FX Turkey Central Bank Rate - TRY 1yr - Bond Yield - MMT
When trying to understand FX trading one first needs to understand the economics of it all. FX became popular bc back in the day there were no trading fees ($29.95 -$19.95 $11.95 etc..) only spreads. People didn't understand the economics but were told that TA alone was enough. So they all went out and gladly blew out their accounts as leverage was a new animal and was misunderstood. Worked great when one was making money not so much when it didn't. Then they went small and blew out their accounts with 1000 paper cuts or 999 paper cuts followed by screw it 1 big trade POOF!!! The Joys of being a new trader.
Then BTC Crypto came along only for a new generation to repeat the mistakes of the previous one and the one before that.
Anyway! To learn FX properly you must understand the economics along with the TA to do it right. Turkey is a great example to get you started in learning economics and FX. Unlike economic theories like MMT which like to tell you they have the holy grail "description" of how a currency works. FX is the real-world "description" of how currency actually works.
I will use the horrible description of MMT (Modern Monetary Theory) to show you the real-world description.
1. MMT says gov't is the monopolist of the currency. Wrong!
Gov't cannot set VALUE for a currency. As such you can see the TRY has collapsed. If Gov't could set VALUE for local currency Argentina would be an economic superpower. it's not.
2. MMT says exports are a cost imports are a benefit. Wrong!
Exports create jobs and bring in foreign reserves (foreign currencies EUR USD CAD JPY GBP etc..) When a nation has sufficient reserves it can use those reserves to defend the currency by intervening in the FX markets to set the exchange rate by satisfying investors demands for more local currency or foreign currency. Some nations even chose to peg the currency to another at a fixed exchange rate. Others within a certain range and others none at all.
If a nation has lots of reserves like Saudi they can peg it easily others not so easily before it eventually blows up and local currency collapses by 30 to 50% overnight. The point is exports are a benefit unlike MMT claims bc it gives a nation the reserves it needs to satisfy bondholders to set FX exchange to optimal for that particular economy. Don't forget it creates jobs and strengthens the economy and the currency simultaneously.
Ultimately Gov't is not the monopolist to local currency VALUE. The private sector and Bondholders are the monopolists that set VALUE to the local currency. However, if a Gov't has sufficient reserves it can set the price of the currency and defend it until those reserves are depleted. The rate of depletion matters. Often you will see a mix of higher rates, reserves, and depreciation. Ultimately when reserves are depleted the currency collapses along with the economy, and inflation skyrockets.
3. MMT says Central banks control rates. Wrong!
As you can see in the chart, the Turkish Central Bank rate went down to 8.5 from 19% yet the 1-year bond is at 18%. Clearly, CB does not control rates. Bondholders do. As a result, the TRY collapsed along with lower rates as bondholders disagreed with the CB as to what the real rate is. They sold the TRY and Bonds simultaneously. Since Turkey has run out of foreign reserves it could not defend the TRY and the inflation growth rate exploded to as high as 86%.
This brings us back to 1. MMT says gov't is the monopolist of the currency. WRONG!
In conclusion, all the technical analysis in the world would have ever told you to short the TRY and buy the USD and hold it! The MMT description of FX is WRONG!
I know most will not care about this. They just want the trade! But I feel better I putting out there in hopes someone will stop the madness of hocus pocus trading and save their money or even start making consistent money with real-world understanding.
Wishful thinking I know!
BTW I have been saying the TRY will collapse on Tradingview since March 2021. So this is not hindsight expertise of selling you a cute story. The proof is in the pudding. 80 million innocent Turks are now suffering because like #MMT Erdogan did not understand FX.
Then BTC Crypto came along only for a new generation to repeat the mistakes of the previous one and the one before that.
Anyway! To learn FX properly you must understand the economics along with the TA to do it right. Turkey is a great example to get you started in learning economics and FX. Unlike economic theories like MMT which like to tell you they have the holy grail "description" of how a currency works. FX is the real-world "description" of how currency actually works.
I will use the horrible description of MMT (Modern Monetary Theory) to show you the real-world description.
1. MMT says gov't is the monopolist of the currency. Wrong!
Gov't cannot set VALUE for a currency. As such you can see the TRY has collapsed. If Gov't could set VALUE for local currency Argentina would be an economic superpower. it's not.
2. MMT says exports are a cost imports are a benefit. Wrong!
Exports create jobs and bring in foreign reserves (foreign currencies EUR USD CAD JPY GBP etc..) When a nation has sufficient reserves it can use those reserves to defend the currency by intervening in the FX markets to set the exchange rate by satisfying investors demands for more local currency or foreign currency. Some nations even chose to peg the currency to another at a fixed exchange rate. Others within a certain range and others none at all.
If a nation has lots of reserves like Saudi they can peg it easily others not so easily before it eventually blows up and local currency collapses by 30 to 50% overnight. The point is exports are a benefit unlike MMT claims bc it gives a nation the reserves it needs to satisfy bondholders to set FX exchange to optimal for that particular economy. Don't forget it creates jobs and strengthens the economy and the currency simultaneously.
Ultimately Gov't is not the monopolist to local currency VALUE. The private sector and Bondholders are the monopolists that set VALUE to the local currency. However, if a Gov't has sufficient reserves it can set the price of the currency and defend it until those reserves are depleted. The rate of depletion matters. Often you will see a mix of higher rates, reserves, and depreciation. Ultimately when reserves are depleted the currency collapses along with the economy, and inflation skyrockets.
3. MMT says Central banks control rates. Wrong!
As you can see in the chart, the Turkish Central Bank rate went down to 8.5 from 19% yet the 1-year bond is at 18%. Clearly, CB does not control rates. Bondholders do. As a result, the TRY collapsed along with lower rates as bondholders disagreed with the CB as to what the real rate is. They sold the TRY and Bonds simultaneously. Since Turkey has run out of foreign reserves it could not defend the TRY and the inflation growth rate exploded to as high as 86%.
This brings us back to 1. MMT says gov't is the monopolist of the currency. WRONG!
In conclusion, all the technical analysis in the world would have ever told you to short the TRY and buy the USD and hold it! The MMT description of FX is WRONG!
I know most will not care about this. They just want the trade! But I feel better I putting out there in hopes someone will stop the madness of hocus pocus trading and save their money or even start making consistent money with real-world understanding.
Wishful thinking I know!
BTW I have been saying the TRY will collapse on Tradingview since March 2021. So this is not hindsight expertise of selling you a cute story. The proof is in the pudding. 80 million innocent Turks are now suffering because like #MMT Erdogan did not understand FX.
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