Are we on the verge of a massive Emerging Markets Collapse?

[raspberry-blower]

Given the periodic collapse in emerging markets over the years it is quite probable that another one is underway. However, the scale of this could be unprecedented and with everything interconnected, it could get very messy..

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 in the coming days, this currency crisis could rapidly turn into a complete and total currency collapse.
Article in full

[PS_RalphW]

All your posts these last few days are making me nervous. As yet, there are few hints in the MSM about collapse from the edges in, and few of the routine doom mongers seem to have picked up on it, as they are mostly focused on the first world economies.

I do not think we will see the massive sudden retraction and panic of 2008, we may see several 'developing' nations going into sharp recession, currency collapse and IMF bailout in the space of a few months. The real debts will again remain hidden, with central banks quietly bailing out the too big to fail institutions again. The advantage of the derivatives market is that no-one knows who the real losers should be, so the powerful end up winning every time.

Oil prices may decline for a year or two, as more and more countries are priced out of the market. UK exports will be hit again, leading to a return to mild recession.

Of course, if a biggie like India was to hit the buffers, all bets are off.

[adam2]

If by "on the verge" next week or next month is being forecast, then I doubt that it will be that quick.

Doom is regularly forecast on these forums, and elswhere, and seldom arrives as quickly as forecast.

In the longer term I would agree, doom of several sorts is approaching, but fairly slowly.

[snow hope]

I always note what raspberry-blower has to say........ I think he/she has their finger on the pulse.....

But do you really think a financial collapse could be close? Weeks/months?

[UndercoverElephant]

We are already experiencing a weird, slow-motion financial collapse. It started in 2008. Since then, nothing in the financial world is quite what it appears to be. Ralph is right to suggest there won't be a repeat of 2008 - there can't be, because the situation is fundamentally different. In 2008 everybody was panicking because, all other things being equal, we were heading for the worst crisis in financial history. But all things were not equal. Instead, we got the biggest public-funded bailout of banks in financial history, followed by a policy of endless money-printing and near-zero interest rates. The reason the collapse did not happen was that the politicians and central bankers made it absolutely clear that the QE and ZIRP were going to continue for as long as it takes to sort things out. The problem is that that is forever - instead of QE and ZIRP sorting anything out, what happened was that the financial markets, and eventually the housing market, started behaving as if QE and ZIRP were going to continue indefinitely. The result is something that looks like a recovery, but it is only happening because the QE and ZIRP are believed to be indefinite. The entire global economy has now reconfigured itself and is effectively "addicted" to QE and ZIRP. And that means that as soon as the Fed start talking about "tapering" or the BoE starts talking about raising interest rates, then the collapse that started in 2008, and is currently in suspended animation, will inevitably unfold.

The only question are when this is going to happen and exactly how things are going to collapse. The collapse itself is a logical certainty, and would be even if Peak Oil had not happened.

[Lord Beria3]

Certainly the emerging markets are facing severe crises, but hardly a 'collapse' or doom. Lets not forget the 1998 financial instability.

In the longer run I an not worried. The stock markets are due a major correction anyway after such a massive bull market over the last 5 years.

[RenewableCandy]

...the collapse that started in 2008, and is currently in suspended animation,

Now as well as zombie power stations ad zombie banks, we have a zombie collapse!

[biffvernon]

Even the FTSI has gone down a surprising amount in the last few days.

[UndercoverElephant]

Certainly the emerging markets are facing severe crises, but hardly a 'collapse' or doom. Lets not forget the 1998 financial instability.

In the longer run I an not worried. The stock markets are due a major correction anyway after such a massive bull market over the last 5 years.

It isn't just stock markets. It's all sorts of things, especially the housing market in the UK. What is going to be very interesting is what happens to interest rates in the UK if the unemployment figures keep falling. I strongly believe that the BoE has no intention whatsoever of raising interest rates, regardless of what happens to unemployment figures. The real reason for keeping interest rates at 0.5% is to stoke up another housing bubble, not anything to do with unemployment. That was just a ruse. IMO.

[RenewableCandy]

I think Mr Carnie said unemployment would have to go down to 7% before...i.e. it was a necessary but not sufficient condition for putting interest rates up.

Anyway, in these days of super-low wages and zero-hours contracts, unemployment figures, by themselves, are pretty meaningless.

[UndercoverElephant]

Anyway, in these days of super-low wages and zero-hours contracts, unemployment figures, by themselves, are pretty meaningless.

Agreed they are pretty meaningless, but they were a useful tool for Mr Carnie to use to ensure people he wasn't going to raise interest rates any time soon. At least they looked like they were going to be a useful tool, but now it has turned out they weren't very useful at all, because he was not expecting to have to answer any more questions about interest rates for at least another 18 months.

[raspberry-blower]

I always note what raspberry-blower has to say........ I think he/she has their finger on the pulse.....

But do you really think a financial collapse could be close? Weeks/months?

As UE points out, this is a slow motion train crash in operation. What is going on here, I believe, is that this is the first attempt at "tapering" the QE in the US. Wolf Richter, over at Testosterone Pit, has his views on Friday's market shenanigans
here

What is happening is that "emerging market" countries are being "thrown under the bus" in order to protect the petrodollar in particular and other "first world currencies" so that the façade of normality can be maintained for a bit longer (remember however perverse this sounds, all the currencies are engaged on a race to the bottom).

The problems will start arising when the Credit Default Swap claims start trickling through which may take many months.

BTW one country to keep an eye out for is Turkey. The Turkish Lira is bouncing around all over the place

[frank_begbie]

Might be a daft question, but why let this chaos happen?

What are the consequences of the US continuing with QE?

[adam2]

Overdoing the QE, otherwise known as printing money, is liable to lead to undesireably high inflation, and if grossly overdone might result in hyper inflation as in pre-war Germany.

[Little John]

Might be a daft question, but why let this chaos happen?

What are the consequences of the US continuing with QE?

In the end, currency collapse or war or both. The only pertinent question that remains outstanding is the timing. Of course, for peasants like me and you who are utterly connected to and dependant upon these economic systems, timing is everything.