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With Elections Just Over the Horizon, Turkey Catapults Towards Crisis - Nathan McDonald (24/05/2018)

From the archives of sprott money news

May 24,2018

Turkey finds itself stuck between a rock and a hard place as investors desperately try to remove their funds from the country before the bottom falls out of the market.


Yesterday, the Lira suffered a monumental loss, dropping by the most we have seen in over a decade. This comes on the back of already-significant losses, with momentum gaining and the fiat currency seemingly unable to recover.


We have seen this before, and we will see it again, as long as countries put their faith in fiat currencies that are intrinsically worth nothing.


Investors are waking up to this realization—at least in regards to the Lira—as they become increasingly skittish about Turkey's Central Bank and their unwillingness to act on this crisis. Unlike the United States, The Central Bank of Turkey can not freely print fiat currency without suffering massive repercussions. The U.S. abuses this privilege on a regular basis, due to their reserve currency of the world status.


Compounding Turkey’s troubles—or at least the ruling party’s—an election looms, and it’s one the current president, Recep Tayyip Erdogan, hopes to win.


Sadly for him, the timing of this meltdown couldn't be worse, as elections are set to take place on June 24th. For Western officials, the timing couldn't have been better, as hostilities between President Erdogan and Western leaders have been mounting for years, with many labeling him a "dictator" or a "tyrant".


Regardless of your position, the timing of this meltdown is indeed questionable, as it now puts his reelection in doubt.


Indeed, Turkey is stuck between a rock and a hard place. Their growing debt levels are beginning to cripple their economy, due to the weakening fiat currency.


Debt repayments for Turkish corporations continue to grow as their currency declines. Over the next few months, they will need to pay roughly $600 million Lira more for foreign currency notes maturing, due to this drop in the Lira.


As you can imagine, this will cause even more investors to flee the Turkish market. The sucking sound of funds leaving the market will continue to magnify, creating a self-fulfilling prophecy and ultimately an outright currency crash—such as that recently seen in Argentina—unless something can be done fast.


Undoubtedly, this ongoing crash played a huge contributing factor in Turkey's recent decision to repatriate their gold reserves, as they scramble to shore up their defenses and get any form of real, hard money they can get their hands on.


Unfortunately, we have watched this scenario play out time and again. And we will watch it many more times before the world finally comes to its senses and makes the only logical move that can stop this madness: a return to a hardback form of money. A return to gold.

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.