Private debt is irrelevant. Private citizens and private companies are and should be allowed to get into as much debt as they wish.
It is their money, it is their obligation, their responsibility.
No one is pointing a gun to their heads.
And how would you even think of lowering debt ownership? Hike interest rates? Then how will the new investments be realised?
Okay... let’s start with some simple explanations about how the System works.
Private debt is the money Turkish citizens owe to the Turkish banks and believe me it’s not an irrelevant matter even if nobody is made to take a loan with a gun on his head.
The credits the banks give are their assets because they bring them profits in the form of interest payments people pay back. Banks are interested to give more loans because that brings them more profits.
On the other hand all the money people and companies deposit in the banks are liabilities for the banks because banks don’t only keep the deposited money safe but also have to pay a small interest to their owners.
The Banks work like that: they accumulate deposits and then use them to give other people loans. With the interests and the loans people pay back to the Bank it pays a smaller interest to the deposit owner for using his money. The difference is a net profit for the bank.
Considering that all the deposits in the Turkish banks cover only around a half of all the private loans they give it means that they should be looking for more financial resources from somewhere else. From where you might ask?
From the international financial markets. Turkish banks take loans from bigger international banks and financial institutions to fuel the credit market in Turkey that brings them tens of billions every year (net profit of the Turkish banking sector last year was 13$ billion). Indirectly from this huge amount of money billions fly away from Turkey every single year.
You talk about investments and I have nothing against using loans to invest in a business that will potentially bring me and the Turkish economy money and profits. How much of all this debt is used for investments though?
Majority of it is used for everyday spendings like paying bills, buying new jeans and Nike shoes in the mall, to get the new Iphone or in more rare cases to buy a new car to show off in front of your neighbors. I am sure that you know many people who are just addicted to their credit cards or owe money to a credit institution.
For now the system is working fine- people still manage to pay back their loans, they still consume and buy and spend money (that are not theirs in many cases) on things, the Government keeps building many things with a questionable economic value (airports and stadiums in places where they will be nothing else but white elephants), the printing machines keep pushing liras into the economy, also exports are rising and the economic climate in the world is pretty good too.
What will happen if a mini 2008-2009 World crysis repeats again and all the international hot money stop flowing into Turkey though?
What if people can’t pay back their debts or if businesses can’t do it too and go bankrupt because of their heavy debts? What if the construction bubble bursts like in America a decade ago?
Many economists say that Turkey’s current economy is a huge bubble which not sustainable for the future and they don’t say it because they are jealous or something but because it is true.
