Recall notice for the Turkish model
By Spengler Asia Times January 10 2012
http://www.atimes.com/atimes/Middle_East/NA10Ak01.html

Among all the dumb things said about the so-called Arab Spring last year,
perhaps the dumbest was the idea that the new democracies of the Arab world
might follow the Turkish model.

In fact, if you had invested in the Turkish model (that is, in the Turkish
stock market) at the outbreak of the Arab revolts, you would have lost about
half your money. If you leave your money in Turkey, you probably will lose
the rest of it. Turkey is not a model. It is a bubble, and it is bursting,
starting with the stock market and national currency.

...Now I predict that Turkey's economic crisis will undermine the stability
of the Turkish state as well, leaving the Muslim world without a single
enclave of stability from the Libyan-Algerian border to China's Xinjiang
province.

Encouraged by the central bank, Turkish banks increased their lending at a
40% annual rate in 2009 and 2010, financing a flood of imports. Turkey's
trade deficit ballooned to a tenth of its total output - as bad as that of
Greece or Portugal. And the country has been borrowing on short-term money
markets to finance the import bubble.
...
Turkey's currency has been falling for a year, and fell even faster in
August and September. Turkey's central bank had no choice but to raise
interest rates sharply last October to prevent it from entering free fall.
Even with the sharp rise in interest rates, though, the currency has
continued to deteriorate, and the Turkish stock market has continued to
grind lower. But the spike in interest rates will have deadly effects on the
domestic economy.

Despite its earlier rhetoric from the central bank about the need to
restrain lending growth, the central bank continues to finance an extremely
fast rate of lending growth from its own balance sheet. Again, this suggests
that the central bank has no choice but to capitalize interest, which means
the bubble is getting worse by the day.

...
As Turkey's balance of payments deficit ballooned in 2009, Turkish banks
became massive net borrowers of dollars from other banks. Those are
short-term loans, though, and the slightest shudder could wipe out this
source of financing.

A disaster is in the making. Leave aside the economic ills of the southern
Mediterranean generally, which will impinge Turkey's exports (about half of
which go to the European community): Turkey's financial system is reaching
the end of the rope. A sudden adjustment in the current account accompanied
by large-scale bankruptcies among Turkish businesses and widespread
unemployment will make 2012 an ugly year for the Turkish economy, and an
even uglier year for Turkish politics.

Spengler is channeled by David P Goldman, president of Macrostrategy LLC,
from whose December 16 report ("Wile E Turkey") the charts in this essay
were taken. He is the author of two books published late in 2011, How
Civilizations Die (and Why Islam is Dying Too) and It's Not the End of the
World - It's Just the End of You.