Image Source: Pixabay

In 2022, Turkey hit an inflation rate of:

85.51%

Yet, many families in Turkey were quietly winning while their country’s currency was in hyperinflation.

I’ll show you why in a moment, but for now, here’s why Turkey flew into hyperinflation, how it relates to the USD, and what to do about it (using the Turks same strategy).

In 2021, during the height of the pandemic, Turkey’s President Ergodan fired their hawkish central banker. At the time, the banker did not want to lower interest rates. The central banker didn’t agree to “print their way out of the pandemic costs.”

So, as the new central banker rolled in…

One who agreed to lower interest rates, their currency pool was flooded with more new money.

And that means price inflation.

Here’s what happened.

via ycharts.com

Now, as inflation became so unbearable, someone had to do something.

The Central Bankers began to solve the problem that the fiat system created in the first place. They raised interest rates.

Here are the results…

via @robin_j_brooks

When the Federal Reserve decides it is time to drop interest rates and print more money, the same thing could happen in the United States. Trump is pushing for the same thing. The US has a high level of debt, interest rates are stifling growth, and some sectors like commercial real estate, housing, and consumer debt are running at near all-time high delinquency rates.

So, what have the Turks been doing to win during a time of hyperinflation?

They have experience from the past.

In the 1980s, their currency hit an inflation rate of just over 110%.

As a result, they’ve developed a “distinct Turkish tradition of “ saving under the pillow.”

Peter Reagan at Birch Gold writes:

Despite access to dollar and premiums, Turks are sitting on $331 billion of household gold

“The distinct Turkish tradition of “saving under the pillow” – a term referring to keeping valuables like gold at home – often comes into play during times of economic crisis, when the government calls on citizens to spend their savings to help revive the economy.”

The opening part of a recent report highlighting how Turkey’s 4,500 tons of physical gold bullion are mostly domestically-held is curious, and also telling.

Why should Turks oblige its government and spend what little wealth they are likely to have, the latter point being so because the government has destroyed the currency? It is quite brazen that a government infamous for monetary mismanagement would tell its citizens, who are far more capable of managing finances, on what to do with the very money that the central bank is destroying.

Perhaps it is the full awareness of how careless and hazardous the central bank is that has caused Turks to accumulate $331 billion of household gold.

Bars, coins, jewelry: whatever can be bought is stored away as Turks wait to see how much further the lira can crumble, having hit an inflation rate of 85.51% in October 2022.

The government obviously sees this as a problem, constantly trying to associate gold with tax evasion and money laundering.

Because why else would someone buy gold, right?

It has increased the sales tax on gold purchases and likely played some part in banks having huge differences in buy/sell prices, driving the gold trade underground. Any jewelry purchase over $5,000 must be reported thoroughly, as if anyone buying a nice ring could be funding terrorism, and sales of uncertified cut gold bars were banned in 2024.

Despite this obvious clampdown, and despite relatively easy access to U.S. dollars and euros, Turks are still mostly opting for the comparatively inconvenient option of holding physical gold.

The article purports that this is because of cultural tradition, but it’s very likely that Turkey’s citizens recognize free-floating paper for what it is.

Why escape from one inflationary asset into another?

Amusingly enough, a prominent Turkish economist notes that it’s these very reserves that the government is hounding that provide stability during times of crisis, which seem to be ongoing these days.

When economic stress hits, liquidating some of their gold to rebuy it when things stabilize is how Turks keep things moving.

Without this, the economy might altogether crumble.

The drive to move gold out of households and into questionable governing hands goes back to 1980s. Turks were meant to get interest from depositing their gold in banks, but the initiative mostly went nowhere.

Here’s why:

…concerns soon emerged about liquidity risks. Policymakers feared a potential crisis if all depositors demanded physical gold at once, particularly if the collected gold had already been sold abroad to obtain foreign currency.

Sort of like the COMEX-London-Basel III situation, isn’t it? With obvious admissions such as these, it’s no wonder Turks only trust gold that they can hold and store themselves.

Erdogan’s 2016 appeal to patriotism morphed into the Gold Conversion System in 2022, which was about as alluring as it sounds. Strangely, the article says that these and similar efforts didn’t take off because of “cultural norms, practical concerns, and structural economic uncertainties.”

It seems that the answer lies elsewhere and is much more straightforward.

Trust is mostly necessarily earned, and the government of Turkey has done little but betray it over the last few decades. On the other hand, gold has upheld it and then some.

So, the Turks have turned to understanding how to self-manage their money. They treat their currency as simply another means to transact, while they place their savings in the Dollar, the Euro, and gold.

I’ve been in Istanbul the last couple days, ground zero for consumer price inflation (approx 60%).

After asking several locals how they save “money” the favorites are clear.

1. Dollar
2. Euros
3. Gold

The Lira is just a means to transact and price things. pic.twitter.com/fur9FVV5Lh

— George Gammon (@GeorgeGammon) January 17, 2023

Then they exchange and spend it when they need it.

Whether we like it or not, this is our real and present future – we must learn to manage our own money.

That includes gold.

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