America's Biggest Export: Bubbles

ZIRP now! ZIRP tomorrow! ZIRP… wait, what? Read:

Like a vast majority of new buildings that have blanketed the Istanbul hills in recent years, the Sapphire — at 856 feet it is the tallest in Turkey and among the loftiest in Europe — was built on the back of cheap loans, in dollars, that have flooded Turkey and other fast-growing markets like Brazil, India and South Korea. The money began to flow when the Federal Reserve and other major central banks cut interest rates to the bone in 2009 and cranked up the printing presses in a bid to spur recovery in the United States and other advanced industrial nations.

But now, with expectations mounting that the Federal Reserve, led by its departing chairman Ben S. Bernanke, may soon begin to tighten its monetary spigot, Istanbul’s skyline could well be a harbinger of an emerging-market bust brought on by unpaid loans, weakening currencies, and, eventually, the possible failure of developers and banks.

Prices, they teach you in Econ 101, are information. When something — money in this case — is essentially free, people don’t have enough information to make smart decisions. So they act like idiots. For example, putting up huge skyscrapers over a city that’s mostly poor and ill-educated.

The Turks chose… poorly. And they can thank Uncle Ben.