For a long time now, we at NOTES FROM UNDERGROUND have been discussing the danger of Turkish President Erdogan in his role as a potential disruptor to stability in the Middle East. Last week’s violent action in Turkey’s stock and currency markets is just one element of the instability for which Erdogan can be held responsible.

Several followers of the popular narrative were citing the key geopolitical risk emanating from Turkey because the U.S. warehouses nuclear weapons at the airbase in Incirlik, Turkey. This is nonsense of the first order for the nuclear weapons are under U.S. control and all codes are the purview of the U.S. National Security Agency.

The greatest threat posed by Turkey is its ability to foment major instability in Syria, Iraq and other hot spots in the Middle East. The Erdogan government will PROBABLY move against the KURDS, especially as the U.S. has provided military and financial support to the KURDS, which has irritated the Turkish government.

On Friday, there were rumors that President Erdogan was in discussions with Russian President Putin after President Trump threatened to increase sanctions on Turkey.

The Turkish situation is what I have referred to as a potential spark to start a major prairie fire. The early effects of the Turkish instability appeared to fall upon the Europeans because of the vast amount of loans that several large banks have made to Turkish corporations and other institutions. The ECB has noted that they will be watching for potential fallout from the Turkish crisis. Mario Draghi’s ECB has very little room to respond to a crisis as interest rates are already negative and QE is still in full force. It was interesting that the Spanish, French and Italian banks were all named as areas of great concerned but the German banks were part of the narrative. German bank stocks fell regardless, but it would be unusual for the Germans not be vulnerable as Germany is home to the largest Turkish population in Europe.

Another area of geopolitical concern is NATO, an issue I have cited for several years. Turkey is a member of NATO and privy to much of the strategic policy upon which NATO is based. I have maintained that a major problem for Nato is Article 5, which calls for collective action when a member of the alliance is attacked. The question I continually ask is: Would NATO defend Turkey if it was attacked by a foreign power such as Russia (think back to when the Turks shot down a Russian fighter plane)? Summer doldrums have now seen the rise in the winds of instability in which there are many sources for a major storm to strike.

On Friday, the U.S. dollar became the repository for those seeking some shelter from the building storms. Geopolitical instability has a tendency to disrupt financial complacency, especially with a global financial system loaded with debt.

I will be discussing the tempest with Rick Santelli on CNBC at 9:40 a.m. CST. Enjoy but trade knowing the huge amount of risk involved in every decision. I would also urge my readers to scroll back through the NOTES FROM UNDERGROUND archive to find relevant analysis on the three most dangerous actors on the world scene: Putin, Erdogan and Draghi.