Leadership in Turkey is currently experimenting with unusual monetary policies that have plunged the country into a severe currency crisis that shows no signs of stopping.
Since this very time last year, the Turkish Iira has diminished by 50% of its value compared to the dollar, leaving citizens with severely limited purchasing power and a constant atmosphere of price uncertainty.
According to a report by CNBC, the country has 84 million people and has seen its inflation climb steadily, currently measured at 21%. The President, Recep Tayyip Erdogan refuses to raise rates during the crisis, leaving Turks dependent on local wages and salaries to suffer a severe loss of purchasing power. Analysts say that this is the Iira’s second currency crisis in three years, with investors sounding the alarm at the beginning of 2018 when the Iira dropped to a fifth the value of a U.S. dollar. Today, it’s worth a 15th of a dollar, which at the time was unimaginable.
Turkey’s central bank declared last week that interest rates would be further slashed from 15% to 14%. The decisions of the central bank are almost directly controlled by Erdogan, who calls interest rates “the mother of all evil.” Erdogan apparently feels confident in his ability to micromanage the economy, having fired several officials from the central bank in the last two years.
Turkey’s crisis mirrors similar economic calamities taking place in nearby Lebanon, which faces hyperinflation and inconsistent power supplies on top of recovery from a massive explosion that took place in Beirut last year. The World Bank warns that Lebanon is likely facing one of the worst economic depressions since the 19th century.
Most concerningly, the International Monetary Fund reported recently that the U.S. and Iceland are currently the leaders for highest inflation rates in the world’s advanced economies, though Venezuela was excluded from the data for its exceptional rate of 2,700% inflation, the fastest-growing on the planet.
The United States rapidly rising inflation is prompting responses from the Federal Reserve. The Personal Consumption Expenditures Price Index, a report from the Bureau of Economic Analysis, key to informing central banks about monetary decision making, reached a record year-over-year rate of 4.1% last October, with the Bureau of Labor Statistics reporting that the Consumer Price Index had risen to 6.8%, the worst seen since 1982.
If Democrat President Joe Biden doesn’t fix the nation’s fiscal policy soon, we’ll all be carting around wheelbarrows full of cash to buy milk and eggs. Despite clear examples from other countries about the dangers of inflation, Biden is still pursuing his nearly $5 trillion spending plan, preparing to battle for it in Congress next year.
Author: Shirley Taylor