Bi-Weekly Geopolitical Report – The Turkish Experiment (February 28, 2022)
by Bill O’Grady | PDF
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The Turkish economy is being roiled by spiking inflation and a sharp decline in the Turkish lira (TRY). The orthodox response to such a macroeconomic crisis is austerity. Fiscal and monetary policy become tight; taxes are raised, or spending is cut, or both occur and interest rates are increased. The goal is to depress domestic demand because the root cause of these problems is usually a persistent current account deficit. Reducing domestic demand usually leads to a reduction in the current account deficit.
Turkish President Erdogan has adopted a heterodox response to the current crisis. He has fired numerous officials of the Central Bank of the Republic of Turkey (CBRT) over the past two years who insisted on raising interest rates to address the aforementioned problems. Since July 2019, when Erdogan relieved Murat Cetinkaya of the governorship of the CBRT, he has installed three governors in less than three years. Erdogan believes that increasing interest rates leads to higher inflation on the idea that increased borrowing costs will be applied to prices. This position is at odds with the normal prescription for addressing an inflation and currency crisis.
In this report, we will begin with a review of the basic economics of savings balances and how current account deficits are created and funded. From there, we will provide an examination of Turkey’s current economic situation. The next section will deal with the government’s response. We will close with market ramifications.
Weekly Geopolitical Report – Erdoğan’s Leadership and the Turkey-Greece Dispute: Part II (October 5, 2020)
by Patrick Fearon-Hernandez, CFA | PDF
In Part I of this report last week, we took a deep look at Turkish President Recep Tayyip Erdoğan’s perspectives, goals, power, initiatives, and constraints. We examined how his primary aims are to regain Islam’s place in global society, seek redress for the way Islam and Turkey have been treated by the West, and make Turkey an independent, respected, and dominant power in the Middle East. We also showed that Erdoğan has a solid domestic political base to carry out his plans. In Part II, we will discuss how the latest reflection of Erdoğan’s program is his effort to make Turkey a player in developing the newly discovered, rich natural gas fields of the eastern Mediterranean Sea. Since that initiative could lead to a confrontation with other countries, we also explore the potential implications for investors.
Weekly Geopolitical Report – Erdoğan’s Leadership and the Turkey-Greece Dispute: Part I (September 28, 2020)
by Patrick Fearon-Hernandez, CFA | PDF
When talking about international relations, it’s tempting to describe each country as a monolithic, rational decisionmaker with a settled set of concerns, goals, strategies, and tactics. Examples of such descriptions include: China wants to solidify its claim to the South China Sea; Russia is trying to undermine Western democracies; and the U.S. has tired of global hegemony. This convenient shorthand makes it easier to talk about geopolitics, but it can mask the reality that a country’s behavior is driven by the decisions and initiatives of powerful individuals. Those decisions and initiatives may reflect the country’s traditional perspectives, lessons from history, and habits developed over centuries. They may incorporate today’s popular opinion or the preferences of the ruling classes. But a country’s policies still reflect the decisions of individuals in power as constrained by their personal, political, and bureaucratic environment. Without Napoleon, it’s unlikely that post-revolutionary France would have embarked on its aggression against the rest of Europe in the way that it did. Without Adolf Hitler, neither would post-World War I Germany have done so.
If leaders and leadership really do count, a good example today is Turkish President Recep Tayyip Erdoğan and the way he’s deploying Turkey’s power in Asia Minor. In Part I of this report, we provide a deep dive into Erdoğan’s perspectives, goals, power, initiatives, and constraints. Next week, in Part II, we’ll show how Erdoğan is trying to make Turkey a player in the newly discovered, rich natural gas fields of the Eastern Mediterranean. Since that initiative could lead to a confrontation with other countries, Part II will also explore the potential implications for investors.
Weekly Geopolitical Report – What’s Putin up to? (August 29, 2016)
by Bill O’Grady
Over the past few months, Russian President Vladimir Putin has been unusually active on multiple fronts. He has expanded his military operations in the Middle East in support of Syrian President Assad, boosted troop strength on the Ukrainian border and conducted a major purge and restructuring of the Russian government. He has also accused Ukraine of terrorist activity in Crimea, which he seized in 2014.
In this report, we will offer a short recap of Putin’s recent activities. To create context for these moves, we will discuss how these actions fit into Putin’s hold on power. As always, we will conclude with potential market ramifications.