As I explained in my original bubble warning, Turkey has been experiencing a powerful economic boom since the early-2000s thanks to ultra-low interest rates and the resultant rapid credit growth. The chart below shows how Turkey’s benchmark interest rate kept falling from the early-2000s until the mid-2010s. Extremely loose global monetary conditions after the Global Financial Crisis led to a “tsunami of liquidity” that flowed into emerging economies such as Turkey, which caused interest rates to fall well below normal historic levels. Now that the U.S. and other countries have been ending their QE programs and raising interest rates, emerging market currencies and bonds have been taking it on the chin.
