Erdogan and Bitcoin
Turkish President Erdogan recently announced that he would continue to cut interest rates every month while in power. However, inflation in September reached a new high for more than 20 years, approaching 83%. While central banks have generally chosen to tighten their monetary policy for several months to stem the explosion of inflation driven in part by soaring energy prices, Turkey is taking another turn. Erdogan assumes to maintain the printing press until the end and his country is walking dangerously towards the explosive spiral of hyperinflation.
Hyperinflation in Istanbul
The inflation rate in Turkey has been steadily rising for 16 consecutive months and reached almost 83% in September. Last year, this rate was 20% at the same time. This is clearly the highest level of inflation since 1998. On a monthly basis, food prices increased by 3% in September alone!
Erdogan’s love for negative rates
Erdogan is convinced that negative real interest rates will allow Turkey to get out of this economic slump in which his country is plunged. He even declared himself an “enemy of interest rates”. He has campaigned tirelessly since becoming prime minister in 2003 and then president in 2014 to lower rates. In 2018, he spoke of a “tool of exploitation similar to the heroin trade … the root of all evil”. Despite criticism from the opposition and protests in the capital, Erdogan vows to continue waging this war at positive rates.
An unorthodox approach that may surprise. The vast majority of economists agree that raising interest rates is generally the most effective discretionary tool to neutralize inflation.
But for dictators, economic reality does not exist: everything is convention. Last week, President (and friend of Putin) Alexander Lukashenko banned inflation. “As of today, it is forbidden to raise the prices of anything. Prohibited ! ”, Bitcoiners, forget your SHA256 functions and your weird elliptic curves, Lukashenko has solved the problem.
Similarly, in Erdoganland, hyperinflation is the result of high interest rates. If prices are rising in Turkey and the West it is because of the legendary orthodoxy of the Fed and the ECB, notorious for being intractable with inflation. The Fed would have no difficulty in recognizing that low rates favor growth, but from there to admitting that they have a deflationary scope…
“How can the real sector make investments when interest rates approach 50%? Do any of you make that much money? Only in the heroin trade”, Erdogan.