Global Financial Crisis a serious matter to be looked after
After a little bit of lull, the international currency crisis is back with a vengeance. The International currencies are at a collapsing period especially in Argentina, Brazil, India, Turkey and other emerging markets and Central banks have begun working on it now. And it is being expected that the financial chaos can be restricted to emerging markets only so that it will not affect the United States and Europe directly. But of course, the reason to worry about if it will spread to the US and Europe is that the global financial system has become more dependent than ever before. The massive way of debt defaults in emerging markets would inevitably have extremely serious consequences all over the planet. It would not be good to state, too strongly, new Global Financial Crisis for all the emerging economies went on spectacular debt levels during the last decades and a high percentage of that indebtedness was designated in U.S dollars with the collapse of emerging market currencies. It is going to become nearly impossible to service any debts denominated in U.S dollars that could ultimately mean absolutely enormous losses for international lenders. Our system happens to do quite fine as long as everybody will decide to pay their debts regularly but once the dominoes start falling things can get complex quite quickly.
Let us start with the roundup with India while India is not currently in a bad shape as some of the other emerging markets, the truth is that they could get there pretty rapidly if they keep going down on this path. It is indeed a concern about the rising oil prices drove the Indian rupee fell to a brand new all-time record low last week following a declining trend or year which economists attributed to rising oil prices, broader emerging markets concerns, and strong month-end dollar demand. It is led to 70.8100 against the dollar after a previous new low just a day before at 70.475 that marked a 10.97% decline since the year starts but then at least India is doing much better than Argentina. The Argentine Peso collapsed to another all-time record low last week and at this point, it has fallen more than 45% against the US dollar so far this year. The Peso is down more than 45% against the greenback this year excessive ting pre-existing fears over the country’s weakening economy while inflation is running at 25.4% this year as wolf reactor has noted the Argentine Peso was worth one US dollar in 2002. Today, it is worth 2.4 cents that is what a collapse looks like. In a desperate attempt to stop the bleeding the Argentine central bank raised to 60%. The central bank was increasing the number of reserves that bank has to hold in a bid to tighten fiscal policy and shore up the currency. Yes, this is not a misprint about the interest rates in Argentina that have not been raised to 6% but have been raised to 60%. Could you imagine what 60% interest rates will do to the US economy? Well, we will get there someday if we don’t change our ways because we are going down the exact same path that Argentina is gone.
In Turkey as well, the things are not that smooth. The risks are growing fast in Turkey’s troubled economic situation which is a clear sign of stagnation. Turkey’s economic confidence index plunged 9% month on month to 83.9 points in August. It is lowest since March 2009, the country’s currency, the Lira resumed its downward spiral and Moody’s downgraded 20 financial institutions in Turkey. The financial nightmare in Turkey is the gift that keeps on giving. Their entire system is in the process of imploding and President Idi Amin seems to be in a persistent state of panic these days. Also, the Brazilian central bank directly intervened in the market to keep their currency from plunging to another new all-time record low. The bloodbath in Argentina and Turkey is evident in Brazil also where Bloomberg reports that the central bank just intervened for the first time since June 22nd. Although the intervention intensity and frequency will depend on the market, Bloomberg also attempted to provide some confidence by reaffirming that monetary policy is not directly linked to recent market socks.
A global financial crisis has begun but because it is not really affecting the United States too much yet, the mainstream media and most Americans aren’t really paying any attention. Still, if the market crashes too often here then it will be all over the news throughout the world in no time. Most people are aware that most of the biggest stock market crashes in US history have happened in the fall. We have definitely entered the danger zone and more socks seemed to hit the global economy with each passing day. For example, we just learned that President Trump apparently intends to follow through on his threat to hit the Chinese with another two hundred billion dollars in tariffs. Bloomberg reports that Trump had told aides that he wants to follow through on a threat to impose tariffs on another one hundred billion dollars worth of Chinese goods at the earliest that would be half of all the Chinese imports would be subject to tariffs. The tariffs could go into effect soon and of course, the Chinese will retaliate and that will mean more disruption for the global economic system.