It's the US Dollar, stupid.

We are witnessing a world-wide phenomena. This is the collapse of the global debt ponzi scheme ongoing before our eyes.

This week the Turkish Lira fell into a tailspin. Plunging 20% against the dollar since the start of the year and falling 5% this week before its central bank was forced to raise interest rates from 13.5% to 16.5 %. Another rise to 19.5% is touted for early June. This is taking place against a backdrop of rising inflation, with official figures placing it at 11% (so we know it is probably higher than that).

Source Public Domain

There are particular reasons for Turkey's crisis of course. Their current account deficit is above 5% of GDP and they rely heavily on short term debt. The market is now trading Turkish bonds at single B credit. Investors fear that foreign confidence could evaporate sparking a stampede for the exits, further worsening the situation. The 1%, as per normal, are demanding "reforms". Citing so-called experts, 'they' want higher interest rates , to rein in domestic borrowing, pull back on lending programmes and cease economic stimulus (QE).

A further danger for Turkey's economy are the international speculators greedily betting on a collapse of the Lira. Meanwhile ordinary people feeling the pain are looking at stashing hard currencies, such as the US dollar, as confidence is being lost in the Lira.

Source freeimages.com

Turkish president Erdogan has been consolidating his power since the failed US coup in July 2016, and has recently called snap elections for June. His support may be seriously undermined by a rapidly deteriorating economic situation. Well, maybe he will have some military success killing Kurds instead and making good on his vain plans for a new Ottoman Empire. Unfortunately, wars are quite expensive. His military incursion into Northern Syria could be put into jeopardy by further collapses of the Lira and a subsequent credit crunch in Turkey's economy.

Events in Turkey must be understood alongside the currency collapse in Argentina. Argentina is facing rapidly rising inflation (25%), and a rapidly devaluing Peso. Will Argentina enter a period of hyperinflation and default upon its sovereign debts once again? It looks increasingly likely.

These events will be written in the same paragraph in history. It is the rising dollar, and increasing US interest rates that are causing the instability in both these countries. Some other countries are looking fragile faced with further dollar tightening, such as India, Indonesia and Nigeria. Argentina, and now Turkey are just the weakest links.

Source http://www.wazala.com/blog/2014/04/what-your-weakest-link/

However, this crisis will not be contained to the emerging markets. The reason being is that the global debt ponzi scheme towers over us all like the Himalayas. Global debt before the 2008 economic crisis stood at $112 trillion and this has risen to $237 trillion (or 327% of global GDP) of this, $56 trillion is owed by developing countries. However , in the emerging markets the amount of non-financial debt is higher than that for the advanced economies. In contrast the advanced economies are very fragile to any increases in interest rates.

The economic storm is coming at us from both sides. Rising inflation and rising interest rates. We can see this first in Argentina and then in Turkey. The debt crisis in emerging markets could be the catalyst for the next global economic crash. Watch as history happens.

Sources

https://www.bloomberg.com/news/articles/2018-04-10/global-debt-at-record-level
https://steemit.com/news/@saltycat/i-predict-a-riot-argentina.
https://www.realclearmarkets.com/articles/2016/10/17/global_debt_exceeds_levels_of_2008_102385.html
https://www.theguardian.com/world/2018/jan/14/are-we-heading-for-another-developing-world-debt-crisis
https://www.marketwatch.com/story/global-debt-mountain-climbs-to-record-237-trillion-in-2017-2018-04-10
https://www.stlouisfed.org/on-the-economy/2017/november/global-debt-rising-emerging-economies
https://www.reuters.com/article/emerging-debt-iif/emerging-market-borrowing-spree-lifts-global-debt-to-record-217-trillion-iif-idUSL8N1JP1B6
http://money.cnn.com/2018/05/24/news/economy/turkey-economy-lira-erdogan/
https://www.al-monitor.com/pulse/originals/2018/05/turkey-turkish-lira-in-tailspin-erdogan-spooks-investors.html

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