Monday as the falling lira fuelled demand for safe havens, including the greenback, Swiss franc and yen. The Vix volatility index measuring turbulence in financial markets – also known as the fear index – jumped 16% on Monday. There was also concern that other emerging market currencies – already under pressure from the rising US dollar – could be dragged into the lira’s downward spiral. The South African rand hit a low level not seen since mid-2016, the Russian rouble slumped again and the Indian rupee slid to an all-time trough. The lira has tumbled more than 40% this year on worries about Erdogan’s increasing control over the economy and deteriorating relations with the United States ..
The Fed is to blame for Turkey.
• Beware the Dog Days of August (Pettifor)
Today’s financial turbulence can be traced back to Fed decisions in June 2017 to begin the “normalisation” of its balance sheet, gradually shedding its bond holdings in monthly stages. This monthly “runoff” of $10bn of maturing assets on to capital markets causes bond prices to fall, and yields to rise. On some estimates the Fed’s bond portfolio is expected to shrink by $315bn in 2018 and $437bn in 2019. This process of “normalisation” is no simple and stable matter. In the words of market analyst Kristina Hooper, it’s like “defusing a bomb”. To add to the strains caused by the “runoff” of assets, in June 2018, the Fed raised rates for the seventh time in three years and Libor followed suit.
These rising rates of interest have led to the strengthening of the dollar and capital flight from emerging markets. But above all, interest rate rises pose a threat to the heavily indebted global economy. In 2000, the stock of global private and public debt amounted to $142 trillion – 260% of global GDP or income. Today, 10 years after, the credit bubble at the heart of the GFC has nearly doubled to $247 trillion, or 318% of global GDP. Much of that debt is a result of the Federal Reserve’s largesse. Thanks to capital mobility, quantitative easing enabled companies, like many based in Turkey, to borrow in dollars on the international capital markets at low rates of interest.
Now, as Turkey’s currency and those of other emerging markets fall, the cost of servicing debt denominated in dollars rises dramatically, threatening default. But while it is necessary to point to the Fed’s actions to understand tremors in world markets, and to warn of the threat of another financial crisis, the fact is that central bankers should never have alone been held responsible for the restoration of macroeconomic stability.
[..] After the 1929 financial crisis, Keynes in 1931 and Roosevelt in 1933 got a grip, and as Erich Rauchway explains in his book The Money Makers, jointly began the process of ending the gold standard, and radically restructuring the global financial system to restore not just macroeconomic stability but, after 1945, a “golden age” in economics. Today, we are once again threatened by global financial turmoil. This may be the time to ditch economic orthodoxy, and revive the radical and revolutionary monetary theory and policies of John Maynard Keynes. Or do we have to endure another global crisis before economists come to their senses?
“..we’re not going to be the ones to interfere with the election..”
• Trump Gives Mueller Three Weeks For Sitdown (ZH)
President Trump is giving special counsel Robert Mueller until September 1st for a sit-down interview under limited conditions, as an interview beyond that window “could interfere with the midterm elections,” reports the Wall Street Journal, citing Trump attorney Rudy Giuliani. Trump’s attorneys sent Mueller’s team a proposal indicating that the president would be willing to take questions on collusion with Russia in the 2016 elections, but not obstruction of justice alleged to have occurred after he took office – as Giuliani has previously said it could become a perjury trap. “We certainly won’t do [an interview] after Sept. 1, because we’re not going to be the ones to interfere with the election,” Mr. Giuliani told the Journal.
“Let him [Mr. Mueller] get all the bad publicity and the attacks for that.” “I think we made the offer we can live with,” said Giuliani. “Based on a prior meeting with Mr. Mueller, Mr. Giuliani said he had believed prosecutors wanted to wrap up the inquiry by September. “Now they’re not really rushing us,” he said. Mr. Mueller has made some moves that suggest the inquiry itself could stretch beyond the midterm elections and certainly past the September timeline Mr. Giuliani laid out.” -WSJ Last week the special counsel subpoenaed Roger Credico, comedian and radio host that former Trump adviser Roger Stone claims was a back channel to Wikileaks. Credico has denied this – instead calling himself a “confirming source” due to his contacts with WikiLeaks attorneys. He is set to testify in front of Mueller’s grand jury on September 7.
Can we get Comey under oath too?
• Trump ‘Will Deny Under Oath’ Asking Comey For Flynn Leniency (AT)
If he has to testify under oath, US President Donald Trump will deny he ever asked former FBI director James Comey to treat former national security adviser Michael Flynn leniently, his lawyer said on Sunday. “There was no conversation about Michael Flynn,” Rudy Giuliani said on CNN’s State of the Union program regarding the February 14, 2017, meeting in the Oval Office. The private chat figures prominently in Special Counsel Robert Mueller’s probe into possible obstruction of justice in the Russia election interference case.
Comey testified in Congress last year that Trump tried to persuade him to go easy on Flynn the day after the president sacked his national security adviser for lying about his contact with the Russian ambassador. “I hope you can see your way to letting Flynn go. He’s a good guy. I hope you can let this go,” Comey quoted Trump as saying. Trump sacked Comey in May 2017, later admitting on TV that the FBI’s Russia investigation was on his mind when he made the decision.
Nice analysis by Eric Zuesse. h/t ZH
• Why Trump Cancelled the Iran Deal (Zuesse)
[..] whereas Fox News, Forbes, National Review, The Weekly Standard, American Spectator, Wall Street Journal, Investors Business Daily, Breitbart News, InfoWars, Reuters, and AP, are propagandists for the Republican Party; NPR, CNN, NBC, CBS, ABC, Mother Jones, The Atlantic, The New Republic, New Yorker, New York Magazine, New York Times, Washington Post, USA Today, Huffington Post, The Daily Beast, and Salon, are propagandists for the Democratic Party; but, they all draw their chief sponsors from the same small list of donors who are America’s billionaires, since these few people control the top advertisers, investors, and charities, and thus control nearly all of the nation’s propaganda. The same people who control the Government control the public; but, America isn’t a one-Party dictatorship. America is, instead, a multi-Party dictatorship. And this is how it functions.
Trump cancelled the Iran deal because a different group of billionaires are now in control of the White House, and of the rest of the US Government. Trump’s group demonize especially Iran; Obama’s group demonize especially Russia. That’s it, short. That’s America’s aristocratic tug-of-war; but both sides of it are for invasion, and for war. Thus, we’re in the condition of ‘permanent war for permanent peace’ — to satisfy the military contractors and the billionaires who control them. Any US President who would resist that, would invite assassination; but, perhaps in Trump’s case, impeachment, or other removal-from-office, would be likelier. In any case, the sponsors need to be satisfied — or else — and Trump knows this.
Trump is doing what he thinks he has to be doing, for his own safety. He’s just a figurehead for a different faction of the US aristocracy, than Obama was. He’s doing what he thinks he needs to be doing, for his survival. Political leadership is an extremely dangerous business. Trump is playing a slightly different game of it than Obama did, because he represents a different faction than Obama did. These two factions of the US aristocracy are also now battling each other for political control over Europe.
Too much debt.
• China Slashes Support For Solar Industry (R.)
China’s solar stress could burn more dealmakers. The industry faces a glut of raw materials and panels after the Chinese government slashed support for the heavily indebted sector. The first victim of the switch is industry giant GCL-Poly Energy, which scrapped plans to flog assets to state-backed Shanghai Electric. It won’t be the last. The loss of official support has cast a shadow over the business. After Beijing in June limited the number of new projects and cut tariffs it pays to solar generators, analysts lowered their forecasts for new installations of solar capacity this year by as much as a third. That signals dark days ahead, as new projects drive growth for both power plant operators and manufacturers.
The industry’s dependence on hefty leverage – a legacy of hasty expansion and delayed subsidy payouts – makes its position more precarious. Some solar companies, such as Panda Green Energy, were already struggling with net borrowing of more than 10 times EBITDA. The squeeze is especially hard on manufacturers of solar materials and equipment, which must splash cash on research to stay competitive. Meanwhile, overcapacity has depressed prices: Chinese solar modules now trade at a 15% discount to the global average, according to Macquarie. Distress should spur consolidation. The Solactive China Solar Index has fallen nearly 20% since the policy shift. As valuations sink, less indebted players like LONGi Green Energy Technology can go bargain-hunting.
Stop trying to make it look like a recovery. It is not possible under present conditions.
• Greek Bailout Drama ‘In Last Throes’ But The Hardship Is Not Over Yet (G.)
In an economy that has contracted by 26%, a fifth of the working population – two-fifths of young people – have been left unemployed, while about 500,000 people have fled, mostly to EU member states in Europe’s wealthier north. And the hardship isn’t over. The leftist-led government has signed up to a staggering array of ambitious targets. Post–bailout Greece has committed to produce primary surpluses of 3.5 % of GDP until 2022, a feat achieved by only a handful of countries since the 1970s, and 2.2 % until 2060. For Kevin Featherstone, who heads the Hellenic Observatory at the London School of Economics, such obligations amount to perpetual purgatory.
“No other government in Europe would choose to follow this path,” he said. “Greece has been saved in the sense of avoiding the armageddon of euro exit but how it has been saved is so disadvantageous that one can’t talk of a rescue or exit from crisis.” Although Tsipras is at pains to play down outside supervision, Greece will still be subject to a regime of enhanced surveillance initially. Further pension cuts are in store. In May he had unveiled a 106-page post-bailout growth plan. But no amount of preparation can conceal the country’s acute vulnerability to turbulence beyond its borders. Only days before the programme’s end, global market jitters saw yields on Greek bonds soared.
It is accepted that Greece has enough resources to meet funding needs for the next two years, but the IMF is far from persuaded that Athens will be able to sustain market access “over the longer run without further debt relief”. If so, the fund is likely to clamour ever more loudly that the landmark deal, reached in June, easing Greek debt repayments (extending maturities on some loans and improving interest rates on others) just does not go far enough. The crisis has lasted so long that many Greeks can no longer recall their country being “normal” or their pockets full. The middle class has been hardest hit with taxes as high as 70% of income earned. Controversial property levies have added to the toll. “In reality this exit will be a formality because in truth it isn’t going to change a thing,” said Stratos Paradias, who leads the Hellenic Property Federation.
Great interview with Ecuador’s former consul to the UK, who became a close friend of Assange.
• Those Who Think That They Will Break Julian Assange Are Mistaken (P.)
[..] conditions in the Latin American country’s embassy in Knightsbridge are now very different to those that Assange experienced during the six years beginning 19 June 2012, when he arrived seeking political asylum. Ecuador’s government at the time, and its president Rafael Correa, openly accepted his request, believing Assange’s life to be in danger and admiring his fight to defend freedom of information and expression. At that time the Consul of Ecuador in the UK was Fidel Narváez, who was tasked with accompanying Assange from the day he first set foot in the embassy. Narváez had contacted Julian and Wikileaks in April 2011 to request that the organisation publish all the cables relating to Ecuador.
At that moment an amicable relationship was born, one which has continued to grow throughout the years. Fidel is no longer Consul. He was relieved of his duties for issuing a letter of safe-conduct for Edward Snowden without consulting his government. It was, he states, a completely personal decision, and one for which he feels absolutely no regret. “If I found myself in the same situation now, I would do the same thing again. It was the correct decision, the just decision. I knew who Snowden was, what he had done, why he was being pursued, and I knew how important it was to protect him. I do not regret it. I am proud of what I did.”
Home › Forums › Debt Rattle August 13 2018
Tagged: TURKEY