Back in May when Argentina’s currency was being put through the market wringer, we analysed the overall risks (Economics Weekly: Cracks Appear From a Strengthening Dollar) and concluded that this pressure was the classic result of committing the “original sin”; countries borrow in U.S. dollar-denominated debt during the good times, but then find themselves heavily exposed when growth slowed, the dollar strengthened, and U.S. interest rates moved upward. While this would increase financial market volatility, it was not likely to be the catalyst to push the U.S. back into recession. Today, it's Turkey's turn, and while the risks of contagion have increased, our conclusion is still very much the same. This is the topic of this week's Economics Weekly.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.