Emerging market collapse

SUBHEAD: Peripheral currency collapse is the leading indicator of a collapsing worldwide monetary system.

By RE on 15 February 2014 for Doomstead Diner -

[IB Publisher's note: This article is ten days old, but still "News". The original is quite long (and rambling) and we have abbreviated it here. Follow link above for full text and diagrams. Most people seem unaware of the slide in the "Second World" peripheral currencies and their connection to the stability of the "First World" Too Big to Fail Banks that we rely on for our energy, transportation, communication, food and water. Can the center hold for long?]

Image above: Bursting the bubble! An overdramatization. From an artist's impression of a 1000km-diameter planetoid hitting a young Earth. From (http://www.businessinsider.com/stock-market-crash-warning-signs-2013-11).

The big news on the economic front over the last couple of weeks has been the ongoing collapse of various peripheral currencies, including but not limited to the Argentinian Peso, the Thai Bhat, the Brazilian Real, the Ruskie Rouble and the Japanese Yen.

The last three are actually very Big Players of course, so a complete collapse of any of those currencies would wreak havoc in the world of Foreign Exchange Market (FOREX) trading, and market finance in general.

All sorts of shenanigans have been ongoing here at the same time, with at least four high level Banksters commiting “suicide”, along with the Argentinian Banking System Archives being destroyed by Fire in a basically fireproof building.  Reminds one a little of the collapsing WTC towers taking out all the Enron files.

You really gotta be naive or more likely BRAIN DEAD to think all this insanity is just COINKIDINK.  When FOREX markets collapse, PEOPLE DIE.  This is what starts SHOOTING WARS.

Currency Collapse in all these countries simultaneously is a prelude to WAR.  This is what truly gets World Wars started.  In a country that experiences a currency collapse, they can’t get any basic necessities of life.  Food doesn’t get imported.  The country loses access to International Letters of Credit to guarantee shipping.

It has always been obvious to me that the peripheral currencies would Collapse before the Dollar, and this run is going to take out some very big players.  Even combined, I do not think the People'sBank of China (PBoC) and the US Federal Reserve (the Fed) can funnel enough liquidity fast enough to keep all these currencies floating.

Ambrose Evans-Pritchard is PANICKED that the global monetary system is on the verge of a Deflationary collapse here (http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10605957/World-risks-deflationary-shock-as-BRICS-puncture-credit-bubbles.html):
As matters stand, the next recession will push the Western economic system over the edge into deflation …The European Central Bank's (ECB) Mario Draghi talked up the need for a “safety margin” against deflation before Christmas but now seems strangely passive, as if beaten into submission by the Bundesbank. I heard him twice in Davos repeating – woodenly, without conviction – that core inflation is merely back to where it was in 1999 after the Asian crisis and in 2009 after the Lehman crisis, and therefore benign.We are not in remotely comparable circumstances.

Those two events were at the outset of a new credit cycle. Right now we are nearly five years into an old cycle – already long in the tooth – and 80pc of the global economy is tightening or cutting stimulus. As matters stand, the next recession will push the Western economic system over the edge into deflation.

The US has a slightly bigger buffer, but not much. Growth of M2 money has been slowing even faster than it did in the nine months before the Lehman crash in 2008, but then the Fed no longer pays any attention to such data so it may all too easily repeat the mistake.

The Fed is surely courting fate with $10bn of bond tapering each meeting into the teeth of incipient deflation, as Minneapolis Fed chief Narayana Kocherlakota keeps warning.Those who think deflation is harmless should listen to the Bank of Japan’s Haruhiko Kuroda, who has lived through 15 years of falling prices. Corporate profits dried up. Investment in technology atrophied. Innovation fizzled out.

“It created a very negative mindset in Japan,” he said.Japan had the highest real interest rates in the rich world, leading to a compound interest spiral as the debt burden rose on a base of shrinking nominal GDP.

Any such outcome in Europe would send Club Med debt trajectories through the roof. It would doom all hope of halting Europe’s economic decline or reducing mass unemployment before the democracies of the afflicted countries go into seizure. So why are they letting it happen?
Ambrose Muses at the End of this “Why are they Letting it Happen?”

Hey Ambrose!  They AREN’T  letting it happen!  They have been pitching out the Funny Money for 5 years straight now, and it AIN’T working!  The CBs are running Outta Ammo!

For those of you not that conversant in how Capital Flows work in the FOREX market, let me try to make a brief explanation for what has been going on here for the last few years.

The Fed provides basically Zero Interest Rate Policy (ZIRP) money for the Too Big to Fail (TBTF) Banks to do “Investment” with.  The PBoC in China does the same thing.

In search of High Yields, this basically Free Money has been sent to do all sorts of Malinvestment in the Emerging Markets.

In the Panic Exit phase, the “Investors” attempt to Jump Ship and exit stage left fast as they can. 

Sadly for them, there are no BUYERS for the Dogshit they invested in, and prices start dropping on the shit.  Their only HOPIUM here is that the Fed or the PBoC buys the dogshit from them at Par. 

In fact the PBoC did just buy out some Dogshit Gold Trust to keep that one from going Belly Up into this mess right now, but that basically was chump change compared to the several $Trillion in Dogshit that is over there right now.

What Ambrose would like to see is for the Central Banks (CBs) to buy ALL the Dogshit!  That would be “doing something”. The CBs may eventually capitulate and try this, but the currency blowback would be enormous.  Besides that, the moral hazard in the game is outrageous, and if they do it chances are good that faith is lost in their control of the situation.

So they want to pop the bubble “gradually”, but not everybody is going to cooperate with that.  In fact when the Prop Desks sense tightening is coming, they wanna exit stage left before their competitors do.

The rapid outflow of foreign Capital hangs many Locals over there out to dry, and they have to start liquidating other holdings to try and stay solvent and keep their creditors at bay.  So the selloff happens on all the major markets globally, simultaneously.

So far it is not out of control, but how long the PBoC, the Fed and the ECB can keep a lid on it is an open question.  They simply do not have leeway left here anymore with their interest rates already so low, the Balance Sheets already off the charts and the Collateral they hold NOW is dogshit. 

If they heap more dogshit into this pile, “investors” will smell it, and then confidence goes in the CBs.

The result of that?  Monetary System Collapse, on the Grand Scale.  It hasn’t happened at this level probably since the Fall of the Roman Empire.

Suffice it to say that markets all over the world have been in turmoil for a good 2 weeks now, and more bizarre stuff occurs each day.  Like DEAD BANKSTERSIt’s Raining Pigmen.

So why is it all going down here now?  Why won’t Ambrose’s solution of LOTS more Toilet Paper off the Printing Presses of CBs all over the Globe get the economy Kick Started here?  Aren’t Central Banks Omipotent?  They have UNLIMITED ability to create Money, don’t they?

In a sense they do, in terms of creating credit, which the well connected have virtually unlimited access to as well.    What they do not have is unlimited access to resources to buy with the credit they issue.

For quite a long time here it seemed like Resources were Unlimited, and during this period the CBs and the Elite cadre of people who control them were pretty close to Omnipotent, determining the direction society took by issuing the most credit to people developing the Industrial Model.

Almost every individual Nation-State has its own CB long as they still issue their own currency and are not part of a currency union like the (gag, spit, puke) Euro.

Despite the fact they have their own CBs and Currencies, all are still tied into the same system, which the Bank for International Settlements (BIS) in Basel, Switzerland coordinates.  They have been doing this since the end of WWII, originally under the first Bretton-Woods agreements, but morphing over time in various ways since to keep the system running.

The main “reserve” currency the BIS uses to do all their accounting is the DOLLAR, so regardless of whether any other country participating in Global Trade have their own CB and their own currency.

All these currencies have traded with a generally accepted “range” for the past 30 years or so, with some currency arbitrage in the FOREX market through the period.  Interest rates go up and down, currencies get traded back and forth all dependent on which way the people in charge direct the investment capital, through the 3 major markets, the Equity (Stock) Market, the Commodity Market and the Bond Market.  Who “Invests” in these markets?

It is mainly the biggest of the TBTF Banks doing “investment” - Goldman-Sachs, JP Morgan Chase, Wells Fargo, Deutche Bank et al.

Where do they get their money to Invest in the various flavors of Dogshit available on these markets today?  From Depositor Money?  Hell no.  Depositors don’t have the $trillions necessary these days to levitate markets.  They get the money by Borrowing from the Central Banks.

Why can they borrow $billions every day while you have trouble getting a Mortgage or Car Loan?  Because they have “collateral”, which basically is just paper they bought previously, with you guessed it, loans from the CBs. This is called “leveraging”.

It goes along with other methods of multiplying the money you have to play with, Fractional Reserve is another, Rehypothecation still another.  This all adds up to a HUGE Tower of Debt instruments everybody holds, which in theory represent something, but in fact nowadays represent nothing, or very little anyhow relative to the actual size of the tower.

Now to the question at hand, why do we see the Peripheral Currencies hitting the wall here first, and why is it mainly the Emerging Markets that are collapsing first?  The reason is who got to be the “Lenders” in the Growth period versus who got to be the borrowers of the Reserve Currency of the Dollar.

The Lenders all came from the place where Industrialization developed first, Germany, England and the United States of America.  They got the Ponzi started, and as we all know, the first people in on a Ponzi get really rich, while everyone else gets hosed.  

In fact the Federal Reserve here in the USA is owned by the private cartel of banks from these countries, including the Bank of Rothschild, JP Morgan Chase and of course Goldman-Sachs.  

So they have always been able to borrow basically as much as they like to expand the Ponzi, charge a higher rate of interest to everyone they loan money to (all the late entry countries), and collect on the spread over the last Century.  A FABULOUS RACKET!  In the words of Alfonse Capone:
"Capitalism is the legitimate racket of the ruling class."
 To conclude here today, we often read that TPTB in charge of the Fiat money system create “Money from Nothing“, but this is not really true.  The Something they created the money on was the resource base of the Earth, which they basicall were in control of here in the Industrial era by virtue of Military hegemony.

Capitalism was always just a Ponzi which made the initiators of the system Richer than God by exploiting the reosurces of the earth and the rest of the Have Nots populating the planet.  The problem they have now is that though they still are in power to issue credit, they have little in the way of real good resources left to issue that credit out on.  In reality, these folks are as BK as everyone else, in numerical terms really a lot more BK, since what they hold as “Wealth” mainly are debt instruments that will never, can never pay off.

Peripheral Currencies are the Weakest Link in the Daisy Chain of the Ponzi.  As the system implodes, the “Investors” seek to exit these economies, and when they do that those economies lose access to Credit on the FOREX market denominated in Dollars.  For the food Importers (many of them), their ability to access food imports at a price their population can afford to buy becomes constrained.

Once that happens, Political Turmoil in extremis follows and you work your way in progression to a Failed State.  See Syria, Egypt, Greece and soon enough Spain and France too on this Bandwagon.  Doesn’t matter whether they can create their own currency or not really, relative to population size they simply do not have resource upon which to issue credit anymore.

In a sort of Magical Thinking paradigm, the Chinese are buying up Gold, under the concept that when the Dollar Collapses, a Gold Backed Renminby can take its place as World Reserve Currency.

Problem with this?  The Chinese are in bigger resource deficit relative to population size than anybody else in gross numbers, with the possible exception of the Indians.

Japanese are in worse situation per capita and by land mass, but it is a smaller population.  Assuming the few still left Resource Rich countries will TAKE Chinese Gold for their resources after the Dollar collapses, the Chinese would quickly be divested of all their Gold in the basement safe of the PBoC.

Peripheral Currency Collapse is the Leading Indicator of a collapsing Monetary System overall here.  However, once they collapse, the Jenga Puzzle of Derivatives will bring down the Dollar too, and really nothing is out there that can replace it, because the resources aren’t there either.

Not for such a large Global Population and certainly not for this population to try and live the lifestyle of Industrial Culture that the USA did for these last 200 years or so.

This has mostly been burned up now, and floats around the atmosphere as molecules of CO2, exacerbating a climate change and making life ever more difficult to pursue just about everywhere.

So it will get a LOT worse here before it ever gets better, if it ever does.  Negotiating this period will be extremely difficult, and there is no guarantee any strategy you try to employ here will work to make it through to the Other Side.

On the other hand, no guarantee there will be a complete WIPEOUT of Homo Sapiens either, so if you want to LIVE, you try to come up with the best strategies for doing that, and that is what we do on the Doomstead Diner.  It is the challenge of all of history this generation and the next faces.

You only have two choices here, try to Survive or Quit and Die first.  For the Heliopaths here, we will try to survive, and keep Fingers Crossed that some can make it through the Zero Point.

The time of the Terminator has come.


1 comment :

  1. Hmmm.... Currency systems worldwide are controlled by the banks, such as the Federal Reserve which prints bogus dollars. Time to end this game of monopoly and go for co-operative currencies backed by goods and services and controlled by the people, not the banks. If our monetary system were controlled by the people, the world would be rich since populations would not be beholden to banking systems which keep everyone in debt slavery. Our currency systems are bank-made, not God-made. Let the people be in control, not the banks.