Is the World On The Verge Of A Currency Crisis? Share this article Houston, we have a problem. Remember all the money that the Fed has been pumping into the US economy? Well, it turns out that a big chunk of it (amounts totaling in the trillions of dollars) has flowed into emerging markets. And now that the Fed has decided to begin to taper off the flow of those funds, investors are responding by pulling 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 globe. 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. Just last week, emerging market currencies experienced their worst declines since the financial crisis of 2008, and the chaos overseas is beginning to spook 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. Here’s a snapshot of what’s going on 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.” Inflation hurts those with low incomes far worse than it harms the rich. As prices rise relentlessly, the poor feel the pinch, having to cut back on basic necessities, because there is simply nothing else to cut. And this is not happening in just one or two countries. It is a truly global phenomenon, as demonstrated by the following observation: 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. Emerging markets need the hot money but capital is exiting now, says Koesterich. What you have is people saying, I dont want to own emerging markets. Here’s another 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 very edge of collapse: Liberias finance minister warned against panic today after being summoned to parliament to explain a crash in the value of Liberias currency against the US dollar. Lets 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. Closer to home, the Mexican peso has likewise been impacted. We’ve seen this before. Here are the likely impacts on these emerging market nations if this continues: • Looting • Violence • Blackouts • Shortages of basic supplies • Runs on the banks 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. And while all this is happening, what are the big movers and shakers doing? Well, last week, we saw the largest withdrawal from JPMorgans gold vault ever recorded. What does that say to you? To me, it seems that this is a harbinger of things to come. 2014 is shaping up to be a very volatile year. I hope that you are ready for what is coming next. (H/T: Economic Collapse Blog)
Posted on: Fri, 31 Jan 2014 19:13:02 +0000