The real reason to worry about Turkey
There are lots of things to be frightened of in the world of finance. But Turkey should probably be top of the list, says Merryn Somerset Webb.
What should you be most frightened of, financially, at the moment? There's a long, long list out there.
The credit bubble in the UK (don't think about car finance it really will keep you awake at night). The fact that, while we don't talk about it any more, QE is unlikely to ever be really unwound. What inflation will do to bond prices and to the value of every pension fund in the Western world. The nasty looking over valuation of US equities.
But there's one thing that doesn't get quite as much attention as it should: Turkish debt. Right now, while overall public debt isn't particularly high (by bonkers Western standards, anyway), Turkey has around $400bn in external debt (owed outside the country).
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Russell Napier has been talking about the danger inherent in this for some time. Back in 2015, when he was asked what he saw as the most likely trigger for an emerging-markets crisis, he answered that if he had to pick one he would go for Turkey introducing capital controls and then not paying back either the principal or the interest on its debt.
That would be bad in itself (Turkish debt is held globally) but there would also be contagion: "when credit stops flowing to one emerging market it stops flowing to all of them".
It's worth noting that $400bn while a tiny number in the context of global debt flows is about the same amount as borrowed by Bear Stearns. And look how much chaos that caused. There's a good interview with Russell here that mentions the matter (I'll try and do another one with him myself soon our old ones are here). It was done a few years ago.
If you want to scare yourself, think about how much the lira has weakened (the weaker the lira the harder it is to finance the debt) and of course how much Turkish politics have changed since (more on this in the magazine). Takes your mind off the car finance problem doesn't it?
-
‘Sandwich generation’ carers losing £6,000 a year to support elderly relativesMiddle-aged adults are often caught between caring for children or grandchildren and their elderly parents, leaving them taking time out of the workforce and facing a huge hit to wages while they are still trying to save for retirement. We look at the true cost of caring.
-
Ground rents to be capped at £250 a year – what does it mean for you?The government has published draft legislation which would see ground rents capped at £250 per year for leaseholders. We examine what it means for homeowners and the housing market.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
