Break the Routine
Last night, an investor phoned me quite late to ask me some questions. The first question was, “I heard that credit card instalment programmes are going to be terminated. Could this be considered a positive thing?” I told him that it was not good news for Turkish people who hardly make ends meet, but the Minister of Treasury and Finance fancies itself a revolutionary like the late Kemal Derviş, and that’s why the government is trying to put an end to certain practices.
I think Minister Şimşek understands the economy better than the late Derviş, of this I am sure. However, his long years of service for the government had made Kemal Derviş more experienced in terms of foreseeing and analysing the impact of economic decisions on the public. Derviş, who assumed office right after the 2001 financial crisis, also made a few mistakes himself, but he never lost his credibility in the eyes of the public and was able to bounce back from these mistakes without causing any harm to the economy.
The investor who called me last night also asked, “What about the spending frenzy?”. So, I had to explained to him that people are forced to mortgage their future earnings by means of instalment plans in order to be able to buy clothing, footwear, white goods and school books for their children. “Then a moderate transition would be more suitable,” he said.
The truth of the matter is that the economic measures implemented so far have been useless in reducing inflation at a rapid pace. So, Mehmet Şimşek appears to have decided to discipline both the society and the business world with stagnation. However, this method will not only cause an economic slowdown, but may also lead to some dismissals from the Ministry.
Lastly he asked, “The Fed’s reduction of rates had caused a significant upward move in stock markets only once in the past. What could happen if it cuts interest rates again?” I told him it would be wrong to discuss this matter out of its context. “If the Fed reduces rates because it thinks that the danger has passed and the time has come to return to normal, then there is no problem. However, if it cuts rates to prevent economic growth from slowing down at a faster rate than desired, then this is a problem,” I added.
I guess our conversation, which I hope was useful for his financial literacy skills, finally convinced him that it is necessary to read between the lines of the Fed actions.
