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Turkey in free-fall, and the fall-out from the collapse.

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The Collapse of Turkey

A little while ago I issued warnings about buying real estate in Turkey. (April) Buying-Real-Estate-in-Turkey.html I know one gentleman insisted on buying. He bought at a very silly point. I did warn that the lira was in dire straits. At the moment it keeps hitting new lows. In short, the currency is collapsing. If you've bought in Turkey you are losing money; rather a lot of it. At the time of writing, the Turkish lira has lost around 40% of its value against the US dollar in the year-to-date alone.
I did mention that the Federal Reserve is raising interest rates, and that impacts on foreign borrowings. Turkey is having to pay more interest on the money borrowed in dollars, and it is also having to pay more Turkish lira for those dollars.
Not only that, but Turkey is heading into a recession, a potential banking crisis and rampant inflation. That is in turn going to lead to more civil unrest.
I have never advocated buying in Turkey. I think it is a very dodgy area of the world, with civil war to the south and problems to the north and east, it is right in the middle of a messy part of the world to start with.
Jonathan Compton, writing for Money Week has this to say about the situation.
First: You have the president, Erdogan, who is clearly an egomaniac who is intent on playing his own games with the country. "So far he has removed any competent official who questioned his policies from the central bank, Treasury, army and judiciary, replacing them with incompetent place-men. He has also attacked foreign lenders and their interest rates as immoral and evil and he threatened not to repay Turkey’s debts."
Clearly, under those circumstances he won't be getting any more loans.
Second, "there was a boom built on a borrowing binge in dollars by local companies rather than Turkish lira because domestic interest rates were much higher. This can work for a while, provided the exchange rate remains stable and the budget and current-account deficits modest. But both exploded, ensuring the lira had to fall, making foreign debt hugely costly. This was a disaster waiting to happen. So my guess is he decrees either a moratorium on repaying foreign debts; or a “haircut” (say 50 cents in the dollar); or even the repayment of dollar loans in Turkish lira at the current exchange rate."
Clearly the local economy will shrink dramatically putting more financial pressure on the citizens, and will likely lead to social unrest.
For those who want to holiday in the country, things are getting cheaper by the minute. For those who have bought property, they will find inflation is eating their profits and the value of their real estate is dropping on a daily basis. I hope you took my advice and stayed out of Turkey.
Sadly there will be repercussions. Turkish debt is held by several Italian, French and Spanish banks. Since all three of those countries have serious banking problems already, this further hit is likely to cause not just economic woes, but political problems for all three countries. As we know, Italy is already seriously battered.
I now have to emphasise what I have been saying for some time. Don't buy in Spain, Portugal, France or Italy, and certainly not in Greece or Cyprus.
This can't go on. We all need economic crash helmets.

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