Amber Alert: Emerging Markets Financial Crisis?
London, UK - 7th January 2015, 10:25 GMT
Fasten your seat belts, 2015 is going to be extremely turbulent if the US Fed keeps tightening monetary policy. Such is the addiction of the global patients now, that unless the Federal Reserve prints dollars again -- which they won’t as long as the US GDP is recovering robustly -- the withdrawal symptoms from cheap money injections are going to be manifest as massive volatilities in emerging markets and ricochet back to the developed world, as they are already doing. Witness the latest stock market falls not just in the emerging markets but also, to some extent, in the developed world on the back of the collapsing price of commodities including oil, which has now gone below the psychologically important $50 threshold and is still falling. The euro has also been falling and is at a nine year low against the super strong US dollar. The rocketing strength of the dollar, relative to other commodities and currencies, is the nub of this emerging markets financial crisis to be manifest in stages.
Emerging Markets Financial Crisis: Early Stages
The impact on emerging markets of this oil price decline -- see the last ATCA 5000 briefing titled "2015: Why's the Oil Price Collapsing? Answer: $8+ Trillion Carry Trade" -- is going to be unprecedented in scale, scope and synchronicity as several countries, companies and banks grapple simultaneously with declining commodities including oil, national currencies, massive budget deficits, damaged bond markets and epic debt defaults. The Asia crisis of the late 1990s with LTCM to boot could now be potentially repeated globally and on a much bigger scale because of the perceived tightening of US monetary policy and the super-strong and fast rising US dollar.
Read the full briefing at ATCA 5000.com
What are your thoughts, observations and views? We are keen to listen and to learn.
D K Matai
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