Thread by @pauleluard

Numerous questions about TRY today and @jnordvig did a good job raising some but lacked charts.
So the thing is. This year foreign liabilities were getting better but this month we had a bit of a drawdown.
And when that happens well the currency takes a dive every time.
1/x

And the thing is, since 2018, foreign liabilities have grown exponentially.
To MMT people, that's what happens when you don't control your currency. Funny stuff happens. But I'm sure Erdogan will give everyone a pony.
2/x

Thing is it's better if you have yields which make it attractive. And usually that's what the CBRT did. Make it more appealing for your creditors.
But Erdogan wants rates lower.
Well...
3/x

...the problem is the market doesn't believe in what Erdo wants and implies he's going to have to raise rates.
I imagine Erdo feels like Jean Valjean chased by Javert.
Well if he didn't hate the French that is.
Anyway the market wants to be paid for the risk.
4/x

And sometimes the CB could fight this but at the moment its creditors are asking for some actual money back.
The CBRT got money from various people and they need it (you know, to pay those pesky foreign liabilities).
And now threal reserves are back in negative territory.
5/x

The final issue is that in the last few years Erdo annoyed the French and Americans (big creditors) with some fun stuff like banning trades. Which means nobody believe they can actually trade and roll them over (bit like Soros shorting GBP but faced with a hefty T/N fwd).
6/x

Do people want to sell put vol? Hell yeah, come on its too juicy to leave alone.
But do I want to buy vol? For what? To be told I can't hede cause my PB can't book the trade?
Hence why TRY is exploding at the moment.
Sadly it's becoming another ARS.
7/7