Turkey – who is squeezing who?

It’s Wednesday and a shorter blog post, which includes the latest from Turkey and some music. The mainstream narrative against Modern Monetary Theory (MMT) has been ramped up significantly in recent weeks as a result of events in Turkey, where, up until yesterday, the currency had depreciated significantly. The screams for interest rate rises from bankers etc (of course! they profit or protect foreign debt exposure) have been deafening. But the most recent monetary policy decision was on December 16, 2021, when the CBRT reduced its policy rate (the one-week repo auction rate) from 15 per cent to 14 per cent. The ‘markets’ can’t really get a handle on the current government’s thinking because it is running against the mainstream in several ways, including cutting rates to reduce inflationary pressures (see Press release on Interest Rates – from the CBRT). Overnight a big swing happened after the government made a significant fiscal policy announcement. That will further confound the markets who were forced to scramble to close out short-selling positions as the lira appreciated by around 25 per cent in one day. The fiscal squeeze worked. You couldn’t make this stuff up.

Turkish lira appreciates sharply

I wrote about the situation in Turkey on Monday – Turkey tells us nothing about MMT – but MMT tells us a lot about why Turkey is in trouble (December 20, 2021).

Predictably, the Twitter heroes were out in force restating their assertions that the situation proved Modern Monetary Theory (MMT) was flaky.

They didn’t address the analysis I provided at all. That would be too inconvenient for their story line.

One character claimed that my implication that the IMF intervention in the first decade of this century was part of the story was far-fetched and typical ‘leftist’ delusion.

How did he reach that conclusion?

Well the last formal IMF program (standby arrangement) ended in May 2008, so how can I claim that in 2021, the IMF is implicated?


The IMF intervened with a Standby Arrangement that began on February 4, 2002 (ending February 3, 2005). A new Arrangement followed on May 11, 2005 which ended as noted on May 10, 2008.

As I explained in the blog post cited above, those programs forced a range of structural changes onto the Turkish economy which persist today.

They set in place the export-led growth strategy (which Erdogan still favours).

The financial market deregulation and the privatisation of many state enterprises including banks occurred during those Arrangements.

The reliance on large foreign currency-denominated debts accelerated as a consequence of the deregulation and reduced oversight.

The propping up of the banks through artificially high interest rate regimes managed by the central bank became the norm during those periods and persisted.

Sure enough, the policy stance is shifting as Erdogan approaches the next election and starts to assert a defiance to the mainstream macroeconomic policy mantras.

But the major shifts that occurred during those IMF programs set Turkey up for the issues it faces now.

That is undeniable.

So to dismiss the observations as ‘leftist’ delusions just shows the commentator really has no idea despite regularly tweeting a lot of gobblegedook about margins, fx rates, and all the rest of the financial market talk.

Anyway, since I wrote that blog post, the Turkish government has announced a major new fiscal initiative.

Among other things, the President announced that the Treasury (fiscal policy) would restore any losses that lira-denominated bank deposits held by citizens incurred as a result of the exchange rate shifts.

How would that work?

Assume the banks are paying 14 per cent for a 12-month lira deposit. If the currency depreciated by say 15 per cent then the Treasury will pay the difference.

That means that people who currently hold, say USD, can shift their funds into lira with a guarantee of no exchange rate exposure.

At my last estimate, around one-half of bank deposits in Turkey are denominated in foreign currencies (USD, euro, etc).

So essentially, the Government is assuming the exchange rate risk, which is a significant intervention.

And within a day, this is what happened in the foreign exchange markets.

Today, the lira is back to where it was at the start of December.

It depreciated 35 per cent between December 1, 2021 and December 21, 2021, but on December 22, 2021, it appreciated 25.4 per cent over the 24 hours.

No interest rates were raised by the central bank (CBRT). The most recent monetary policy decision was on December 16, 2021, when the CBRT reduced its policy rate (the one-week repo auction rate) from 15 per cent to 14 per cent.

The shift was provoked by the fiscal policy announcement.

The financial markets commentary today is full of investment bankers still claiming that interest rates have to rise.

Of course they say that – the institutions they represent make larger profits if rates rise and they are also wanting to protect foreign debt exposure.

The interesting thing is that this announcement has interrupted the speculators who had bet short against the currency.

The trading volumes today suggest a lot of loss-making positions are being closed out quickly (to limit the losses) as a result of the reversal in the lira.

It is an interesting story.

MMTed MOOC – Modern Monetary Theory: Economics for the 21st Century

Earlier this year we ran the MOOC and around 3,600 participants enrolled.

We are now in a position to offer the course again in early 2022 for all those who have been asking me for a chance to complete the program.

So, MMTed – invites you to enrol for the edX MOOC – Modern Monetary Theory: Economics for the 21st Century.

It’s free and the 4-week course starts on February 9, 2022.

The course is offered through the University of Newcastle edX program.

Learn about MMT properly with lots of videos, discussion, and more.

For – Further Details.

Music to stay calm with

I love this song – Apostle – which is taken off the second solo album by In the Skies – after he quit Fleetwood Mac.

The album marked a return to recording after a long period (8 years) of dealing with mental health issues.

It was released in May 1979 and has some really beautiful guitar playing on it.

Apostle had been earlier released in June 1978 as a single (backed by Tribal Dance on B-side).

I first heard it when I purchased the album. The version on the album was re-recorded and the original faded after being withdrawn from sale very soon after release.

On the album, Peter Green was supported by another great guitar player Snowy White who plays rhythm guitar on this particular track (Track 9 on the album).

Apostle was written by Peter Green as were all the tracks on the album (with some collaborations on some of them).

A remastered version was released in 2005 based, I believe on the original single release. That version is definitely very beautiful.

Martin Celmins biography of Peter Green (Castle books, 1995) is a must read for Peter Green fans – it is a very sympathetic and detailed account of a troubled genius.

Peter Green is my favourite guitar player (with Jimi Hendrix).

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

This Post Has 6 Comments

  1. “It depreciated 35 per cent between December 1, 2021 and December 21, 2021, but on December 22, 2021, it appreciated 25.4 per cent over the 24 hours.”

    Worth mentioning that the central bank intervened in the way detractors say in inevitable – selling foreign exchange to stabilise – four times earlier in December. On the 3rd, 10th, 13th and 17th.

    Compare the effect of the ‘traditional’ approach with the ‘non-traditional’ approach of offering guaranteed TL time deposits to “resident real persons, who already had an FX deposit account or FX participation fund denominated in US dollars, Euros or British Pounds by 20 December 2021” who “convert their accounts into TL time deposit accounts/participation funds”.

  2. “The financial markets commentary today is full of investment bankers still claiming that interest rates have to rise. Of course they say that – the institutions they represent make larger profits if rates rise and they are also wanting to protect foreign debt exposure.” Here’s a perfect example of Edward Bellamy’s insight that there is no genuine patriotism possible in a nation where private parties have separate and competing pieces of the national economy. In such a situation, these parties will inevitably push for policies that promote their particular private interests, even at the expense of the nation itself, and with everyone else doing the same, the public interest or the general welfare simply doesn’t exist. This is why Bellamy claimed that capitalism and patriotism, indeed capitalism and democracy, are inherently incompatible. While the government should promote the public interest and protect the general welfare, it is easily captured by the rich and powerful to instead promote elite interests at the expense of everyone else. How long, post-election, will Turkey’s government be able or willing to buck this neoliberal imperative?


  3. Morning,

    The Neoliberal Exploitation Under a Super-Imperialism Lense


    That’s what is going on here it is as clear as day. Been carried out a 100 times in different countries. The objective is to get Turkey on the path to the Euro. As soon as they sign up to an EU convergence program or the IMF program their sovereignty is under attack until eventually it is gone. As the Sith and Lord Palpatine moves forever Eastwards.

    Why 100’s of economists sound more like politicians than economists. When you cut through all of their BS when they attack MMT. Their message is simple – we fully support the ruling class and the bankers. The economists at the top of the paradigm keep the rest on message.

    It’s very difficult for the person in the street to name a dozen right wing economists. You never read about them, you never see them, you never hear them. But very easy to name so called left wing economists that spend most of their time stopping progressives or any real change. What’s extraordinary about that is the right has been in power since the 80’s.

    The IMF, the ECB, the bank of international settlements and the world bank and the ECJ operate like any Trojan Horse. Once they are inside a country they go to work. When MMT’rs point out their clear and obvious mistakes. They all reply, what mistakes there is nothing wrong with our models they work perfectly for us and our geopolitical and foreign policy interests. We designed them that way.

    The West house trained them like little puppy dogs when they came to our Universities to learn economics as teenagers to raise interest rates. If they are stupid enough to do it when they are men in their own countries so be it. The West geopolitical and foreign policy strategy is working. The West pretend to play by the rules and raise them by 0.25% but we force others to raise them by 20%.

    Mervyn King back in 2006 in a paper called reform the IMF which can be found online very easily. Offers some very important insights. It is only 7 pages in length so a quick read.

    1. When you read the 7 pages who is Mervyn talking to. Is it the person in the street? Is it the press ? Is it Labour ? Or is it the ruling class and capital ?

    2. Could the paper have easily come from anyone with a pulpit and a microphone that was speaking at the CBI , the business round table, Manhattan institute, National bureau of economic research, the Heritage foundation, Davos. As David Cox in his 2015 book the rise and fall of neoliberal capitalism. Showed quite clearly, along with Thomas Edsel a journalist from the Washington Post in his book politics of inequality where the ruling class and capital meet.

    3. As Mervyn King is clearly talking to the leisure class and capital. How does the 3 step trickle down of ideas process work. Starting with the ruling class morphing into ruling class ideas to eventually becoming economic policy.Where is the democracy in the room? Not one of these people have been on the ballot box and can be held to account or take any responsibility for their actions.

    4. Where do economists fit into this process are they the Bishops that spread their religion? Is it once the ruling class has the idea is money then thrown at economists and they are told to make it work. Even if they have to create fairy tales and back fit hand picked data like the Rogoff affair to get these ideas implemented. Using the Pete Peterson foundation and Tax payers alliance and other right wing think tanks along with the mainstream media they own to brainwash the nation. Like any good Bishop certain economists can predict what the ru!ing class are looking for, and then advertise their work around the parish hoping they get noticed and a fast track to funding and riches and promotion in Rome.

    5. Are the politicians the bottom of the pile the priests. Who simply spread the gospel by repeating a lie 100 times until it becomes the truth. Who after doing their job and getting voted out either get rewarded with a very high paid job by the ruling class for promoting their ideas. Or get £500 a day and sit in the House of Lords eating werthers original toffees and stinking of pish.

    6. What is very clear in the paper is their thought process. Oh, how they would love a One world currency as they move closer to bringing the book 1984 into reality. Since they are not allowed a One world currency yet. They have to create all these fiscal rules and warn countries to play by the rules or they will be punished. So that Capital can move freely and unobstructed around the globe and rape and pillage everything in its path. If you dare to introduce capital controls and force capital to take a hair cut then you will appear on the front page of the next edition of the Panama papers and make Iceland sound like the devil. The Iceland PM got his own front page in the Panama Papers created by another right wing think tank the associated press. The message was clear of course you are allowed to steal and offshore as long as you play by our rules no more haircuts on capital,or we will get rid of you. You are only a priest after all you are simply there to spread out message. Kill off fiscal policy and the left and not change things.

    I feel sorry for Erdogan he is stuck between a rock and hard place. He is caught between the leisure class in Turkey and the leisure class of the West. Both of which have their capital at risk. So who is Erdogan speaking to every time he makes an announcement. The leisure class in Turkey of course as they will ultimately decide his fate if they lose their capital.

    The whole time The leisure class in the West are saying to the leisure class in Turkey come over to us adopt the Euro and we will protect you and your capital will be protected. We will rip the social fabric of your country apart which has always been a threat to your power and you will no.longer have to worry about it. We will turn your economy into a monopoly which you can extract rent from and allow you to offshore your theft in our tax havens or Bitcoin. You can become the Oligopoly you have always wanted to be.

    All we ask in return for that protection is the following.

    a) We get some of the assets that allow us to also extract rent from the monopoly we are going to create for you.

    b) We turn your country into another one of our military bases on the borders of Russia.

    Finally, Is there anything else you would like that we can provide for you as there is a civil war taking place in Islam right now. What faction of Islam would you like us to support.

    The leisure class in Turkey have held out up to now because it is very religious. They have also watched and learned what it means to do a deal with the devil. When other members of the leisure class in other countries have done the hand shake and become Judas.

    The question is how much capital are the leisure class in Turkey willing to lose before they finally accept the offer ? Especially, when the leisure class will not be united. There will be a division and some of the leisure class in Turkey will have probably been pushing for the Euro for a while now. Divide and Conquer at its very best and the West will know exactly who these people are. The leisure who want the Euro as they will have done business with them many times.

    The only time the voters in any of the countries are taken into consideration is do the leisure class have enough cannon fodder to fight their wars.

  4. I would love to be able to watch the TV networks in Turkey right now.

    They will let everyone know what the majority of the Turkish leisure class position is right now. It will become very clear if that position they have now ever changes.

    Because, once the majority of the Turkish leisure class makes their minds up of whether to fight or surrender and adopt the Euro. All they need to do then is convince the public to support them. Which won’t be difficult as the voters will also be divided regarding the Euro.

  5. Wiki: “By Christmas 1965 Green was playing lead guitar in Peter Bardens’ band “Peter B’s Looners”, where he met drummer Mick Fleetwood.” I used to follow this band (well I followed my friends round – I was more into classical music). But the group was not called that – I think it was The Shanes. Friends were actually keen on Pete Bardens, the vocalist. I had no idea whether he was dishy or not because I never wore my glasses. Saw them several times at The Flamingo Club in Wardour Street. Some years ago I happened to chance on the obituary of Bardens in the Guardian. He apparently had a good career in the background of the music scene. Fleetwood was the least interesting then.

  6. I’ve just went back through the archives and it’s true.

    If you read any attack from any mainstream economist regarding MMT. Once you take,away the layers of BS. All the mainstream are doing is supporting the status Quo. All they ever do is support the leisure class and capital. That’s the narrative they leave behind on the table at the end of every Critique of MMT once their BS Is washed away.

    Is there anything in their literature that takes on the leisure class and capital or offer any solutions to unemployment and how to achieve full employment that hasn’t already been tested and failed miserably. How central banks and commercial banks should change and how we should change them. What to do about taxes apart from tax the rich or how to improve productivity. They only look at controlling inflation by keeping a group of humans unemployed, as the UK economists scream don’t take on the City Of London.

    Do they have any solutions at all. Apart from creating fiscal referees that are run by a set of unelected technocrats to go with their central banks that dilutes democracy even further. As we can’t hold them to account. Tories or Labour they will still be there in the shadows refereeing A fantasy A game of Quidditch. A job for life , a job for those who pass the ideological test.

    No wonder they love the EU so much and hate the democratic process.

    A crises within neoliberalism seems to be a crises for the mainstream. The paradigm has no solutions they are a dry desert without any water. A sticking plaster that is a basic income combined with interest rate targeting. That supports the leisure class and capital. Tax the rich but do nothing about Bitcoin or tax havens.

    So is it any wonder when MMT’rs come with ideas how to fix things they are attacked. The high priests of the paradigm must sit in offices all over the world with nothing to do apart from stare out of a window. Spend all their time stopping anything progressive or any real change.

    Next time a mainstream economist does a piece attacking MMT. Just simply reply well you continue to support the leisure class and capital then, if not where are your solutions let’s hear all about them. Leave it at that. Whilst MMT’rs continue to turn the desert into an oasis.

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