The More Bread, the More Meatballs! Do you have a source?

There is a source in the discourse.

One says I will do this, the other immediately asks, "Where is your source?" This time they say they will do this, and again they ask, "Do you have a source for this?"

What is this issue of resources?

Resources are the budget shares allocated in advance for whatever is planned to be done in the country's budget. 

The general source of the budget, as you know, is the taxes we pay. 

In a balanced budget, normally the taxes collected should be sufficient for budget expenditures. 

Maybe sometimes, if there is an urgent compulsory expenditure that has not been thought in advance, additional resources can be created by printing money for that job, which is already reflected in the budget final account at the end of the year as a budget deficit. But usually the source of such urgent expenditures can be found by reducing spending on some things that have not yet been spent, and in this way, some expenditures can be given up and resources can be transferred to where they are needed. In fact, this is a better choice for finding resources, because then the balance of the budget is not disturbed. 

But in our country, unfortunately, the balance of the budget is something that governments have not paid attention to for a long time, so every time the budget is out of balance, whatever government is in charge, they try to save the situation by printing new money, and in this way they deliberately cause inflation in prices. 

What can I say, it's just preference, everyone has a different way of eating yogurt. But in this case, they all prefer to eat yogurt in the same way. As a result, for some reason, the poor people always have to pay for the wrong choices made.

To return to our topic, let's examine the methods by which the state transfers money to the market to better understand the situation. 

How do you think the state transfers money to the market?

Why does the state transfer money to the market?

The answer to the second question is actually easy, you transfer money to the market so that you can tax the money that returns. 

Well, you already print the money, so why distribute it and then try to collect it back?

Well, the answer to that is a bit difficult. Maybe it's the desire to have justice dispensed by the state rather than by God, as in the case of the duel. In short, the desire to control the market.

There are various ways in which money is transferred to the market.

The first method is the price paid for investments. Since the market circulates in Turkish lira, which is how you want it to be if you are the state, you prefer to have your own printed money circulating in the market and pay for investments with your own money. This is a must for the state! 

In our country, though, some investments are paid for in foreign currencies, which is not understandable!

In the end, what companies do for the state is paid directly by the state to the companies that do the work. We call this an appropriation, and in the state budget prepared every year for multi-year investments, the appropriations for these ongoing works are separately determined and included in the budget. 

The companies that do business with the state know from the beginning how much allowance is allocated for their work in the budget each year and accordingly they adjust the work they need to do in that year, neither more nor less, they do as much work as they should according to the allowance. Because if they do too much work, they will not be able to collect the cost from the state that year. There are no resources for more! 

If they do less work, they will not get the full allocation. 

For the responsible cadres working in the state, this means a loss of prestige, they face criticism from their superiors for not getting the planned work done, they risk losing their position. 

Maybe this is why we hear from time to time that some officials have paid in advance for things that were not done to the point of corruption. Such news appears in the newspapers from time to time.

Naturally, the money paid to these companies is normally the state's budget share from the taxes it collects from us. In other words, we pay for every investment made by the state. 

In fact, politicians who boast that they have done this and that are only engaged in political discourse. I would say don't believe this discourse too much. 

After all, we are the real owners of the investments made by the state!

There is one more issue I would like to remind at this stage. Taxes are a percentage of the goods or services we buy in our daily lives. It's not the full cost of the things we need.

So in fact, the money we exchange between each other in the market is much more than the money that comes back to the state through taxes. 

We call this total amount of money in the market liquidity. 

I'm talking about the money we use in all our purchases, the money we keep in our pockets, in the bank, under the pillow. 

The amount of this money that goes back to the state is only as much as the taxes levied on it. 

The rest continues to circulate among us in the market. But let me tell you before I forget, since the state cuts taxes a little bit at a time as the money circulates, at some stage, a large part of the money in the market actually returns to the state. 

I hope this is clear so far!

Yes, let's move on, we have been analyzing the ways in which the state transfers money to the market.

If I am a civil servant, for example, my salary is one of the ways in which the state transfers money to the market. Even though it is a smaller proportion of the other methods, salaries are actually a large enough proportion of the state's expenditure. So maybe there are not enough teachers being appointed, even though there are so many teacher vacancies and so many university graduates are idle in the market. 

Could it be that the budget allocation for education is so small because there is not enough money? Or do you think there is another reason?

Hospitals? Isn't there a shortage of doctors in hospitals? Why is there not enough budget allocation for them? Isn't there a shortage of doctors? Yes! Is this also due to lack of money? You will say that doctors themselves are quitting, you are right! They don't want to work in this country! I wonder why? Let them leave, there are no doctors, there are Afghans, Syrians, there are many doctors who want to work. You are right about that too!

Anyway, let's say this is the second way of transferring money to the market.

How else does the state transfer money to the market?

Apart from investments, the state also needs other services, and the state pays directly to the service providers for goods and services needed by the institutions, this is what I call tenders for the procurement of goods and services. This is another way of transferring money to the market.

But so far I have only talked about ways of transferring money to the market in government-related matters.

A much larger way of transferring money to the market is through the state's money transfers through the banks!

This is where the so-called central bank interest rate, the interbank policy rate, which is constantly being lowered meaninglessly, comes into play!

In fact, the policy interest rate is the interest rate applied by the state for the money it transfers to the banks. (I have written a more detailed article on this subject before. Those who are curious can look at the old dated articles).

Normally, what is expected for the money transferred to the market in this way is that the banks will add a certain rate to the policy interest they pay to the state and distribute it as loans to those in need!

Money should be released into the market so that the state can earn tax revenues from the exchange of money between citizens.

Moreover, since banks already have deposits collected from savers, they already have a certain amount of money that they can lend. But if the state wants more money to circulate in the market, it can inject money into the market through the banks.

In this case, what will happen if the banks cannot distribute the money they receive from the state in the form of loans? The state cannot force the banks to give loans! Moreover, not even all the money collected from depositors can be given as loans!

The state has thought of this, too, and told the banks that they can park their excess money with the state overnight at the central bank's policy interest rate.

For banks, this opportunity is a great blessing. The fact that the savings that could not be utilized during the day, i.e. the savings that could not be distributed to those in need as loans, i.e. all the excess money in the vault, including the money collected from deposits, is entrusted to the state overnight at a return of at least the policy interest rate, means that the excess money is not kept in the vault in vain. 

From this point of view, this is a useful opportunity for banks. 

The higher the policy rate, the more the banks earn!

You pay less interest to depositors than the policy rate, you get more interest from the government, the difference is written as profit on the balance sheet. The more interest, the more profit for depositors; the less interest, the less profit for depositors. If interest rates are high, depositors prefer to keep their savings in banks at interest, if they are low, they look for other ways of investing them!

For banks, there is not much difference. The banks only get their commission in the meantime.

There is no difference in terms of the money borrowed from the government; the interest rate charged to banks is more or less the same when borrowing it and when depositing it overnight.

Normally, the real earnings of the banks are the loan interest returns given at high interest rates. But this is also risky. There is a risk that the loan will not be returned!

Perhaps this is why the central bank is eager to lower the policy rate. They want to reduce the interest paid to savers. They don't want citizens to make money out of money. But in this case, citizens are looking for other ways for their savings and abandoning the Turkish lira! 

Tough choice indeed! Is it better to lower interest rates or to raise them? 

But for banks, for some reason, the state does not think this way. It almost encourages banks to make money out of money!

For this purpose, there is a much better opportunity provided to the banks by the state. 

There are times when the state needs money, when the budget allocations for certain expenditures are not enough, or when the taxes collected at that moment are not enough for the expenditure to be made, I mean when there is no cash in the treasury, instead of printing money in vain, borrowing the required amount from the market is a solution for the state. 

In these Turkish lira auctions, banks can lend excess money to the state at interest rates much higher than policy rates.

In recent times, banks prefer to lend their excess cash to the state at high interest rates through these auctions, which involve much less risk, or even no risk. What a great opportunity!

It doesn't matter if they don't have free money in their coffers, the government will lend them as much money as they want at policy interest rates. 

Borrow money from the state at policy interest rates and lend it back to the state at a much higher interest rate through a government tender. What a great trade!

This is why the profits of banks today are much higher than they should be. Because the state does not pay attention to the huge interest rate difference between the money it lends and the money it borrows. 

As it obsessively lowers policy rates, the gap between the interest it pays when it borrows and the interest it receives from the banks is much wider. 

And this difference goes into the banks' coffers as a free profit! As I said, it is a very profitable transaction for the banks!

The state does not do this unknowingly, on the contrary, it does it on purpose. Maybe it wants to minimize the impact of the economic crisis on the banks. Is it fair? Who cares about justice! 

It is ironic that low-interest loans are taken back from the banks at high interest rates, when the real purpose should be for the state to transfer money to the market in order to collect taxes!

This money returns back to the state before it can reach the market, and at a huge loss for the state due to the high interest rate difference! 

This is what I don't understand at all. 

As I said, the earnings from this interest rate differential are reflected in the balance sheets of the banks in the form of huge profit rates. And on purpose!?

Meanwhile, what happens to the market's need for money? Those who need loans? What happens to them? 

They are waiting.! The market is slowly stagnating. Many companies are forced to close their shutters.

Because banks don't give loans to anyone so easily!

I am not saying that there are no loans given, but in order to get a loan, either there has to be an instruction from someone from above, or loans that are directly needed by citizens, such as home loans, are given at much lower amounts than they should be. 

Today, the price of a house is at least 2-3 million liras in the market, and the money given by banks as a home loan is a maximum of 250 thousand liras, which is definitely not enough to buy a house. If you don't have any savings, you can't buy a house with a loan!

This is the situation even in state banks!

If you want to do business as a company or if you want to buy something, the only way is to have somehow been able to save up until today, maybe you can do something with your savings, that is if your savings have not already been eroded by inflation. Savings are melting every day because of inflation, even if you put it in the bank, even if you use it as capital, it melts. 

Because if you put it in the bank, the banks only pay interest close to the policy interest rate, and when I say close, I don't mean above, I mean below! So if you keep your money in Turkish lira, it loses its value every day!

Trade is primarily about risk. Today, if you sell a good you bought with your capital and want to replace it, your capital is not enough. Inflation! The price of the good has gone up!

That's why many of them look for other ways to utilize their savings. Or they don't want to go into business with their savings.

In other words, we can say that the proportion of those who go into business with their savings has decreased considerably in these recent economic conditions that the country has been brought to. 

It is also not easy to do business by taking a loan, because it is not easy to get a loan! Even if there are those who want to get a loan, the banks don't want to take the risk on themselves, they put forward very heavy conditions to give a loan. 

In the end, even if you are allowed to get a loan, the loan amounts are well below what you need. So there are serious obstacles to doing business in the market. Again, this is one of the reasons for the recession!

If you are a company that does business with the state, okay, maybe you can contribute to the revival of the market by using the payments you receive from the state. The salaries you pay to your employees, other companies that do business with you or sell goods to you can gradually share the money paid by the state, which can create a certain amount of revival in the market.

But what percentage of the country's budget is the state paying for these investments? Eighty-four million people, do you know how much money is circulating in the market every day?

There are hundreds of thousands of registered companies, how many of them could be doing business for the state? 

In the end, private sector investments should be investments that have the potential to make much more money for all these companies in this market. State investments are not enough for everyone.

The small investor has to increase the price of everything every day to protect his capital. Here is another reason for inflation.

But the ability of the private sector with large capital to invest is also problematic!

Instead of risking their own capital accumulation in today's market conditions, they prefer to invest based on the loans they can get from banks. 

Because they also want to share the risk. 

But banks do not prefer to distribute loans as I wrote above. They are more interested in lending money to the government, which is a more risk-free way of making money. And when banks do not distribute loans, they cause investments to stop. 

Unfortunately, this is the situation of domestic investors at the moment.

Let's take a look at foreign investors.

Actually, foreign investors are the best. The cream of the crop! Because when a foreign investor invests, he also brings in foreign currency. 

While they transfer the foreign currency they bring to the state through banks, they pay for their investments with the Turkish lira they receive in return. 

The state gets foreign currency, Turkish lira is released into the market, and therefore the companies doing business with this investor and the investor's employees also have the chance to earn money. 

This money is distributed among other people and companies in the market and money starts to circulate. Moreover, the fact that the state gains tax revenue from all this spinning money is another source of profit for the state! That is why foreign investors are the cream of the crop!

Attracting foreign investors to the country is advantageous for the state in every way. It is also beneficial for money to circulate in the market. Therefore, there are many reasons for the state to support foreign investors!

But it is not that easy. Foreign investors do not easily come and invest in your country. First of all, they will ask for various guarantees to take their profits out of the country. They will ask for some business concessions! For example, they will tell you to close the sugar factories! They will stipulate that this is the only way I will invest in corn syrup! 

This sounds familiar, doesn't it? Moreover, there are state officials who will tell you that we will help you, don't worry, here is another way of corruption and bribery!

Capitulations! How difficult it was to get rid of the capitulations!

Surely some of you have read about them in history books? Capitulations were the reason for the collapse of the Ottoman Empire.

In order to pay back the debts, the great Ottoman Empire even had to give foreign states the right to collect taxes on these lands. 

This country has seen so many misguided rulers and heads of state!

That is why, in principle, I am against foreign investment, if an investment is to be made, we must make that investment ourselves. 

We need to earn the foreign exchange we need through trade, we need to earn foreign exchange by producing enough quality and value-added products and selling the surplus abroad.

Still, I must say that a controlled foreign investor is the type of investor we need for now. Still, it makes no difference whether I prefer it or not! They themselves have long given up investing in Turkey. They see Turkey as a risky country to invest in because they take into account the reports of credit rating agencies. So there is no hope for foreign investors in today's conditions!

Yes, what else can the government do to inject money into the market? 

Hot money! 

Members of the foreign interest lobby, who are eager to make a profit by buying stocks in our stock exchange, transfer the foreign currency they bring into the country to the state and buy the stocks of companies traded on the stock exchange with the Turkish currency they receive in return. 

The Turkish liras transferred to the former owner of the shares in exchange for the stocks they buy somehow enter the market cycle. Either the former shareholder who gets this fresh money will spend it on another investment instrument or invest it in interest at the bank.

But these foreign investors also enter the stock market to make a profit, and as soon as they make sudden big profits, they can convert the shares back into money, and with that money they can buy foreign currency many times more than the foreign currency they brought back and leave the country!

So there is not much trust in this hot money, and sometimes Turkish small investors are left with a slap in the face. Some of them even lose everything they have. There can even be suicides. 

The stock market is like gambling, it works in a very different way than its real purpose. Gambling table! It is called manipulation, sometimes the stock market can even be used by the state for manipulation!

Yes, there are some other ways of pumping money into the market. Pumping, in market terms. That is, supplying money to the market, this is a more formal term.

The market is a spinning wheel after all, as long as it continues to spin continuously and at a certain speed, and at the same time in equilibrium, there is no problem. 

Everyone earns enough and spends enough. You have a properly functioning economy.

But when the money supplied to the market starts to accumulate in the hands of some people, that is, when there is an unbalanced distribution of income, that is when the market starts to slip. 

The desire to increase prices starts, because the earnings are not enough. In the meantime, opportunists have a field day. 

Employers stop investing, employees start to be laid off, which increases the employment problem. Earnings of those on fixed incomes become more and more insufficient. If you increase salaries, the minimum wage, you examine inflation, you get a spiral, i.e. imbalance, chaos, economic crisis. 

I don't even want to touch on the recently introduced Turkish lira time deposit accounts with foreign currency hedges. The harm far outweighs the benefit. Already, the state's interest debt is worth a lot of money.

Economy requires a balance. Yes, our population grows at a certain rate every year, so the economy has to grow at a certain rate. There is also a need for new job opportunities to feed the growing population. So we can also say that new investments are needed.

People also see the level of technology and prosperity that the world has reached and they desire the same. This requires a certain amount of spending and growth in the economy. 

But I think there is no point in making the income distribution even more unbalanced just for the sake of growth. 

Moreover, the result is obvious, a low-income population that is being crushed by inflation. Is this what the state should do?

They say heterodox methods, I don't understand heterodox meterodox. 

Yes, the state can find resources by printing money when necessary, in fact, most of the time it is easy for the state to create such resources. 

It may be an innocent thought in the minds of those in power that once the tax revenues are collected, the printed money can be disposed of. 

But sooner or later, the end of the line escapes, the budget fails, and every year that ends with a budget deficit is followed by another year of world inflation.

Economics is a balancing act, not everyone can do it, don't believe every person who says they are an economist. Look at his experience!

Resources are valuable if they are foreseen in the budget, because the expenditures you make will not disturb the budget balance! 

The preferences of the expenditures made are the preferences of those in management. 

Someone else may prefer to spend on this and not on that.

But there are some jobs where you don't have a choice. 

Whoever is in charge has to allocate resources from the budget for that expenditure. This applies to all administrators. The country's security expenditures are one such expenditure!

It is also acceptable to run a budget deficit for this purpose if it is a solution.

Nevertheless, a balanced budget is the ideal state of expenditures and budgets.

The more bread, the more meatballs, in short, everything can be funded if desired. As long as it is wanted, as long as it is preferred by the authorities.

Love and respect to everyone from Moscow.