Executive Intelligence Review


So-Called ‘Emerging Market Currency Crisis’ Is Getting Serious

Sept. 4, 2018 (EIRNS)—The currencies of many countries resumed and/or accelerated their fall Monday, as public warnings became louder of blowouts in the global corporate/household debt bubble. Figures from former European Central Bank President Jean-Claude Trichet interviewed by AFP (“could be more devastating that the financial crisis of 2008”), to JPMorgan Chase’s star “quant” (quantitative analyst) Marko Kolanovic on CNBC (“great liquidity crisis” later in 2019) were warning of crisis, or even “social chaos.”

A typical financial press warning was “Global Debt Soars, Along with Fears of Crisis Ahead” in the Sydney Morning Herald Sept. 4:

“Ten years after the worst financial panic since the 1930s, growing debt burdens in key developing economies are fueling fears of a new crisis that could spread far beyond the disruption sweeping Turkey. [This] is only a preview of debt problems that could engulf countries such as Brazil, South Africa, Russia and Indonesia, some economists say.”

A London Telegraph warning piece, on Sept. 2, “The Ticking Time Bomb That Could Blow Into a Financial Crisis,” was reposted in New Zealand and Australia financial sites. It focused on the market in corporate “leveraged loans,” most often used in leveraged buyouts (LBOs) of companies, and now totaling well over $1 trillion in the United States alone, more than doubled since 2012. The article uses repeated comparisons to the crash scenes in the well-known film “The Big Short,” as the LBO market today.

An op-ed in the South China Morning Post, “Emerging Markets Currency Crisis Is the Product of the Global Liquidity Deluge,” long-time financial columnist Anthony Rowley wrote,

“What is scary about this impending new currency crisis is that it could also precipitate a debt crisis ... particularly in the corporate sector.... What is happening now in corporate debt markets, mainly in emerging economies, should be worrying people much more than it is. Why? For one, corporate debt in emerging and developing economies now significantly exceeds levels before the 2008 global financial crisis.”

Rowley says that capital controls “are on the cards” for many economies—pointing to a return toward Bretton Woods regulations. Also on the cards are currency defense measures: Kyodo News reported in late August that the Japanese and Chinese governments are discussing possible bilateral currency swaps between their central banks in case of a financial crisis. The swap being negotiated is far larger than the Japan and China have set up before ($27 billion compared to $3 billion).

Argentina’s plunging currency led the way, falling another 5.5% from Sept. 1-4; the Australian dollar fell to a 20-month low; the Indian rupee to a 5-year low; Indonesia’s rupiah to a 6-year low. Brazil’s real fell 2% on Monday, to a 2.5-year low. The South African rand fell 2% more, forcing the rise of its 10-year interest rate to 9.45%. ABN Amro Bank forecast Turkey’s lira would fall to an unheard-of 8.2 to the dollar by the end of the year, in “a severe crisis, a perfect storm.”

Waves of corporate debt defaults are coming, against European, British, and also U.S. banks.