QE: the cock up

Hi all,

Reading the early morning news,  we hear of the current economic crisis of Turkey and the plunging Lira.  While much of Turkey's problems are home grown there is one glaring external factor that I doubt will be a mention. That's the "unintended" effect of quantitative easing by the major central banks of the world in America, Europe , UK , Japan. 

 What's happening in Turkey will happen in south America, Asia and any other country effected by QE. In fact it already happened in Argentina and is not far off in Brazil. 

What do I mean by unintended consequences?

QE isn't just money printing as it is more sophisticated than outright monetization of a government's debts , because under QE central banks buy debt on the open market in massive quantities. What it is supposed to do is to reduce the yield on government debt , often seen as safe heaven assets during financial crises , in order  to force asset holders to invest cash in the domestic economy. By nature mortgages and loans are more risky than government debt supported by domestic fiat currency.  That's the theory. In practice because we have a global banking industry and free flow of capital, much of this money chased larger returns outside of the domestic economy. Thus places like Turkey, Argentina and Brazil were showered with trillions in loans . 

These countries are often prone to corruption , political risk and even if run by saints simply couldn't cope with the influx of what is called "hot money".( Short term investors looking for a large, quick return). 

Unfortunately the current Turkish government is lead by any one other than a saint. The upcoming capital controls,  maybe IMF bailout and economic catastrophe will see this playing out in the streets , more authoritarianism and the further weakening of the western alliance. Meanwhile the contagion of this crisis will be the focus of pundits and the world.