Market Chatter:
Margin Call from Hell. An excerpt from a great article. Click on the link below for the entire piece.
Tocco
counterpunch.org
Why a Stronger Dollar will Lead to Deflation, Recession and Crisis
by MIKE WHITNEY
“There are no nations…. no peoples…. no Russians.. no Arabs…no third worlds…no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multi-variate, multi-national dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels. It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today.”
– Arthur Jensen’s speech from Network, a 1976 American satirical film written by Paddy Chayefsky and directed by Sidney Lumet
The crisis that began seven years ago with easy lending and subprime mortgages, has entered its final phase, a currency war between the world’s leading economies each employing the same accommodative monetary policies that have intensified market volatility, increased deflationary pressures, and set the stage for another tumultuous crack-up. The rising dollar, which has soared to a twelve year high against the euro, has sent US stock indices plunging as investors expect leaner corporate earnings, tighter credit, and weaker exports in the year ahead. The stronger buck is also wreaking havoc on emerging markets that are on the hook for $5.7 trillion in dollar-backed liabilities. While most of this debt is held by the private sector in the form of corporate bonds, the stronger dollar means that debt servicing will increase, defaults will spike, and capital flight will accelerate. Author’s Michele Brand and Remy Herrera summed it up in a recent article on Counterpunch titled “Dollar Imperialism, 2015 edition”. Here’s an excerpt from the article:
“There is the risk for a sell-off in emerging market bonds, leading to conditions like in 1997. The multitrillion dollar carry trade may be on the verge of unwinding, meaning capital fleeing the periphery and rushing back to the US. Vast amounts of capital are already leaving some of these countries, and the secondary market for emerging bonds is beginning to dry up. A rise in US interest rates would only put oil on the fire.
The World Bank warned in January against a “disorderly unwinding of financial vulnerabilities.” According to the Financial Times on February 6, there is a “swelling torrent of ‘hot money’ cascad[ing] out of China.” Guan Tao, a senior Chinese official, said that $20 billion left China in December alone and that China’s financial condition “looks more and more like the Asian financial crisis” of the 1990s, and that we can “sense the atmosphere of the Asian financial crisis is getting closer and closer to us.” The anticipated rise of US interest rates this year, even by a quarter point as the Fed is hinting at, would exacerbate this trend and hit the BRICS and other developing countries with an even more violent blow, making their debt servicing even more expensive.” ( Dollar Imperialism, 2015 Edition” Michele Brand and Remy Herrera, CounterPunch) |
