Turkey finds itself stuck between a rock and a hard place as investors desperately try to remove their funds from the country before the bottom falls out of the market.
Yesterday, the Lira suffered a monumental loss, dropping by the most we have seen in over a decade. This comes on the back of already-significant losses, with momentum gaining and the fiat currency seemingly unable to recover.
We have seen this before, and we will see it again, as long as countries put their faith in fiat currencies that are intrinsically worth nothing.
Investors are waking up to this realization—at least in regards to the Lira—as they become increasingly skittish about Turkey's Central Bank and their unwillingness to act on this crisis. Unlike the United States, The Central Bank of Turkey can not freely print fiat currency without suffering massive repercussions. The U.S. abuses this privilege on a regular basis, due to their reserve currency of the world status.
Compounding Turkey’s troubles—or at least the ruling party’s—an election looms, and it’s one the current president, Recep Tayyip Erdogan, hopes to win.
Sadly for him, the timing of this meltdown couldn't be worse, as elections are set to take place on June 24th. For Western officials, the timing couldn't have been better, as hostilities between President Erdogan and Western leaders have been mounting for years, with many labeling him a "dictator" or a "tyrant".
Regardless of your position, the timing of this meltdown is indeed questionable, as it now puts his reelection in doubt.
Indeed, Turkey is stuck between a rock and a hard place. Their growing debt levels are beginning to cripple their economy, due to the weakening fiat currency.
Debt repayments for Turkish corporations continue to grow as their currency declines. Over the next few months, they will need to pay roughly $600 million Lira more for foreign currency notes maturing, due to this drop in the Lira.
As you can imagine, this will cause even more investors to flee the Turkish market. The sucking sound of funds leaving the market will continue to magnify, creating a self-fulfilling prophecy and ultimately an outright currency crash—such as that recently seen in Argentina—unless something can be done fast.
Undoubtedly, this ongoing crash played a huge contributing factor in Turkey's recent decision to repatriate their gold reserves, as they scramble to shore up their defenses and get any form of real, hard money they can get their hands on.
Unfortunately, we have watched this scenario play out time and again. And we will watch it many more times before the world finally comes to its senses and makes the only logical move that can stop this madness: a return to a hardback form of money. A return to gold.