The Currency Crisis Spreads To Turkey

Written by Chris Marcus for the Miles Franklin blog.

Just at the time that the paper financial markets appear on shakier ground than ever, the latest news is that a currency crisis has broken out in Turkey.

The Turkish lira plunged as much as 11% against the dollar, hitting a record low, before recovering some of its losses in volatile trading.

The lira had already plummeted more than 20% last week as a political clash with the United States intensified and investors fretted about the Turkish government’s lack of action to tackle the problems plaguing its economy.

That this is occurring now, at the same time that Argentina and Venezuela are also experiencing their own form of currency crisis is hardly an accident. In fact it’s what could have been expected before the Federal Reserve launched its quantitative easing programs almost a decade ago.

When interest rates rise in the United States, increasing the value of the dollar, foreign corporations and governments have trouble repaying these debts in their depreciating national currencies — precisely what is happening in Turkey right now.

Which is just one of the many reasons why it’s advisable to never engage in cranking the presses to begin with. Sure, it can feel great at the time. But the hangover is painful, as the Fed is finding out about now.

Of course there are some who still see no cause for concern.

The dramatic fall in the Turkish lira over the last few days has rattled global markets, even though experts don’t expect the troubles facing Turkey to trigger the next financial crisis.

Yet are these the same “experts” who saw no cause for concern prior to the last mortgage and banking meltdown? Hank Paulson and Ben Bernanke warned that the situation was under control even as it continued to unravel. So just because the Fed or other mainstream perspectives are not noticing the signs doesn’t mean they aren’t there.

In fact the number of investors who are very much starting to realize there’s a problem actually seems to be growing.

“Turkey’s crisis raises concerns about more fragile emerging-market countries that similarly carry larger current account deficits like Brazil, South Africa, and Argentina, ” Wells Fargo Investment Institute said in a Tuesday report.

Investors are concerned that weakness within Turkish banks may spill over to foreign lenders that have assets in the country.

Investors, fearing that other emerging markets could follow in Turkey’s footsteps, have pulled their money out of countries such as India and Argentina.

The dots are there for anyone who cares and chooses to connect them. It’s understandable that they are not always easy to see, as there has been an incredible effort to leave investors feeling confused and without options.

Yet that does not mean that there are not solutions. And the fact that gold and silver are trading near their cost of production means that not only is there still time to obtain financial insurance. But that amazingly enough, despite the canaries dropping all over the coal mine, the insurance even remains on sale.

–Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).