5 ms·

I've been watching the situation in Turkey with astonishment. To appearances, Erdogan believes that higher interest rates cause inflation. Thus he refuses to ra

by graeme 8y ago

I've been watching the situation in Turkey with astonishment. To appearances, Erdogan believes that higher interest rates cause inflation. Thus he refuses to raise them. This is the physical world equivalent of believing gravity makes things rise. Or that water pouring in makes a ship float, not sink. It will be very, very difficult for Turkey unless someone can convince him he is wrong. And he has created a system where no one can tell him that. Edit: I seem to be getting downvotes. But this actually is his repeatedly stated belief. You can find dozens of similar references. https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s-40-year-old-theory-of-inflation-scores-a-win-in-turkey https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...

JumpCrisscross 8y ago
> Erdogan believes that higher interest rates cause inflation Is there evidence he actually believes this?
- chadmeister 8y ago
  No, just propaganda trying to make him look dumb. Anyone with basic econ knowledge knows that raising rates has a dampening effect of economic growth, as it crowds out investment. Turkey is caught in a very difficult spot.
  - whatok 8y ago
    How is him giving a public interview stating that belief considered "propaganda"?
- graeme 8y ago
  Yes, I just added this link. Most articles on turkey's economy mention his belief (for some reason the nyt left it out) I guess he could be lying, but it has certainly rattled the markets. https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s-40-year-old-theory-of-inflation-scores-a-win-in-turkey https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...
- whatok 8y ago
  He's mentioned it publicly in several interviews. Whether or not he believes it is another thing.
- postexitus 8y ago
  he said the exact words many times in many of his speeches / rallies. this doesn't prove that he "actually believes" this though. it may be just one of his / his team's mind games to divert attention. here is a turkish source (not even an opposition one): https://www.haberturk.com/erdogan-faiz-ne-kadar-dusuk-olursa-enflasyon-da-o-kadar-dusuk-olur-1965978-ekonomi https://www.haberturk.com/erdogan-faiz-ne-kadar-dusuk-olursa... just google "faiz enflasyon erdogan" (Which means interest rate, inflation, erdogan in turkish) and be amazed how many different instances he said it, and his ministers confirming his views.
- Analemma_ 8y ago
  What does it matter? With authoritarian populist leaders, what they "actually believe" isn't even a meaningful concept. A defining characteristic of authoritarianism is that truth gets fuzzy in order to serve the interests of the state, and the defining characteristic of populism is to just go with whatever pleases the mob. So when you combine the two, you get policy made up on the spot but enforced with religious fervor, which is what's happening here. I mean, take Trump: he's a raging ball of id who just yells whatever pops into his head at random and agrees with whoever spoke to him last. What he "actually believes" is probably, to use programming jargon, undefined.
  - JumpCrisscross 8y ago
    > What does it matter? My assumption was that he's keeping rates low to avoid raising interest costs for his government and cronies. But it might be that he actually just misunderstands economics and everyone is too scared to tell him so.
    - whatok 8y ago
      My personal belief is that he is well-aware but would rather scapegoat external "forces". The problem is that you can't really keep that ball in the air long enough to fix the underlying problem.
csomar 8y ago
> Erdogan believes that higher interest rates cause inflation. I don't think he does. Proof: https://tradingeconomics.com/turkey/interest-rate https://tradingeconomics.com/turkey/interest-rate He hiked interest rates by 10%. Making the central bank rate around 18%. You'll pay 22-25% to borrow in Turkey. That's an insane rate. At which most businesses will simply collapse. How much should he raise the interest rates? To 100%? I don't think that will work either. Interest rates hike do cause short-term inflation. Long-term, they'll just bankrupt businesses. And no, I'm not a genius. I don't have a solution to this vicious circle the economy has entered. It looks like it is about to wind down either ways with lots of damages.
- graeme 8y ago
  Thst was before the election June election though, done by the central bank. After the election Erdogan took control of the central bank and appointed his son in law to be treasury and finance minister. https://www.bloomberg.com/news/articles/2018-07-10/erdogan-gives-himself-power-to-appoint-central-bank-governor https://www.bloomberg.com/news/articles/2018-07-10/erdogan-g...
- misja111 8y ago
  "Interest rates hike do cause short-term inflation" Do you care to expand? This is the first time I'm hearing somebody say this. I've always believed it is exactly opposite; raising interest rates motivates people to save more and borrow/ spend less: because people are spending less there is less demand and so it removes the upward pressure on prices.
  - csomar 8y ago
    At least what I experienced is that businesses raise prices as their interest goes higher. I'm obviously talking very short-termish (first few months).
- whatok 8y ago
  Turkey's central bank hiked rates before Erdogan won re-election which consolidated a lot of his power; including power of appointing central bank governors. You could make an argument for central bank independence back then. It's much harder to do so now. The rest of what you wrote runs contrary to real world economics.
nurettin 8y ago
This is the truth we live in. And yes, he is known to forego reason in order to get votes. To clarify: Islamic perspective on interest rates is that it is sinful (actually, giving credit is what is presented as sinful, but meanings are lost in translation) However, the Quran doesn't present a perspective on whether interest rates can be used as a leverage against high inflation rates. I guess they were too busy trying to calculate how many male witnesses are the equivalent of female witnesses.
- adityapurwa 8y ago
  Interest is sinful in all Abrahamaic religion. The Quran mentioned that lending money is social act and shall not be made a business. You can sell items by installment directly, but you must be the direct seller and the buyer actually pay to you, not to the bank who covers the buyer money and paid it to you. Theres a lot of verse in the Quran that explain about how to trade, loan, etc.
  - diego_moita 8y ago
    > Interest is sinful in all Abrahamaic religion. It predates Abrahamic religions. Even Aristotle complained about lending and interests as being "unnatural".
    - seanmcdirmid 8y ago
      I don’t think Aristotle predate Abraham, who could have been mythical anyways (Aristotle was real of course). Abrahamic religion copied a lot from other religions/myths at the time (like the flood coming from the Epic of Gilgamesh), surely sentiment against usury could have been one of those. But then again, Jews became the bankers of Europe because Christians at the time were against it as well.
      - mschuster91 8y ago
        > But then again, Jews became the bankers of Europe because Christians at the time were against it as well. Jews actually had few other job options left to them. Antisemitism was really really widespread throughout entire Europe.
berns 8y ago
> This is the physical world equivalent of believing gravity makes things rise No, it isn't. At least it's not as clear cut as you want to make it look like with the hyperbole. Higher interest rates have both deflationary and inflationary effects. The mainstream only acknowledges the short or medium term effect on borrowing and consumer spending. But interest rates are just another price of the economy. Higher interest rates also means higher costs for businesses. And they add to the government deficit, which is also inflationary. Maybe Erdogan is looking at Argentina, where the current interest rate is above 45% and whatever anti-inflationary effect it could have had has long ago dissapeared.
- 0x8BADF00D 8y ago
  > Higher interest rates have both deflationary and inflationary effects. Higher interest rates by definition reduce the rate of money in circulation by encouraging saving over spending (higher cost to borrow money). Maybe in your mind that leads to deflation, but empirically it doesn’t.
  - acchow 8y ago
    Your jump from "encouraging" to "by definition" is quite the significant leap. I'm not saying I believe higher interests causes inflation, but I believe your logic is flawed.
- graeme 8y ago
  Can you cite any credible economic expert who believes interest rates increase inflation or reduce the value of a currency? Argentina’s currency jumped after that interest rate hike, btw, and the inflation rate for 2018 has been lower than that of 2017. https://www.statista.com/statistics/316750/inflation-rate-in-argentina/ https://www.statista.com/statistics/316750/inflation-rate-in...
  - berns 8y ago
    > inflation rate for 2018 has been lower than that of 2017 The inflation in 2017 was 25%. With a lot of luck in 2018 will be < 32%.

by graeme 8y ago

JumpCrisscross 8y ago

> Erdogan believes that higher interest rates cause inflation Is there evidence he actually believes this?

chadmeister 8y ago
No, just propaganda trying to make him look dumb. Anyone with basic econ knowledge knows that raising rates has a dampening effect of economic growth, as it crowds out investment. Turkey is caught in a very difficult spot.
- whatok 8y ago
  How is him giving a public interview stating that belief considered "propaganda"?
graeme 8y ago
Yes, I just added this link. Most articles on turkey's economy mention his belief (for some reason the nyt left it out) I guess he could be lying, but it has certainly rattled the markets. https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s-40-year-old-theory-of-inflation-scores-a-win-in-turkey https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...
whatok 8y ago
He's mentioned it publicly in several interviews. Whether or not he believes it is another thing.
postexitus 8y ago
he said the exact words many times in many of his speeches / rallies. this doesn't prove that he "actually believes" this though. it may be just one of his / his team's mind games to divert attention. here is a turkish source (not even an opposition one): https://www.haberturk.com/erdogan-faiz-ne-kadar-dusuk-olursa-enflasyon-da-o-kadar-dusuk-olur-1965978-ekonomi https://www.haberturk.com/erdogan-faiz-ne-kadar-dusuk-olursa... just google "faiz enflasyon erdogan" (Which means interest rate, inflation, erdogan in turkish) and be amazed how many different instances he said it, and his ministers confirming his views.
Analemma_ 8y ago
What does it matter? With authoritarian populist leaders, what they "actually believe" isn't even a meaningful concept. A defining characteristic of authoritarianism is that truth gets fuzzy in order to serve the interests of the state, and the defining characteristic of populism is to just go with whatever pleases the mob. So when you combine the two, you get policy made up on the spot but enforced with religious fervor, which is what's happening here. I mean, take Trump: he's a raging ball of id who just yells whatever pops into his head at random and agrees with whoever spoke to him last. What he "actually believes" is probably, to use programming jargon, undefined.
- JumpCrisscross 8y ago
  > What does it matter? My assumption was that he's keeping rates low to avoid raising interest costs for his government and cronies. But it might be that he actually just misunderstands economics and everyone is too scared to tell him so.
  - whatok 8y ago
    My personal belief is that he is well-aware but would rather scapegoat external "forces". The problem is that you can't really keep that ball in the air long enough to fix the underlying problem.

csomar 8y ago

> Erdogan believes that higher interest rates cause inflation. I don't think he does. Proof: https://tradingeconomics.com/turkey/interest-rate https://tradingeconomics.com/turkey/interest-rate He hiked interest rates by 10%. Making the central bank rate around 18%. You'll pay 22-25% to borrow in Turkey. That's an insane rate. At which most businesses will simply collapse. How much should he raise the interest rates? To 100%? I don't think that will work either. Interest rates hike do cause short-term inflation. Long-term, they'll just bankrupt businesses. And no, I'm not a genius. I don't have a solution to this vicious circle the economy has entered. It looks like it is about to wind down either ways with lots of damages.

graeme 8y ago
Thst was before the election June election though, done by the central bank. After the election Erdogan took control of the central bank and appointed his son in law to be treasury and finance minister. https://www.bloomberg.com/news/articles/2018-07-10/erdogan-gives-himself-power-to-appoint-central-bank-governor https://www.bloomberg.com/news/articles/2018-07-10/erdogan-g...
misja111 8y ago
"Interest rates hike do cause short-term inflation" Do you care to expand? This is the first time I'm hearing somebody say this. I've always believed it is exactly opposite; raising interest rates motivates people to save more and borrow/ spend less: because people are spending less there is less demand and so it removes the upward pressure on prices.
- csomar 8y ago
  At least what I experienced is that businesses raise prices as their interest goes higher. I'm obviously talking very short-termish (first few months).
whatok 8y ago
Turkey's central bank hiked rates before Erdogan won re-election which consolidated a lot of his power; including power of appointing central bank governors. You could make an argument for central bank independence back then. It's much harder to do so now. The rest of what you wrote runs contrary to real world economics.

nurettin 8y ago

This is the truth we live in. And yes, he is known to forego reason in order to get votes. To clarify: Islamic perspective on interest rates is that it is sinful (actually, giving credit is what is presented as sinful, but meanings are lost in translation) However, the Quran doesn't present a perspective on whether interest rates can be used as a leverage against high inflation rates. I guess they were too busy trying to calculate how many male witnesses are the equivalent of female witnesses.

adityapurwa 8y ago
Interest is sinful in all Abrahamaic religion. The Quran mentioned that lending money is social act and shall not be made a business. You can sell items by installment directly, but you must be the direct seller and the buyer actually pay to you, not to the bank who covers the buyer money and paid it to you. Theres a lot of verse in the Quran that explain about how to trade, loan, etc.
- diego_moita 8y ago
  > Interest is sinful in all Abrahamaic religion. It predates Abrahamic religions. Even Aristotle complained about lending and interests as being "unnatural".
  - seanmcdirmid 8y ago
    I don’t think Aristotle predate Abraham, who could have been mythical anyways (Aristotle was real of course). Abrahamic religion copied a lot from other religions/myths at the time (like the flood coming from the Epic of Gilgamesh), surely sentiment against usury could have been one of those. But then again, Jews became the bankers of Europe because Christians at the time were against it as well.
    - mschuster91 8y ago
      > But then again, Jews became the bankers of Europe because Christians at the time were against it as well. Jews actually had few other job options left to them. Antisemitism was really really widespread throughout entire Europe.

berns 8y ago

> This is the physical world equivalent of believing gravity makes things rise No, it isn't. At least it's not as clear cut as you want to make it look like with the hyperbole. Higher interest rates have both deflationary and inflationary effects. The mainstream only acknowledges the short or medium term effect on borrowing and consumer spending. But interest rates are just another price of the economy. Higher interest rates also means higher costs for businesses. And they add to the government deficit, which is also inflationary. Maybe Erdogan is looking at Argentina, where the current interest rate is above 45% and whatever anti-inflationary effect it could have had has long ago dissapeared.

0x8BADF00D 8y ago
> Higher interest rates have both deflationary and inflationary effects. Higher interest rates by definition reduce the rate of money in circulation by encouraging saving over spending (higher cost to borrow money). Maybe in your mind that leads to deflation, but empirically it doesn’t.
- acchow 8y ago
  Your jump from "encouraging" to "by definition" is quite the significant leap. I'm not saying I believe higher interests causes inflation, but I believe your logic is flawed.
graeme 8y ago
Can you cite any credible economic expert who believes interest rates increase inflation or reduce the value of a currency? Argentina’s currency jumped after that interest rate hike, btw, and the inflation rate for 2018 has been lower than that of 2017. https://www.statista.com/statistics/316750/inflation-rate-in-argentina/ https://www.statista.com/statistics/316750/inflation-rate-in...
- berns 8y ago
  > inflation rate for 2018 has been lower than that of 2017 The inflation in 2017 was 25%. With a lot of luck in 2018 will be < 32%.