Spengler writes for the Asia Times
...Turkey's currency has been falling for a year, and fell even faster in August and September. Turkey's central bank had no choice but to raise interest rates sharply last October to prevent it from entering free fall. Even with the sharp rise in interest rates, though, the currency has continued to deteriorate, and the Turkish stock market has continued to grind lower. But the spike in interest rates will have deadly effects on the domestic economy....As Turkey's balance of payments deficit ballooned in 2009, Turkish banks became massive net borrowers of dollars from other banks. Those are short-term loans, though, and the slightest shudder could wipe out this source of financing.
A disaster is in the making. Leave aside the economic ills of the southern Mediterranean generally, which will impinge Turkey's exports (about half of which go to the European community): Turkey's financial system is reaching the end of the rope. A sudden adjustment in the current account accompanied by large-scale bankruptcies among Turkish businesses and widespread unemployment will make 2012 an ugly year for the Turkish economy, and an even uglier year for Turkish politics.
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