Turkey's plight deepened on Monday as the lira fell to new lows and President Recep Tayyip Erdogan's refusal to abandon his unorthodox economic policies left investors fearing a new global financial crisis.
Turkey and other countries that borrowed freely when dollars were plentiful and cheap now face soaring debt payments they may no longer be able to make.
Such worries mounted as the plunging lira dragged down currencies in developing countries such as South Africa, Argentina, Mexico and Indonesia.
On Wall Street, trading screens glowed red as stock market losses that started in Asia spread across North America and Europe.
Turkey's ills have been inflamed by President Donald Trump's abrupt move on Friday to double tariffs on imported Turkish metals in a bid to punish Erdogan for refusing to free an American pastor facing terrorism-related charges.
As the two NATO allies squared off, national security adviser John Bolton met at the White House on Monday with Turkish Ambassador Serdar Kilic at the latter's request.
"They discussed Turkey's continued detention of Pastor Andrew Brunson and the state of the US-Turkey relationship," Sarah Huckabee Sanders, the White House press secretary, said in a statement.
Turkey is in financial trouble because its banks splurged on dollar borrowing in recent years while the Federal Reserve kept interest rates near zero. The government in Ankara also busted its budget to spur economic growth, especially in the wake of an abortive 2016 coup.
With each lira now buying fewer dollars, Turkish borrowers' debt payments are quickly becoming unmanageable. So far, Erdogan is resisting investor calls to raise interest rates to support the currency, or to seek a bailout from the International Monetary Fund.
If Turkish borrowers default on their debts, foreign banks - especially in Europe - would suffer big losses. Large Spanish banks are owed more than US$82 billion ($124.2b), while French banks have US$38b in loans outstanding, according to the Bank for International Settlements in Geneva.
Turkey's predicament is largely the result of its own errors. But the nation of 80 million is unlikely to be the only casualty of the shifting financial climate, which stems from changes in policy at the Federal Reserve and other central banks.
The US dollar, now at its highest level in 13 months, is being driven higher by the Fed's interest rate increases and its sell-off of government securities.
"Markets are waking up to the reality that there will be consequences to the rise in interest rates," said economist Jacob Funk Kirkegaard of the Peterson Institute for International Economics.
"It's part of the transition away from the zero-rate environment we've had where money has been really, really cheap."
Global debt loads have exploded since the Great Recession. From US$97 trillion in 2007, total household, corporate and government debt grew to US$169 trillion last year, according to the McKinsey Global Institute.
Much of the most aggressive borrowing has been done by corporations, notably in developing markets such as China, McKinsey said in a report released in June that warned of potential vulnerabilities.
"Global corporate default rates are already above their long-term average, and the prospect of rising interest rates may put more corporate bond borrowers at higher risk," McKinsey said.
For now, the worries are confined to emerging markets that suffer from the same debt problems as Turkey and their European bankers. The Turkish crisis "is not a serious threat to the US economy, or the banking system, or the Fed's plans to continue with the gradual normalisation of policy," Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a client note.
"Turkey's woes cannot inflict damage on the US manufacturing sector on the scale triggered by the Asian meltdown in 1997-to-1998."
Indeed, the Dow Jones industrial average dropped only 125 points, or 0.5 per cent.
Turkey's central bank announced new measures Monday aimed at halting the rapid depreciation of the country's currency.
After the lira plummeted to a record low overnight, the central bank said in a statement that it would "take all necessary measures to maintain financial stability" and provide banks with the liquidity they required. The currency recovered somewhat after the central bank's statement and a pledge by Turkey's finance minister to lay out an action plan to stem the lira's losses.
But there was little optimism that those measures would be enough to revive the currency, which has lost more than 40 per cent against the dollar this year.
As Turks braced for a rise in double-digit inflation and the lira's woes troubled global markets, Erdogan, who has blamed foreign powers for the crisis, insisted that the economy was "solid, strong and intact," according to the semiofficial Anadolu agency.
His government is locked in a bitter dispute with the United States over Turkey's prosecution of Brunson, a pastor from North Carolina.
US officials have called the terrorism charges groundless and demanded that Brunson, who remains under house arrest, be allowed to return to the United States.
Brunson's fate is one of many issues dividing the NATO allies, which have clashed over Syria policy and the aftermath of the 2016 coup attempt against Erdogan. For the past two years, Turkey has been demanding that the US extradite Fethullah Gulen, a Turkish cleric accused by Ankara of orchestrating the coup. Gulen has denied involvement.
On Monday, as pro-government news channels warned of an "economic coup" against Turkey, Erdogan lashed out at the United States, telling an audience of foreign ambassadors that "the bullies of the global system cannot roughly, shamelessly encroach on our gains that were paid for by blood," according to the Turkish Hurriyet Daily News.
Economists have warned that such statements by Erdogan could prolong the crisis, along with his refusal to raise interest rates, in line with his claim that low interest rates cause low inflation - a view at odds with mainstream economic analysis.
But he has remained defiant while rallying Turks to counter what he describes as a foreign threat, urging citizens to sell dollars and gold to support the local currency and threatening to punish traitors for rumor-mongering.
"We will overturn the scenarios that target our nation," Erdogan said Monday.
Turkey's Interior Ministry said Monday that it was taking legal action against more than 300 social media accounts that had posted messages that harmed the lira, local media reported.