On Monday, August 5, global markets experienced a sharp downturn at the opening. The Japanese stock market saw sell-offs exceeding 10%, which began in the Asian markets and quickly spread to others. In addition to the stock markets, there was also heavy selling in cryptocurrency exchanges. Turkey was negatively impacted by the selling pressure emanating from Asia, leading to two circuit breaker triggers and a temporary halt in trading on the Istanbul Stock Exchange. There are two significant reasons why oil prices did not react noticeably to these sharp sell-offs.The first reason is the accelerated unwinding of carry trade positions following the Bank of Japan's decision last week to raise interest rates to their highest level since 2008. Carry trade, which has also been a frequent topic in Turkey recently, involves borrowing in low-interest currencies and investing in high-interest currencies. As long as exchange rates remain stable, carry trade yields returns equal to the interest rate differential between the two currencies. However, because this transaction carries exchange rate risk, it relies on the expectation that the currency in which the investment is made will not depreciate. For example, recent carry trade investments in the Turkish Lira reflect the expectation that the Lira will not significantly depreciate in the near future. Therefore, carry trade is crucial in determining the direction of international capital flows. However, potential currency depreciations and changes in interest rates can affect the attractiveness of carry trade. The rise in interest rates in Japan has reduced the appeal of trade transactions often carried out through the Japanese Yen, leading to unwinding and triggering a significant wave of sell-offs in the markets.The second reason is the release of very weak economic data from the United States at the end of the previous week. These reports heightened concerns that the U.S., the world's largest economy, is rapidly entering a recession due to the delayed interest rate cuts and that this recession could have global repercussions. Following these two developments, panic selling intensified, leading to even sharper declines. In the wake of these severe sell-offs, attention has turned to the U.S. Federal Reserve (FED). There is growing expectation that the FED will advance interest rate cuts to prevent a recession and rescue the markets when they face difficulties. However, the market's reliance on the FED as a savior during every sharp decline brings with it several issues."The Expectation of Market Rescues and the Problems Arising"The continuous rescue of markets when they face difficulties leads to several issues. The first is that financial institutions may behave more recklessly, taking on greater risks with the belief that they will inevitably be bailed out, which results in moral hazard. Moreover, injecting liquidity into the market during rescues often leads to an increase in the value of assets held by the wealthier segments of society, thereby exacerbating inequality. Additionally, such interventions distort market signals, negatively impacting the efficient allocation of resources. When rescue operations evolve into providing financial support, they impose a strain on the budget, leading to issues like higher taxes and inefficient use of resources. All these factors hinder the proper functioning of the market and, in the long term, impede productivity growth, which is the most critical indicator of economic growth.Despite significant technological advancements since the late 20th century, there has been a noticeable slowdown in productivity growth. The famous economist Robert Solow captured this paradox with the remark, 'You can see the computer age everywhere but in the productivity statistics.' This slowdown in productivity is a frequent topic of discussion in economics, with the existence of zombie companies cited as a significant contributing factor. The presence of zombie companies brings to mind Joseph Schumpeter’s emphasis on the importance of 'creative destruction' for the proper functioning of a free market. Creative destruction is the process by which less efficient firms are replaced by more efficient ones. However, the continuous efforts of central banks and governments to rescue markets have allowed many zombie companies to survive with low productivity, preventing creative destruction from occurring.As a result, markets continue to call for a savior during each downturn, and the intervention by governments and central banks weakens competition, reduces productivity, and ultimately slows down long-term economic growth." from the United States at the end of the previous week. These reports heightened concerns that the U.S., the world's largest economy, is rapidly entering a recession due to the delayed interest rate cuts and that this recession could have global repercussions. Following these two developments, panic selling intensified, leading to even sharper declines. In the wake of these severe sell-offs, attention has turned to the U.S. Federal Reserve (FED). There is growing expectation that the FED will advance interest rate cuts to prevent a recession and rescue the markets when they face difficulties. However, the market's reliance on the FED as a savior during every sharp decline brings with it several issues.* Dr. Caner Gerek<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;"> 1&nbsp; Ulaştırma ve Altyapı Bakanı Uraloğlu, Instagram’ın katalog suçlarla ilgili taleplerin karşılanmaması nedeniyle erişime engellendiğini açıklamıştır. https://www.bbc.com/turkce/articles/c4gvvvgdyxeo2&nbsp; Bakan Yardımcısı Sayan da yaptığı açıklamada katalog suçlardan söz etti. https://x.com/ofatihsayan/status/18193430963976275403 AYM, E. 2015/76, K.2017/153, 15.11.20174 AYM, E. 2020/76, K.2023/172, 11.10.20235 https://x.com/evrenselgzt/status/18207689928075678196 https://x.com/cyberrights/status/18197514300114456267 https://medyascope.tv/2024/07/30/erdogan-talimat-vermisti-mersin-buyuksehir-belediyesine-sgk-borcundan-haciz/

The Freedom Observer

Despite significant technological advancements since the late 20th century, there has been a noticeable slowdown in productivity growth. The famous economist Robert Solow captured this paradox with the remark, 'You can see the computer age everywhere but in the productivity statistics.' 

Stock Exchange ile ilgili hikayeler