Stop Watching the Royal Commission and Pay Attention to Turkey

Stop Watching the Royal Commission and Pay Attention to Turkey

Australia is besotted with the banking saga.

And for now, I can’t see anything changing this. Day after day, more information comes to light of the Aussie banks’ misbehaviour.

Everyone loves to hate banks. After all, they make billions in profit by selling you debt. But they’re efficient when it comes to the service they provide. When was the last time you were stuck in a long queue at the bank?

At worst, maybe you stood in a three or four person line at the ATM or inside the bank.

But what about waiting in a queue in which the line stretched outside? With hundreds and hundreds of other people all desperate to get their cash out as well?

It’s not something you see in Australia. In fact, you may not even know what a bank run looks like.

So let me show you…

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Here’s an image of Venezuelans trying to get their money out of the Sir Allen Stanford bank that was on the verge of going bust in 2009…

Source: The Guardian

And this next one was taken during the middle of the Greek crisis when the government froze the banking system. Every day, hundreds of Greeks would line up to withdraw a maximum of €60 (AU$96) from an ATM or inside a bank.

Source: The Star Online

More recently, the image below shows a line that snaked around a block in India. With only a day’s notice, the Indian government banned old 500 and 1,000 rupee notes, replacing them with new 500 and 2,000 rupee notes. The only problem was that the new notes didn’t fit ATMs. So people had to physically withdraw notes from banks…

Source: Live Bharath

What this photo doesn’t show you is how many people walked away empty handed. Even though the amount of money people could receive in the new rupee notes was capped, Indian banks were often out of cash by lunchtime.

That left many people with no choice but to go home…and get in the line even earlier the next day.

Lighting the fuse for the debt bomb

Few Aussies have faced a genuine bank run or currency crisis. So if one were to hit us, most of us would have no idea what to do.

However, there is a way to predict an unfolding crisis; you just need to know where to look.

Back in March I had an hour-long Skype interview with Jim, which was exclusive for subscribers of Jim’s advisory service, Strategic Intelligence. Throughout the interview, we kept coming back to the same topic: The incredible amount of US dollar debt in the financial system.

Jim believes there’s US$10 trillion in US dollar debt tucked up in emerging markets alone. And that could be a conservative estimate.

Right now, this debt isn’t a problem. When it falls due, it’s just rolled over, and the process starts again. But that won’t last.

It’s hard to say what will trigger the next debt crisis. But Turkey may be a candidate.

Turkey’s stored gold sits at about 18% of total foreign reserves. Initial analysis suggested this was Turkey’s way of protecting assets from the US dollar.

However, not everything is as it seems.

The Turkish lira has lost 50% of its value in the past few years. The weakening lira makes the US$300 billion non-bank US dollar-denominated debt harder to repay.

In a twist, Turkey has asked for their gold stored in the US to be repatriated home. On the surface, it looks like Turkey wants to protect its gold. But that’s not the case.

Turkey’s going broke; repatriating gold is possibly a preparation for Turkey to sell its gold in order to pay off their debt. In fact, as Paul McNamara, a London-based fund manager, said earlier in the week, this is all starting to feel very similar to the 1997 Asian Financial Crisis.

During our interview in March, Jim and I discussed at length that this US dollar debt would become a problem in due time.

However, we had no idea it would unfold this quickly.

Kind regards,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia