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Last Updated on: 18th August 2018, 03:11 pm
This past week saw Turkey's measured economic decline turn into a full-blow economic rout on many levels. The Turkish lira crashed for the fourth day in a row and reached an all time low against the dollar and other developed nation currencies. The sell off became so severe that the contagion was quickly picked up by other emerging markets and their currencies around the world from South Africa to India to Brazil. Despite this, the Turkish iron man dictator President Recep Erdogan refused to back down in his diplomatic standoff and economic war with the U.S.
It explains why you need IRA-approved precious metals to safeguard your investment and retirement accounts. Seemingly every week anymore brings some new geopolitical chaos and instability to the world. The volatility this has forced on world financial markets has been breathtaking to watch at points. Gold makes sense in an IRA because it protects you from this economic and financial craziness. It is time to investigate Gold IRA rollover transfer rules now before it gets any worse.
What Has Gone Wrong in Turkey?
Out of seemingly nowhere, Turkey has flirted with economic collapse this week. The Turkish lira crashed as far as 11 percent versus the safe haven dollar as thin trading in Asia exacerbated its plunge. The Turkish government and central bank finally took action.
The Turkish central bank increased financial company lenders' access availability to both domestic lira and foreign exchange cash reserves. Things had become so severe that the Turkish Banking Regulation and Supervision Agency had intervened in the markets to reduce swap transactions for their devastated currency.
The Head of Financial Markets Research Takashi Kudo of Fujitomi Co. in Tokyo warned about what is going on right now, with:
“Turkey's friction with the U.S. is weighing on the lira, and is unlikely to improve anytime soon. Concerns are also growing about European financial institutions due to their exposure to Turkey. All in all, emerging market currencies are under weakening bias from all those problems.”
The measures provided by the central bank will increase the financial system liquidity by 10 billion liras (equal to $1.5 billion), $6 billion USD, and $3 billion in gold equivalent. The central bank posted this on their website in a statement.
Turkish Currency Takes It on the Chin
The currency of Turkey is among the collateral damage from the worsening crisis of relations that the administration has dealt with because of their growth at any cost program. The recent diplomatic argument with the U.S. has only made matters worse. It centers on an American pastor who has been detained. The lira crash set off global market tremors starting on Monday. It caused one of the key measures of emerging market country currencies to plummet to a low not seen in over a year.
Meanwhile the lira continued to drop reaching 7.2362 versus the dollar. There were banks that claimed they would not provide two way pricing on the pair any longer until the historically unheard of volatility ceased. This meant that the currency suffered a 28 percent drop in the value versus the dollar from only August. For the year, it is down over 40 percent so far. This past Monday, the currency lost around 10 percent in a single day only.
This chaos in currency markets has spread around the world too. The currency of South Africa, the rand, plunged to its lowest level in over two years. At the same time, the Indonesian rupiah and the Mexican peso dropped significantly as well.
Economic War Against Turkey Is Not Helping Their Domestic Situation
The huge sell off has led to a stinging vote of no confidence in the new form of government that President Erdogan is responsible for creating. He gained unparalleled powers from the new government. Now the bureaucracy in the government capital city of Ankara has been paralyzed. This chart shows how dire things are looking for Turkey at the moment:
The Turkish president was still defiant throughout the week. He pledged that he will never yield ground regarding interest rate hikes and argued that the nation is fighting for its survival in an economic war. Erdogan refused to come to an economic arrangement with the European-dominated IMF International Monetary Fund. Global Market Strategist Kerry Craig of J.P. Morgan Asset Management stated that:
“The decline in the lira is multifaceted, caused not only by a weak external position in terms of current account deficit and inadequate currency reserves, but also the challenging political environment which exacerbates the vulnerabilities in the lira. “
This ongoing blood bath of the lira further weighed on countries with perceived heavy exposure to Turkey's economy, banks, and currencies. These included both the Euro Zone's euro and the Australian dollar. At the same time, safe haven currency demand for Swiss francs, Japanese yen, and U.S. dollars was rising quickly.
Treasuries found much-needed safe haven demand and support in the expanding international crisis. The euro was taking it particularly hard. Analysts opined that the euro is particularly vulnerable to the danger because it is heavily exposed to the Turkish economy and banking system. Additional safe haven buying of dollars and yen should result.
Inflation Out of Control In Turkey Now Presenting Dangers of Exported Inflation
Turkey's firms have found themselves weighed down by literally hundreds of billions in dollars worth of foreign held debt. Inflation is out of control, and the nation possesses what is among the biggest of current account deficits. The Turkish central bank has been busy raising its interest rates up to their current shocking 17.75 percent levels. Head of Foreign Exchange Strategy Ray Attrill of National Australia Bank Limited based in Sydney warned that:
“There's nothing as yet to suggest that the government, or Turkish central bank, is poised to announce the fiscal or monetary policy measures capable of quickly restoring confidence in Turkey.”
Investors are crying out for massive central bank actions in order to save the Turkish lira. The bank has been moving to stem the crisis with pledges of whatever it takes like the ECB has done in the past. The problem is that officials in Turkey are afraid of an enormous rise in the costs of borrowing that might rapidly lose effectiveness when the next crippling round of American sanctions hits.
Gold is the Cure All for Your Portfolio's Ills in Chaotic Geopolitical and Economic Times
Turkey has acknowledged that is has problems. The question remains as to whether or not their central bank will fall into the old trap of capital controls and converting foreign exchange deposits as Greece and Cyprus have done in the past. The government's national debt instrument value plunged during the past week as 10 year yields roared to an all time closing high of 22.11 percent last Friday.
The price to insure the country's debt (in the form of five year time frame credit default swaps) jumped by fully 75 basis points to touch 453 basis points last Friday on New York markets. This was the most expensive level since the Global Financial Crisis was unfolding back in March of year 2009, per CMA data.
The big danger from what is happening in Turkey lies with the major European banks like Italy's UniCredit and Spain's Banco Santander. Both have admitted (somewhat grudgingly) that they are in trouble if the Turkish lira and economy plunges further. Now is the time to rise up and defend your retirement portfolio with IRA-approved gold. Fortunately you are able to buy gold in monthly installments and keep it in a variety of top offshore storage locations nowadays.