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Turkey hikes interest rate again to 45% after inflation nears 65%
- nostrademons 3y agoSo...real interest rates are -20%. That's not going to tame inflation. I wish more laypeople understood the difference between real and nominal economic quantities. Until real rates go positive, it's profitable to borrow lots of money and use it to hoard goods, which accelerates inflation.
- KolmogorovComp 3y agoThat’s assuming salaries follow inflation, a big hypothesis.
- unsupp0rted 3y agoAs of the start of this year, minimum wage in Turkey is ahead of inflation. In other words, workers at minimum wage are making more in dollar terms today than they made in dollar terms in previous years.
- The_Colonel 3y agoThat doesn't say much without knowing how many people earn it. In my country, only about 4% of employees get minimal wage (because it's pretty low). What's the situation for the median worker?
- unsupp0rted 3y agoA LOT of people in Turkey earn minimum wage. 50% ~ 75% of all workers.
- aranelsurion 3y agoAnd also a substantial amount of people who earn less than that under various legal and illegal schemes.
- rightbyte 3y agoThe numbers are too big for using that approximation. Wont the real interest be: 1.45/1.65 => -12% ?
- nostrademons 3y agoPretty sure it's not an approximation, at least for interest rates compounded continuously. The real interest rate is simply the nominal interest rate minus inflation. The algebra is e^(realt) = e^(nominalt) / e^(inflationt). Left side is your compounded real gains, first factor is on the right is your compounded nominal gains, and the divisor is the cumulative price rise to go from nominal to real terms. e^(real t) = e^(nominalt - inflationt), by quotient rule for exponents. e^(real * t) = e^(t * (nominal - inflation)), factoring out t. real * t = t * (nominal - inflation), taking natural log of both sides real = nominal - inflation, dividing by t
- bitshiftfaced 3y agoAsterisks code for italics in markdown language.[0] You can avoid this by escaping them with the backslash. \*example 0. https://news.ycombinator.com/formatdoc https://news.ycombinator.com/formatdoc
- yorwba 3y agoInterest rate and inflation are usually expressed as e^(exponent * one year) - 1, so to get from 45% to the exponent you need to add one and take the logarithm, giving 0.37
- rightbyte 3y agoHmm ... my heads hurt doing math ... so not: e^(real x t) = e^(nominal x t) - e^(inflation x t) ? Like, you have 1$ in the bank that can buy 1 foo widget. After a year the foo widget is 1.65$ and you have 1.45$, missing 12% of the sum you need. I.e the same thing as having no inflation and a 12% tax. Your definition seem to break down when "nominal - inflation" is bigger than -100%. Or what would -110% real interest mean?
- deleted 3y ago
- Workaccount2 3y agoTurkey is trying to modulate inflation, not tame it. The goal is to attract foreign manufacturers to come an set up shop in Turkey. It's very favorable to be using $USD/$EUR to buy labor/material in Turkey right now. Turkey however doesn't exactly have the stability, skills, or logistics necessary right now for big names to relocate. So they are likely suffering for not much gain.
- cherryteastain 3y agoWhich is sad because that stability was there for a brief window between ~2005 and 2013.
- alephnerd 3y agoYep. It's a stunning fall for the Anatolian Tiger, but imo the potential is still there, and China+1 will help. They have a fairly competitive automotive, machinery, power systems and renewables, and chemical industry, and can probably expand it further. If they return to the same economic formula Dervis and Babacan pushed, it can get back on track. That said, a lot of the miraculous growth from 2005-13 was because of Central Anatolia catching up. The only region that hasn't caught up yet is Eastern Anatolia, though it's getting there unless the YPG/PKK screw everything up again.
- Alpha3031 3y agoIt's possible to manage a dirty float without setting fire to the domestic economy, you know... In fact, investors tend to be hesitant to invest in economies that are on fire even with favourable exchange rates.
- Workaccount2 3y ago> In fact, investors tend to be hesitant to invest in economies that are on fire even with favourable exchange rates. Hence why I don't think their plan is going to work.
- nostrademons 3y ago
- Alpha3031 3y agoA leftward shift of LM is still a leftward shift of LM.
- cherryteastain 3y agoReal rates are way below -20% and real inflation is way above 65%. An independent research institute composed of some of the top economists in Turkey, ENAG[1], puts it at over 120% [1] https://enagrup.org/?hl=en https://enagrup.org/?hl=en
- marcosdumay 3y agoWell, what actually matters is the future inflation, not the past one. So this is a complicated calculation about how bankers expect people to react to the change in the next few days.
- deleted 3y ago[deleted]
- bwanab 3y agoUnfortunately, it seems their president wasn't aware of the connection either: https://www.reuters.com/world/middle-east/erdogan-says-interest-rates-will-be-lowered-inflation-will-fall-too-2022-01-29/ https://www.reuters.com/world/middle-east/erdogan-says-inter....
- tim333 3y agoI think he's aware of the idea but argues aggressively against it. Apparently God will sort it all out.
- anonporridge 3y agoDepending on your politics, spreading this understanding might have negative implications for the upcoming US election. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N
- aeyes 3y agoM2 increased 65% YoY, maybe the should cut public spending to reduce their deficit and stop the money printer instead... Or better: Close the central bank because politicians abuse it to spend money they don't have.
- AlexandrB 3y agoWhat does M2 have to do with public spending? Most of that money was created by private banks with private loans. Edit: It's also a little hard to stop spending money when you're dealing with the fallout of this: https://en.wikipedia.org/wiki/2023_Turkey–Syria_earthquakes https://en.wikipedia.org/wiki/2023_Turkey–Syria_earthquakes > The confirmed death toll stood at 59,259: 50,783 in Turkey and 8,476 in Syria. It is the deadliest earthquake in what is now present-day Turkey since the 526 Antioch earthquake and the deadliest natural disaster in its modern history.
- qwebfdzsh 3y ago> the deadliest natural disaster in its modern history. Wasn't the 2004 tsunami deadlier?
- nvm0n2 3y agoIt has a multiplier effect. Government wants to spend money without raising it in taxes, forces the central bank to "loan" it money which it does via "printing" (increasing the balance of the govt at the CB accounts). The government spends the money on salaries and pensions which is then deposited into banks, which use those deposits to justify even more lending.
- kennethh 3y ago[flagged]
- rssoconnor 3y agoShadowstats is complete garbage. Their "alternative measurement" of prices is to take the BLS numbers and add 3.5% to it. That is it. See "The [$175] subscription price of hyperinflation-predicting ShadowStats hasn't changed in 8 years"[0] from 2015. In 2024 it is still $175, so make that 17 years. If you want an actual alternative to BLS numbers, there is the https://thebillionpricesproject.com/ https://thebillionpricesproject.com/ from MIT. [0] https://theweek.com/speedreads/449820/subscription-price-hyperinflationpredicting-shadowstats-hasnt-changed-8-years https://theweek.com/speedreads/449820/subscription-price-hyp...
- kennethh 3y agoIt is not a very good argument that their subscription service has not increased in price in 17 years. Many online services have kept their price but the number of users have increased a lot. The important thing about ShadowStats is that they show different methods of calculation price inflation. Calculating inflation from prices is not easy since people tend to consume more chicken or pork of beef is getting more expensive. If you still only consume beef the price index do not show your personal reality, and this reality is different for all people. In aggregate everything that is produced get consumed over time, so the total prices paid is always connected to the total amount of money available.
- rssoconnor 3y agoThe "take the BLS numbers and add 3.5%" methodology isn't a real methodology. And regardless of their methodology, the numbers given by ShadowStats are just manifestly wrong. You can calculate the implied cumulative effective price increase and over the last 17 years and it is just observationally wrong for anyone who has lived for the last 17 years. It is not even close.
- randomdata 3y ago
- TacticalCoder 3y agoThink about the evil Turkish people who managed to exchange their toilet paper of a currency for Bitcoin or who did manage to acquire the barbarous relic that gold is: how scammed they've been! Meanwhile the US went from 33 to 34 trillion in 100 days. Probably at 35 trillion now.
- pjc50 3y agoTurks who managed to secure dollars are also doing pretty well.
- wackget 3y agoI have no idea how inflation works - what happens if you're an average Turkish person who had, say, 1000 lira in their bank account 10 years ago? If that 1000 lira used to be able to buy you 100 meals at 10 lira each, and now the same meal costs 100 lira, have you effectively just become 10x poorer over the past 10 years? Does the government or your bank offer you higher savings interest on that lira as inflation rises?
- deleted 3y ago[deleted]
- philomath_mn 3y agoAssuming the 10 year inflation rate came out to 1000% (or 26% annually) then your meal math would be correct. As for the bank, it really depends on the accounts and products they offer. I'd imagine a Turkish bond would offer a rate of return (in lira) somewhat correlated to their central bank target rate (now 45%), but a typical savings account will always be some spread lower than that. So, assuming constant rates for simplicity, if you got a generous 5% return on your savings account, then, after 10 years, your 1000 lira from 2014 would be worth 1000*(1.05)^10 = 1628.89 in 2024 lira. Unfortunately, those 1628.89 in 2024 lira is only worth 1628.89 / (1.26)^10 = 161.50 in 2014 lira. The real picture is more complicated (rates go up and down, inflation in one area will be different than another and there are different ways to measure) but that is the general idea.
- ta1243 3y agoWhat people fail to appreciate is the different value of work. If you do a week's work in 1900 and make one dohicky, you get paid 100 pieces of gold and spend 50 on bed and board and save the rest Is it fair to think that your work in 1900 for making one dohicky should be able to buy you two week's bed and board in 2000, where a new worker can make 50 dohickys instead of your one. Get rid of inflation and you are valuing work done in the past at least as much, and probably more, than work done today, and that's stealing from today.
- thriftwy 3y agoThey should totally consult the talented Turkuc woman Elvira Nabiullina since it is obvious they do not know what they are doing.
- myth_drannon 3y agoThe only talented human in Turkey is Erdogan, no one else can even come close to his brilliance. /s
- xyzzy4747 3y agoHave they considered cutting public spending instead of printing money into a hyper-inflation spiral?
- simplicio 3y agoIsn't increasing interest rates the opposite of printing money?
- xyzzy4747 3y agoSeems more like a response to printing money to try to contain the issue.
- aranelsurion 3y agoCutting public spending will be difficult now since Turkey has already made a large part of their citizenry essentially dependent on government money either directly or indirectly, and cutting on that further would essentially doom large groups of people further under poverty line and into starvation. Not to mention a recent earthquake caused massive damage in the eastern regions, and it will probably take years to rebuild and recover completely. This is not to say that Turkey doesn't have frivolous public spending, it's more like the hole they've dug is so deep, that probably hardly matters at this point.
- d_burfoot 3y agoLooking back on prior eras of human history, we wonder why people accepted that the state should have the power to make gross infringements on their basic human rights, like freedom of religion, freedom of speech, and so on. In the future, humans will look back on our era and wonder why we accepted the idea that governments should have so much power to interfere with the economy. A stable currency is a basic human right.
- deleted 3y ago[deleted]
- solardev 3y ago(deleted my previous comment)
- ta1243 3y agoOr people will look back and wonder why they weren't protected by their government as "the economy" failed to deliver time and time again. Not every culture shares your libertarian fantasies. Nor do they share your specific limits on free speech (such as copyright) or your disdain for their limits (such as limit on hate speech)
- graphe 3y agoWhy would topics he mentioned such as "freedom of religion, freedom of speech, and so on" need to be trampled to "protect" it's people/economy from "libertarianism". Which culture hates those things?
- The_Colonel 3y agoPlenty of cultures criticize these freedoms, just differently phrased (traditional values, central role of a family, blasphemy...)
- graphe 3y agoI'll word it differently: he seems very politically biased about the economy and makes it a social issue, having a dictatorship on speech and making everyone stop wrongthink or keeping copyright forever isn't going to improve GDP or economy.
- graphe 3y agoHow will this affect Turkish steam gift cards?
- AlexeyBelov 3y agoAsking the most important questions.
- CSDude 3y agoReall inflation is much higher than 65%. A lunch takes 250 TL which we used to 100-120 TL almost 1 year ago.