Are we on the verge of a massive emerging markets currency collapse?

2014.02.05

Photo credit: www.gafin.nextcom.net.vn

Photo credit: www.gafin.nextcom.net.vn

This time, the Federal Reserve has created a truly global problem. A big chunk of the trillions of dollars that it pumped into the financial system over the past several years has flowed into emerging markets. But now that the Fed has decided to begin “the taper”, investors see it as a sign to pull the “hot money” out of emerging markets as rapidly as possible.  This is causing currencies to collapse and interest rates to soar all over the planet.  Argentina, Turkey, South Africa, Ukraine, Chile, Indonesia, Venezuela, India, Brazil, Taiwan and Malaysia are just some of the emerging markets that have been hit hard so far.  In fact, last week emerging market currencies experienced the biggest decline that we have seen since the financial crisis of 2008.  And all of this chaos in emerging markets is seriously spooking Wall Street as well.  The Dow has fallen nearly 500 points over the last two trading sessions alone.  If the Federal Reserve opts to taper even more in the coming days, this currency crisis could rapidly turn into a complete and total currency collapse.

A lot of Americans have always assumed that the U.S. dollar would be the first currency to collapse when the next great financial crisis happens.  But actually, right now just the opposite is happening and it is causing chaos all over the planet.

For instance, just check out what is happening in Turkey according to a recent report in the New York Times

Turkey’s currency fell to a record low against the dollar on Friday, a drop that will hit the purchasing power of everyone in the country.

On a street corner in Istanbul, Yilmaz Gok, 51, said, “I’m a retiree making ends meet on a small pension and all I care about is a possible increase in prices.”

“I will need to cut further,” he said. “Maybe I should use my natural gas heater less.”

As inflation escalates and interest rates soar in these countries, ordinary citizens are going to feel the squeeze.  Just having enough money to purchase the basics is going to become more difficult.

And this is not just limited to a few countries.  What we are watching right now is truly a global phenomenon

Read more: http://theeconomiccollapseblog.com/archives/are-we-on-the-verge-of-a-massive-emerging-markets-currency-collapse/

 

Article prepared by Marc Rosenberg

80 thoughts on “Are we on the verge of a massive emerging markets currency collapse?

  1. China just halted all bank tranfers. S. Korea is holding an emergency meetin on Jan 26th regarding the volatility in the markets. Lloyds shutdown ATM withdrawls today, following HSBC bank run fears.

        • You do know that that was a standard holiday shutdown of cash transfers due to the Chinese New Year and not unexpected, right?

          • Things to think about.

            1. China is using it’s wealth to buy massive amounts of gold.

            2. The Fed was recently told to return a very large amount of gold to it’s rightful owners in Germany. Which it could not do….

            3. China just tied the largest physical withdrawal of gold in a single day from JPM vaults of all time.

            4. Tapering is withdrawing liquidity (China’s wealth) from emerging markets (China).

            5. Several fake articles on china’s financial difficulties appear.

            So is someone outright trying to push Chinese Gramma over a cliff?

            Is the Fed trying to cover it’s bad hand by clobbering China?

            So if the premise of Trade wars lead to currency wars lead to hot wars is correct….

  2. People — WAKE UP!!
    Most people are asleep.
    And the people who aren’t asleep, are (literally!) too drunk or too stoned, to even care.

  3. We were all looking for some major event to signal the start of the collapse. I think that signal has happened and you wont hear ANYTHING about it on CNN they do not what you to know.
    THINGS are about to get very rough, strange and weird here on out.
    Buckle up as this ride is about to get real rough.
    I pray you are right with GOD.
    IF NOT it may be a good time to have a board meeting with him.

    • Add to this rising food prices, and a high likelihood of further cuts to food stamps. I believe the correct phrase is, And so it begins.

      • Have to agree 20% are taking some steps to get ready. Sadly 80% have no idea, or do not want to have any idea. Sorry still am blocked from replying to you directly.

      • Have to agree 20% are taking some steps to get ready. Sadly 80% have no idea, or do not want to have any idea. Sorry still am blocked from replying to you directly.

  4. That’s why they buy your unwanted gold at any price.
    And when the balloon grows they tell you to give them your money (buy shares), so they can use the money to inflate the gold prices further.
    Or housing. Real houses, with foundation, basement, bricks, the land it stands on.
    If you have enough gold, and a press, you can make your own gold coins. And use them to pay the military. You can also house the military and their families in your real estate.
    One way to survive is to get out of financial markets, reduce your debts, optimise your consumption to a sustainable level.
    If your demand shrinks, you become much less of a threat.

  5. My daughter asked me why currencies are collapsing (she reads over my shoulder). I told her that they were artificially inflated in value by US dollar inflation. I explained how some folks are getting rich on money that doesn’t exist, and buying things with practically nothing. She then asked me something interesting: “Dad, if the money isn’t real and everything collapses; what makes these rich people think they’ll have anything? No one would accept their money as money.”

    THAT is very profound. The so-called 1% can’t own the world by that logic. If they “owned” raw materials, how would they hold onto it legally? No legitimate government to recognize it. They can’t keep it, outside of having a private military; and how can they have a private military without a private workforce much greater to support it? Keeping a military is not cheap – even if they had to resort to flintlocks and bayonets. Takes at least a year to make gunpowder from scratch. No way the wealthy can support a large military over 200 soldiers without the economy and support staff behind it. And who’s to say we’d accept their gold and silver? Where’s the industry that uses gold and silver to make it worth something?

    How wise the mind of a child is!

    • The problem, still, is that she (and you) is separating the 1% from the government. This is simply not the case. The 1% owns and operates the government. Now, I still think this entity (the state, the fascist conglomerate that includes both government (elected officials) and corporate interests (un-elected overlords)) will collapse, simply because it produces nothing but waste and has only one trick to use against the people: fear. The key thing to understand is that the state needs us, we do not need the state. Governments derive their powers from the “consent of the governed…” Thomas Jefferson was not speaking of an ideal government or a perfect world, he was stating a FACT. No government (or state), anywhere, ever has existed or will ever exist without the consent of the masses. The people have the power, now as always, we need only to realize it en masse.

        • There is some good news that you can share with her.
          President Obama has returned from his Hawaiian vacation..
          Usually whenever anything goes to “heck”. The president goes somewhere, or just goes to bed.

      • [quote]
        “”Dad, if the money isn’t real and everything collapses; what makes these
        rich people think they’ll have anything? No one would accept their
        money as money.”[unquote]

        The Great Depression still happened this way didn’t it?

        • We still did have “real” money in the Depression days. Yep, FDR confiscated the public gold supply in 1933 (turn in your gold to the bank, or face imprisonment), but we didn’t fully go off the gold standard until August 15, 1971. Since then, the dollar has been a fiat currency backed by nothing.

        • Close to that, yeah. The great depression still had manufacturing, farming, and mining, but it was in steady decline due to anti-production/pro-protection policies.

          One excellent example is the cotton and pigs fiasco: the FDR administration, with the USDA, ordered the destruction of millions of pounds of cotton and tens of thousands of pigs to artificially inflate prices via low supply. This practice is still in place today.

    • My seven year old son has been schooled in the meaning of inflation using this site. He asks questions like your DD.
      Perhaps
      that’s an indication the children will be able to rise out of the ashes
      of the collapse and renew economies as they should be.

      • That is our goal as parents. That’s why our preparedness plan includes technical books and tools. We will go through the collapse, but the children will have the ability to process what’s here to rebuild and improve themselves. Thanks, man!

    • You should be proud that your daughter is that perceptive but I would have tried to explain to her that the value of money is relative. When I graduated from high school in the early 70’s I landed a job making $5.57/hr and continued going to school part time. I thought I was rich. When I retired more than 30 years later I was making more than $24/hr, an increase of more than 400%. There was no discernible change in my lifestyle or what I could afford.. The only reason I was able to retire when many of my co workers couldn’t was because when overtime was available in my last few years I worked it and used it to pay of every debt I owed. I still by choice work a part time job just for extra money but now when I’m fishing in the morning I think a lot about the whole rat race.. There is an old economic adage that you wpn’t make more

      • It IS relative, and it’s because inflation has steady eroded the dollar’s value. Say you have a cup of coffee. You add water to it. Then add more water to it. Keep doing this, and soon you’ll want to just pour that cup of coffee down the drain. That’s what’s happening, in a sense, to the dollar.

        • Have you checked the price of coffee lately I bet it’s up 80% in the last 3 years.. We may have no choice but to add more water. Just for the hell of it the other day I used only half a scoop over the used grounds from the previous pot. It worked!

        • I thought about using vacuum packed coffee as currency in hyperinflation, but bummer it only keeps a year…coffee is valuable in inflation situations.

      • “We expected this year to be a volatile year for EM as the Fed tapers,” Mexican Finance Minister Luis Videgaray said, adding that volatility “will happen throughout the year as tapering goes on”.

    • Once again, hopefully this crisis will be contained shortly. But if the Fed announces that it has decided to taper some more, that is going to be a signal to investors that they should race for the exits and the crisis in the emerging markets will get a whole lot worse.ii

  6. Hopefully something can be done to stop this from happening. But once a bubble starts to burst, it is really difficult to try to hold it together.

  7. “Let’s be careful about what we say about the economy. Inflation, ladies and gentlemen, is not out of control,” Amara Konneh told lawmakers, while adding that the government was “concerned” about the trend.

  8. Liberia’s finance minister warned against panic today after being summoned to parliament to explain a crash in the value of Liberia’s currency against the US dollar.

    • For example, most Americans cannot even find Liberia on a map, but right now the actions of our Federal Reserve have pushed the currency of that small nation to the verge of collapse…

  9. Just check out what Egon von Greyerz, the founder of Matterhorn Asset Management in Switzerland, recently had to say…
    If you take the Turkish lira, that plunged to new lows this week, and the Russian ruble is at the lowest level in 5 years. In South Africa, the rand is at the weakest since 2008. The currencies are also weak in Brazil and Mexico. But there are many other countries whose situation is extremely dire, like India, Indonesia, Hungary, Poland, the Ukraine, and Venezuela.

    I’m mentioning these countries individually just to stress that this situation is extremely serious. It is also on a massive scale. In virtually all of these countries currencies are plunging and so are bonds, which is leading to much higher interest rates. And the cost of credit-default swaps in these countries is surging due to the increased credit risks.

  10. “Emerging markets need the hot money but capital is exiting now,” says Koesterich. “What you have is people saying, ‘I don’t want to own emerging markets.'”

    • Well, there are a number of factors involved of course. However, as with so many of our other problems, the actions of the Federal Reserve are at the very heart of this crisis.

          • Here you go:
            Emerging markets are the future growth engine of the global economy and an important source of profits for U.S. companies. These developing economies were both recipients and beneficiaries of massive cash inflows the past few years as investors sought out bigger returns fostered by injections of cheap cash from the Federal Reserve and other central bankers.

          • But now that the Fed has started to dial back its stimulus, many investors are yanking their cash out of emerging markets and bringing the cash back to more stable markets and economies, such as the U.S., hurting the developing nations in the process, explains Russ Koesterich, chief investment strategist at BlackRock.

  11. Just leave it here
    “You’ve had a massive selloff in these emerging-market currencies,” Nick Xanders, a London-based equity strategist at BTIG Ltd., said by telephone. “Ruble, rupee, real, rand: they’ve all fallen and the main cause has been tapering. A lot of companies that have benefited from emerging-markets growth are now seeing it go the other way.”

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