International Economics: IB Economics

This BBC article looks at the state of the Turkish economy, with official inflation at 48.7%, and unofficial inflation even higher. Factor in high levels of unemployment, and even worse youth unemployment, and a current account deficit, and the country's economic fortunes don't look great. 

The article wonders whether tourism could be the saviour: the depreciation of the lira has made Turkey exceptionally cheap - but whether or not people will want to go there is another matter. 

Doesn't Mutti looked pleased?

However, this Telegraph article is fascinating, and harks back to Keynesian thinking. It effectively argues that one country's current account surplus is another's deficit and that the large German current account surplus has been a factor in prompting the recent rise in protectionism.

Keynes' solution was for surplus nations to reform and reduce the size of the surplus; these days, however, we tend to focus on deficit countries tackling the problem from there end. Keynes thought that harsh: current account deficits reflect economic weakness and are often associated with other structural factors that might make tackling the deficit problematic, and politically exceptionally difficult.

Recent events in Turkey and Argentina have got some people worrying about the prospects for emerging markets, especially in Asia, and the risk of capital flight triggering depreciation across these countries.

This, of course, has significant macroeconomic effects, especially for countries like India and Indonesia which are reliant on inflows of foreign capital to fund their current account deficits.

What sort of macroeconomic problems might be triggered by a significant depreciation? You might have to look back at the 1997 Asian financial crisis to see.

One of the best takedowns of the logic of the ongoing US protectionism has been provided by Larry Elliott in the Guardian. Here is his simple version of why the trade war is a nonsense.