Turkey is the case study of what happens when low interest rate policies run their course.
Here is a great explanation of what is happening in Turkey. Turkey Currency Crisis Explained: Why is the ‘Lira’ in Free Fall?
Featured diamond of the week is a .29 Fancy Argyle Pink Radiant Cut VS1Beyond the politics, Turkey like many economies borrowed a lot of money when interest rates were low. Now that interest rates are rising the debt will have to be paid back at a higher price. As the Turkish Lira has dropped they will have to pay back with a lower currency which means they need to come up with more funds. Then the US dollar starts rising which means Turkey will have to pay back loans at an even higher price. The Turkish central bank will not raise rates to invite investors and bring value to the Lira, and so the Lira drops further still.
As Ben Hunt, co-founder and chief investment officer of Second Foundation Partners recently said on Bloomberg, Gold is a “Hedge against central bank policies”. This is exactly what we are seeing in Turkey as Gold has been skyrocketing. What if Turkey is just one example of things to come? They are not the only emerging economy with debt issues.