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 Wednesday, this currency crisis could rapidly turn into a complete and total currency collapse.
I hope that you are ready for what is coming next.

 

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From The Economic Collapse Blog:

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

“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.”

So why is this happening?  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.  A recent USA Today article described how the Fed helped create this massive bubble in the emerging markets…

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 don’t want to own emerging markets.’”

What we are potentially facing is the bursting of a financial bubble on a global scale.  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.

And many smaller nations are being deeply affected already as well.

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

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.

“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.

 

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Closer to home, the Mexican peso tumbled quite a bit last week and is now beginning to show significant weakness.  If Mexico experiences a currency collapse, that would be a huge blow to the U.S. economy.

Like I said, this is something that is happening on a global scale.

If this continues, we will eventually see looting, violence, blackouts, shortages of basic supplies, and runs on the banks in emerging markets all over the planet just like we are already witnessing in Argentina and Venezuela.

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.

Meanwhile, I find it to be very “interesting” that last week we witnessed the largest withdrawal from JPMorgan’s gold vault ever recorded.

Was someone anticipating something?

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.

And if you listen carefully, global officials are telling us that is precisely what we should expect.  For example, consider the following statement from the finance minister of Mexico

“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”.

Yes indeed – it is looking like this is going to be a very volatile year.

I hope that you are ready for what is coming next.

Wheelbarrow of Money

  1. This article starts off on the wrong foot by stating “A lot of Americans have always assumed that the U.S. dollar would be the first currency to collapse…”

    First, a lot of Americans don’t have a clue about currency collapse in any way, shape or form.  
     
    Of those who have at least entertained the thought of a dollar demise, most have discounted it.  Otherwise they’d be stacking and prepping.
     
    Then of the few who actually believe the dollar’s days are done for, some, perhaps many, think the contagion may start in Europe or perhaps Japan then Europe before spreading to the US – a la Dr. Willie or Pastor Williams.

    Is any of this saying the rest of the article is wrong? No.

    • A lot of Americans what?
      Huh?
      Could you repeat what you just said, please?
      Sorry, I was too busy staring at my iPhone and thinking about what to watch on TV after work.

  2. BRICs are being bullied. So is any country involved in gold swaps.
    Apparently, the USD is strong due to increased economic activity ( talking heads say so ).
    Ah, all is well in the matrix.
    Dont stop stacking, these subsidised PM prices won,t last.
    Cheers

  3. Economic and/or currency collapse is far from a perfect science. There has been so much focus on other nations reducing their use of the US dollar that it was easy to loose focus of the fact investment in these nations has been done in US dollars, now tapering is moving forward investors want out. Great explanation of real time events.
     
    US dollars are like blood travelling through the circulatory system, each country like an organ of the body. When the blood is sick like with blood cancers, it doesn’t stop passing through the organs but it does fail to bring health to those organs. We can assume the ‘blood’ or US dollars will never be healthy again without a full bone marrow transfusion or currency collapse and re-set, so in the mean time health of most nations, especially emerging ones continue to deteriorate. This will most definitely trigger other events, some that have been predicted others that have only been hinted at and some right out of left field.
     
    If we had perfect foresight every evolving event big or small would help us see how the final collapse plays out , the methodology and flow of how each event occurs and the preceding ones that are the catalyst for another. The coming few weeks will be interesting as investors actually flow back into US equities and the bond market if only temporarily. This will likely keep a cap on PM’s and prevent a break out that really is worthy with struggling emerging nations. I think the elites are hoping for one last massive move to capitalise on knowing manipulating gold and silver can only last for so long before they simply cannot contain it. As always time frames are the thorn in the sides of stackers and patience is still sound advice.

    • @Juicey-Julie
      Nice analogy. The biggest artery in this decades-evolved trade system that is expiring is the Chimerica Artery. The way I see it, the world economy for the last 3 decades at least has hard core rearranged itself to depend on the Chinese (& Japanese) buying US Paper and then Real Goods flowing back to the US and through US linked Western countries. Every emerging Economy has attached itself like Lego to this main artery of trade, and any quick change (ie, since 2008) that chokes that artery, starts to choke the entire system, because these emerging economies and 3rd world economies which are Raw Materials Farms cannot react quickly enough, and see their capital investment dry up, their infrastructure debts start to sour, and their high debt to shrinking-GDP ratio becomes exposed scaring off investors. IMO, it is the large qty of Shadow Banking $$’s in the hands of London-NYC Multi-National (tax evading) Companies that are licking their lips as they get to now buy out completely these 3rd world plantation economies … but they seem to have overcooked their plans and have bet on the Chimerica system as being able to be resurrected, which the Chinese Communist Party seems to be indicating is a delusion. It has been well overcooked IMO, and the indications are for a terminal failure; the Chimerica Artery is to be wound down and cut off.
       
      As far as I can see China has said NO MORE, on the US Treasury ‘Standard’ moving forward and has made the decision that no matter what, it must stop being tapped by the USD Trade Parasite (which is what it is). The Physical Gold flows alone should show even the most deluded of text book economists that the status-quo is over … physical Gold is a recurring nightmare that these economists seem to be able to forget as soon as they wake up in the morning. At least Krugman told a truth when he said that the “USD is backed by guns”.
       
      >>>as investors actually flow back into US equities and the bond market if only temporarily.
      That’s exactly what I believe will happen also, and it will keep the interest rates down just that little bit longer also, but it cannot last for ever.
       
      >>>This will likely keep a cap on PM’s and prevent a break out that really is worthy with struggling emerging nations.
      Bound to, but my theory on the so called PM ‘price’ that is set in London by the Paper Ponzi Schemers is that when the collapse finally comes, the price will plummet as the paper is dumped, and then Governments will get involved in the West to close the markets and freeze prices. Gold will be frozen at the bottom so that it looks like it is still not a good investment, but the Bullion will be rationed under special laws, so that even if you wanted to get some physical you will not be able to. China and other Asian buyers will be cut off at this point … the price of Paper Gold effectively will become irrelevant, and the ‘price’ of Physical will only be known and set by people who have it when they choose to trade it outside the system for Goods and Services … physical holders will set the price, but it will not be posted on any official screen anywhere in the West that anyone will be looking at … in fact physical is most likely to be announced as contraband ala FDR. Gold & Silver hoarders will be labelled ‘evil speculators’ and demonized as the source of the problem. That’s all Nixon could come up with when France and others were calling the bluff in the 1970′s, anyone who wasn’t happy with the US holding their Gold was a ‘speculator’, and it will be no different this time.

  4. The cascade of currency problems in the emerging markets will exacerbate our problems and equity markets  If the contagion from the EMs hit our equities they could drop like a rock
    the one thing that is going tor rattle the markets more than reduction of QE is the debt ceiling hit on or around Feb 28   This is a hard date, with some cash flow leeeway from personal and corporate payments vs tax refunds and SS payments that could exceed the income by several billion a day.
    We could be right back where we were a couple of months ago with the sequester shutdowns. Those did hurt the economy and the effects are still being felt.  Another debt ceiling crisis will be debilitating to business and the stock and bond markets.   Obama will try to do an end run and both parties will be at war over this. 
    February 28  Watch that date.

    • I was in Australia during the Debt Ceiling so called debate, and it took over their News Networks … I know a few Australians who are getting sick and tired of American financial news dominating their future. The Australian Economy has now fully tanked with its Iron Ore and even Food Export businesses (and FOREX issues) now winding down as China cools off. All their remaining Manufacturing businesses have been sacrificed on the altar of ‘Free-Trade’ also, and they are falling like a stone in GDP.
       
      Personally I am sick of hearing about the Debt Ceiling when the real issue is the Debt Money System … if the Govt fails to pay off interest bearing Debt with freshly created interest bearing ‘Money’ then the Credit System collapses. Both the Demoncrips and ReBloodLickans are having a useless punch and judy debate; just helps keep the Team supporters at each others throats like a sports match, divide and conquer.
       
      They should all admit that Obama can have a limitless CreditCard … and Michelle can go on another 5star holiday spree using the Frequent Flyer Points (perks of the job) LOL.

  5. My answer to headline question is :-  I don’t care any longer.
    We have for ages been told we are “heading for a collapse”,   “We are on the edge of a cliff”,   “The end of the World is nigh”
    I don’t bother to read these articles anymore especially if they pose a question or have words like ‘could’, ‘might’, ‘may’ in the title.
    The only article I would read is the one that says “Gold & Silver double their price overnight”.   Until then…….. yawn.

    • I COULDNT AGREE MORE. HOW LONG HAVE WE HEARD THE COMEX WOULD, MIGHT, COLLAPSE. THAT WILL NEVER HAPPEN, THEY CAN NEVER DFAULT, THEY CAN SETTLE IN CASH…I REPEAT THEY CAN NEVER AND WILL NEVER COLLAPSE. ALL THE EXPERTS SSAID IF THE FED TAPERED THAT INTERST ON THE TEN YEAR WOULD SOAR IMMEDIATELY…LOL HOW WRONG COULD THEY BE..THE TEN YEAR IN DOWN BIG TIME…AND THEY HAVE TAPERED TWICE.  

    • Diabolically brilliant or not, the US Economy and Anglo-American Companies rely on continued exploitation of Emerging Markets … when the Governments of these EM’s start hurting they will only blame one country … the US … and they will let their peoples know it through their propaganda outlets. Anglo-American International Companies are getting a really bad name (Especially banks and financial services), and even though a temporarily strong dollar looks like a good thing, in the long run this only signals further systemic discontent the world over, and it doesn’t help US Made Exports.
      >>>These f*ckers are diabolically brilliant.
      In the short term I won’t argue with that! :P

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