Some would call this a bubble:

Since late 2009, Turkey has lost $20 billion of foreign bank assets and taken on $50 billion of foreign bank debt

As we reported Aug. 3, Turkey's banks are still churning out consumer loans at a 30% annual rate, probably to capitalize the interest on loans bearing an 18% interest rate. The current account deficit is running at about $70 billion a year, which means that Turkey's banks will have to double their net external debt position to finance it. The Bank for International Settlements data (whence the chart was drawn) show no lending to Turkey from the rest of the OECD. We believe the money is coming from the Gulf states, whose largesse is not infinite.

Worst, exports fell sharply in July year on year:

Turkish exports declined last month as contracting European markets and adverse exchange rates mainly affected the performance of key automotive and textile sectors.

Turkey's exports declined 5.5 percent year-on-year in June to $10.85 billion, the Turkish Exporters Association (TİM) revealed yesterday, while exports posted a year-on-year increase of 3.6 percent in June.

"The biggest reason for exports decline in June was the shrinking demand in the automotive market. Automotive exports plunged by 22.3 percent. Also the ready-to-wear [retail] sector declined 12 percent as a result of shrinking demand. We are carefully following the declines in our flagship exports," Economy Minister Zafer Çağlayan said yesterday, according to Anatolia news agency.

Erdogan's authority stems first of all from his reputation as an economic wizard, a story which the world continues to buy. Why anyone would buy Turkish banks under the circumstances is a mystery to this former banker, but bubbles, as they say, last until they feel like fundamentals.

An imploding domestic credit bubble, constraints on foreign borrowing, soaring food prices and declining exports look like a toxic combination for Erdogan.

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