What's the theory that says interest rate cuts will _lower_ inflation? There must be something, otherwise they wouldn't do it, no matter how ridiculous it sounds, right?
[0]: https://www.spectator.co.uk/article/islamonomics-how-erdogan...
As a straight up APY interest charge, yes. But there is an entire industry of "Sharia finance" that exists to circumvent these rules [0].
[0] https://www.investopedia.com/articles/07/islamic_investing.a...
However, the article you cited does not make that claim. It merely says that Erdogan is opposed to high interest rates because they are considered "usury" and are thus forbidden. This is different from saying that high interest rates cause inflation.
Do you have a different source specifically for the claim that the some people think Quran indicates that high interest rates cause inflation?
https://www.birgun.net/haber/erdogan-bir-musluman-olarak-nas...
this headline is the closest thing in it he says: '... and they are complaining about cutting the interest rates. Don't expect anything different from me. As a muslim, I'll continue doing what the religion/quran orders me to do. This is the ruling (of the religion).'
To be clear, I don't hold the position that Erdogan doesn't believe high interest rates cause inflation -- I don't know what he believes. I am just trying to find a source that backs up the parents' claim, if there is one.
It was 10 months ago but the basic idea, I think is that they are trying to get Turks to hold lira instead of dollars.
Also its important to keep in mind that the typical central bank and economy dynamics that everyone has in their head typically is theories and dynamics mostly focused on the US and their market and there are axioms there that might not be true in the Turkish economy.
Now I am not saying that what they are doing is going to work or its good. Just reminding everyone that what holds true for the Fed is not necessarily true for every other central bank.
My personal opinion is that their plan is probably not working and they are trying to postpone the recession to after the elections.
> “What is it? We are lowering interest rates. Don’t expect anything else from me,” Erdogan said Sunday in televised comments from Istanbul. “As a Muslim, I’ll continue to do what is required by nas,” he said, using an Arabic word used in Turkish to refer to Islamic teachings.
https://www.bloomberg.com/news/articles/2021-12-19/turkey-s-...
This is not accurate. He literally believes in economic theory that holds that interest rates cause inflation. The root of this theory is Islamic belief, but it's not that he believes that inflation is a necessary evil to stick to his principles, he believes that increasing interest rates would increase inflation.
He has been very open about this belief for a very long time. The short slogan he's used is, roughly translated, "interest is the cause, inflation is the result".
For example, see: https://m.bianet.org/english/economy/254059-erdogan-insists-...
He is right about this but wrong about the sign of the relationship!
In particular, the British "Banking School" was opposed to the quantity theory of the "Currency School". The Banking School claimed that inflation was cost driven, that interest rates were one of the costs of doing business, so that raising rates would increase costs which would increase prices.
While superficially reasonable, this argument was destroyed Wicksell [1] who provided a more careful economic model which made it clear that rate-driven cost-push inflation was not at all plausible as a sustained cause of inflation.
[1] https://www.richmondfed.org/-/media/richmondfedorg/publicati...
Paying interest on sovereign debt is a relatively recent invention that came about with the rise of banks.
If you're Islamic then paying interest remains a sin. That is what Erdogan is following.
Having said that paying interest on sovereign debt is, effectively, a basic income for people who have money. Getting rid of it is a tax on rich people with savings.
However if you do that, then you have to set government taxation and spending policies for a Full Liquidity model of an economy, not a Full Funding model of an economy.
Erdogan has not done that. Other than interest he is still Chicago School from what I can tell. And that way leads to disaster.
A zero nominal interest rate, while possible, generally requires the central bank to implement a policy of deflation (see [1]). For example, in the US, the long term real interest rate on US treasury securities is 1.74%, so setting the nominal interest rate to 0% would require a deflation at a rate of (1.0174)^-1 per year (~1.71%). While this would eliminate some of the interest earned by "people who have money" it also has the counterbalancing effect of increasing the real value of the money which those people have saved, due to the deflation.
They are servant, not master.
Unfortunately that 'Friedman rule' belief relies upon there being a fixed amount of money and a one-to-one relationship between money and stuff. There isn't a fixed amount of money. There isn't a one-to-one relationship between money and stuff. Money grows and shrinks depending upon the transaction requirements of the real economy.
A Full Liquidity rule, on the other hand, allows the government sector to adjust its taxation and spending positions and reduce the level of taxation required in a full employment environment.
I'm not sure what you mean by this. The Friedman rule does not assume there is a fixed amount of money -- the rule itself recommends in some circumstances that the central bank should increase the supply of money.
> Turkish officials say that their measures will bring inflation down in the coming months, but many economists disagree and expect consumer prices to rise and the lira to fall further into next year.
Even if they increased the interest rates, they would still have substantial inflation.
Truth to be told I don’t think such third world economies can ever recover. It is too late for the patient.
Turkey is also a NATO member and occupies strategic territory. It will not die on the vine and wither away in silence.
They wasted demographic dividends, and they don't have enough natural resources to make up for it (but they have some). They didn't fucked up as much as Liban did, so they have that going for them.
The only non western country to succeed their demographic transitions without abundant natural resources is Cuba, but imho that was thanks to the USSR.