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Hyperinflation in Turkey

Updated: Oct 21, 2022

What the heck is going on Turkey? In this podcast, I’m going to talk about the inflationary problem. They’re having turkey and my recent visit there. Stay tuned.

Welcome back to this edition of the wealth architect podcast from Greece. I’m still in Greece right now, I just got back from a week in Turkey. And I was there with my buddy Nick Spohn. And Nick has got a master’s degree in economics. We banter around economics all the time and we said, a few months ago, why don’t we just go to Turkey and check out what’s going on there with hyperinflation, what I learned in Turkey was eye opening. And the reason its eye opening is because I think it’s the same thing that’s going to be happening in the United States. So, if you’ve been watching my channel, my videos, my YouTube, my podcast, you know, that I’ve been telling you that inflation is coming. And now we know that that is here. And it’s here bigger than we thought it was ever going to be. And, and bigger than they told us.

The same thing is going on in Turkey. So, let’s talk about the dire situation in Turkey, I feel really sorry for the people in Turkey. You know, we met three tour guides along the way, and each of them had their own spin on what was going on in Turkey. But in general, the theme was, we can’t afford it. And we don’t know why it’s going up, that’s in general, the thing like they don’t understand the concept of scarcity of money, or the lack thereof. And that’s the reason why it’s going up. So, as we would talk to them, for example, our first tour guide, her name was Nisha, she was paying about let’s call it 6000 lira a month in rent. And she didn’t have a lot of disposable income, well, halfway into her lease, the landlord comes and says, “We got to raise your rent to 15,000 lire month from 6000.” So that’s a pretty big jump, and the landlord knows they can come and do that, because where else are they going to go? And so, this is the problem with Hyperinflation as it affects the poor. The rich people have their assets, they know they can go out and sell the asset, or they can find another tenant who’s going to pay that 15,000. But the poor people, they’re stuck, they have to figure out a way to pay it. And they’re going to have to give something else up. This is not discretionary money. So, I kept hearing that theme over and over again. And the dollar is actually remarkably strong right now. It’s not going to last forever, but it’s remarkably strong.

When you go to Turkey, you can use dollars and you get a lot more bang for your buck, it goes a lot farther. I was amazed at a phenomenal dinner would be $5 or $6. It was amazing what you can buy with the dollar for hyperinflation, I think that will translate into asset prices. So, asset prices will probably rise in the short term, but only to the extent that people can use other currencies to buy those assets, the euros or the dollar, specifically right now.

Now, let’s go back and figure out what’s going on in Turkey. And why there is hyperinflation. Well, first of all, they have a president, his name is Erdoğan . And he’s basically a dictator in Turkey. Now your people, they’re not allowed to say that because they can get thrown in jail, but I can say it. He’s basically a dictator. And he basically says, we’re going to keep printing money and keeping the people happy. So that’s what’s going on. And it’s always happened in the 700 economies that I’ve studied, and all of which have failed. When it comes to fiat currency, like the United States dollar, like the yen, all of these currencies are failing or in the process of failing right now.

But it’s because they placate the masses by throwing money at them. So, in the short term, people are like, “Oh, I’m getting more money, I get a raise, the government’s giving me a stipend, we’re getting universal basic income. My minimum wage is going up”.  All these basic things andt people are like, “Oh, the government is on my side.” They’re buying your vote everybody, by the way. And then what happens over time. People are like, “wait a minute, I got an 8% raise, but my costs are up 20%, like, look at what the rent was up to, 150%.” People are not stupid and after a while, they’ll figure it out. So, they’ll keep voting for this guy. Or maybe they’re at the end of voting for this guy. But inflation is 73%. That’s the official rate. But I just told you what the unofficial rate is. And that’s what’s happening to people’s rent, what’s happening to the price of people’s food. It is a real shame what’s going on.

But let’s talk about WHY it’s happening in Turkey. The economy is an importation economy. They export, but only to the extent that they can import. So, what they do is import raw materials, they fix them up, manufacture and turn those around and export it. Well, they can only buy raw materials with a global currency such as the dollar, which is still “the supposedly” reserve currency of the world, but that status is changing. But right now, everybody accepts dollars, and so they could transact in dollars. But the problem is the lira is becoming worth so much less that it’s costing more and more and more lira to buy dollars that is number one. Number two, the government has basically said, if you’re a bank, or you’re a company that has a lot of dollars, we want 75%, you can keep 25%. But we need to go out to the market and prop up the dollar on the international markets on the exchanges. And so, they go out in the US dollars to prop up the lira, it’s not going to work, they just keep printing more lira. And when you print something, the more you have of something, the less it’s worth, right? Think about air, you don’t pay much for air because it’s free, right? Because there’s an abundance of air, water is pretty much the same thing. You don’t have to pay much for water, if you don’t want to, the more something is available, the less it’s worth. And the same thing is happening with currencies. The same thing specifically is happening with the Turkish Lira. 

The funny story is this, this guy has hired like five or six central bankers. And the central bankers all tell them, “Look, you have to raise rates, you have to make money more scarce, if you want to prop up the lira.” And he’s like, no, no, no, I still need to buy votes, I want to print money, I want to give it to the manufacturers. The problem is now manufacturers need raw materials. They also need fuel. Where are they getting their fuel from, Russia. So, they need oil and gas from Russia, where Russia doesn’t accept the lira. They’re only accepting the Ruble or the dollar if they can right now. And so, it’s really hard for them to even manufacture. So, everyone is just printing money. The central bankers, are saying “you’ve got to raise rates, if you don’t raise rates, we’re going to have hyperinflation.” And every time they say that, he fires them and brings in somebody else that is a yes man, and basically tells him what he wants to hear. It’s not working. And so, he just keeps burning money, the economy is failing. All that to say, he’s going to become a desperate dictator. And desperate dictators either get through overthrown, if there are legitimate elections in Turkey, and I don’t think there are, so then they get taken out with an election, or they start to do something stupid, like Putin is doing right, they’re going to start a war, distract everybody, and get nationalistic and print more money. And, you know, buy jets and stave off the inevitable for a few more years.

I wanted to give you an idea of what’s probably coming in the United States. And we’ve printed more money in the last two years than we’ve printed in the entire history of the United States. And so that comes at a cost. And the cost is usually to the poor people who can’t afford the assets, the stocks and the bonds and the bitcoins and the real estate. And so those are the people that bear the brunt of it. If inflation is 8.6%, which it’s not, that’s the official rate, it’s way higher. But if you believe that, that’s a month’s salary. If you were told a year ago that you’d have to work an extra month to pay taxes, you wouldn’t have liked it very much. But if you look at it that way, 8.6% is about an extra month that you have to work to pay that increased cost for the goods and services that you buy. So, think about that, as you pull the trigger on your next politician, or you start to make your next decisions, because inflation is decimating everything right now. Bitcoin is getting hurt, real estate is starting to get hurt, the only things that are not getting hurt are the stock market in the oil sectors and the transportation sectors, and things like that. But the Fed keeps talking about raising rates, which is probably the right thing to do. It is just too late to do it. And if they’re really serious about raising rates, they’ll raise rates say one percent. You’ve got an idea of what’s going on in Turkey, that I believe is the shape of things to come in all economies that are Fiat economies. So, count all of the major economies, from the EU, the in Europe, to the Japanese yen to the China, to the dollar to the Turkish Lira, it’s happening in South America and Venezuela. It’s happening in Argentina; it’s happening all over the world. And you know, eventually it levels itself out. But there’s going to be some economies that fail in the next few years. And you’re going to see them because of this irresponsible movement to printing.

It’s an also an irresponsible movement to this green thing that everybody’s like, “Oh, we got to go green.” Well, going green is great. And you know, there’s a transition period that can happen if you go green, it can’t be cold turkey. You can’t take a solar panel and make the kind of power out of a solar panel that you can make out of a combustible engine, you just can’t. It takes a lot of solar panels. How do you think those get made, they get made with heat, heat gets made with gas, oil, and coal. And there’s not something for nothing. These economies like Germany, for example, and I’m going to pick on Germany because they made some really stupid decisions. They said, “You know, we need to move our whole economy away from that dirty nuclear power,” (which is not dirty.) It’s one of the cleanest powers there is, but there’s a stigma around it. So, they got rid of most of their nuclear power capacity. And they replaced it with solar and wind and then the wind didn’t blow and the sun doesn’t shine much in Germany, and they don’t have enough power where they’re getting it. They got to go to Russia to get it. And they were like, “well, we’ll just keep buying the gas from Russia. “Well, now that there’s a war, the ruble is strengthening, and Putin is going “Hey, great, we’ll sell you all kinds of oil and all kinds of gas at really inflated prices.” And so, Russia is getting stronger from the stupid green decisions that everybody’s made. And now that people are suffering, I’m over here and it’s $10 a gallon for fuel for gas, right? $10 a gallon! That affects everything. It’s not just the big cars, they have little cars over here. They have little motorcycles that use very little, but it’s still expensive. That trickles into all the trucking, the trucking with all the goods and services and things that go to the stores that causes inflation.

You know, I have got lots of posts about inflation, it’s a passionate subject. For me, it’s an inevitable subject for me, what can you do about it? Time will tell what you can do about it, but right now, you should be in some good performing assets, but you shouldn’t be in cash. And you should try to keep your powder dry a little bit by being in cash. Unfortunately, that’s the opposite of what I just said. So that you can buy some assets when they’re cheap, there’s going to be a bottoming process going on here. And when that happens, you’re going to find some opportunities to buy some really great bargains but it was really fascinating to see inflation in Turkey as the shape of things to come in some of the other Western countries.

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