politics for the 99%

Published on Wolf Street, by Wolf Richter, Aug 20, 2015.

The biggest global “tail risk” is China’s deteriorating economy and an emerging market debt crisis, according to BofA Merrill Lynch’s monthly poll of fund managers. And 48% of them were expecting the Fed to raise rates, despite languid growth and low inflation expectations.

Hot money is already fleeing emerging markets. Higher rates in the US will drain more capital out of countries that need it the most. It will pressure emerging market currencies and further increase the likelihood of a debt crisis in countries whose governments, banks, and corporations borrow in a currency other than their own.

This scenario would be bad enough for the emerging economies. But now China has devalued the yuan to stimulate its exports and thus its economy at the expense of others. And one thing has become clear on Wednesday: these struggling economies that compete with China are going to protect their exports against Chinese encroachment.

Hence a currency war … //

… Copper – Kazakhstan – Turkish lira – Vietnams’ dong – Japan – Indian rupee – Taiwanese dollar … //

… But devaluations are not free lunches. They’re desperate measures that demolish domestic consumption and real incomes (see Japan), business investment, and overall credibility. And capital flees. They can also heat up inflation. But many emerging market countries and their banks and corporations borrow in other currencies to get access to lower interest rates. That foreign-currency debt can’t be devalued or inflated away.

Instead, the opposite happens. Their struggling or battered economies have to service foreign-currency debt with their own devalued currencies. Commodity exporters are getting sapped additionally by plunging commodity prices. Then that foreign currency debt, that cheap easy money everyone got to used playing with, becomes an insurmountable pile of expensive debt in a currency they can’t control and whose exchange rate might run away from them.

This is when a debt crisis begins to spiral elegantly through the emerging markets, taking down banks, entire economies, and gobs of investors as it goes – or taxpayers in other countries if there is a bailout. It’s always the same story. But this time, it’s different: after years of global QE, low interest rates, and hot money sloshing through the system, the sums are larger, and the risks are higher.

The start of a tsunami? Read LEAKED: GM Sees Overcapacity Fiasco in China, Hopes Americans Will Buy Lots of Chinese-Made Buicks.

(full text).

Links:

Wealth and income redistribution by race and ethnicity in the US from 2007 to 2013, on Real-World Economics Review Blog, by David F. Ruccio, Aug 20, 2015;

Ready for Take-Off: China Steers Course Between Prestige and Profit, on Spiegel Online International, by Bernhard Zand, Aug 20, 2015 (Photo Gallery): China’s slowing economy has German industry worried about its exports to Asia. But as it goes about beefing up the transportation sector, the country poses a completely different threat in the longer-term;

What’s not so open about open relationships? on rabble.ca, by RALUCA BEJAN, Aug 20, 2015 (see: The Ethical Slut);

Student Loan Crisis and Predatory Bankruptcy, on Dissident Voice, by Mitchell Thompson, Aug 19, 2015;

The problem is not globalization, it is selective protectionism, on Real-World Economics Review Blog, by Dean Baker, Aug 19, 2015;

Janet Yellen About to Destroy Hope for the Working Class? on Dissident Voice, by Jack Balkwill, Aug 19, 2015;

Au bistro de la toile – Prolétaires de tous les pays, reposez-vous, dans Mediapart, par Victor Ayoli, le 17 août 2015;

Tout non-travail mérite salaire, dans Libération/Monde, par Vittorio d Filipps, le 16 août 2015;

Un risque de basculer vers plus d’individualisme, dans Libération/Monde, par Jean-Marie Harribey, le 16 août 2015;

Le travail, c’est la santé, dans Mediapart.fr, par Gabrielle Teissier K, le 16 Août 2015;

Many families grappling with the EMTR problem, says Universal Basic Income one obvious alternative, on interest.co.nz, by Terry Baucher, Aug 17, 2015;

Suisse/élections fédérales: Le Parti pirate veut sortir de l’adolescence, dans Tribune de Genève, le 14 août 2015;

Dutch cities to experiment with universal cash benefits, on American AlJazeeera, by Ned Resnikoff, Aug 14, 2015;

He Who Opens ‘Can of Worms’ Before Time Kills Tree of Light, dans GhanaWeb, by Prof Lungu, Aug 14, 2015;

A Dutch city’s radical plan to give people free money is spreading fast, on Business Insider,by Chris Weller, Aug 14, 2015;

L’allocation universelle n’est pas l’avenir de la sécurité sociale, dans La Libre.be, par François Perl, le 11 août 2015;

Marxian Economics vs Capitalism, Interview with Economist Prof. Richard D. Wolff, 37.31 min, uploaded by TYT Interviews, Aug 4, 2014 … Professor Richard D. Wolff. is one of the world’s leading Marxian economists and is a professor of economics emeritus at the University of Massachusetts, where he taught from 1973 to 2008 … he says: Marxism is not an ideology, but a critic of capitalism. In the US this critic was forbidden …;
Global Capitalism, November 2011 – Prof Richard D Wolff, uploaded by Richard D Wolff: 1 of 3, 39.59 min; 2 of 3, 39.59 min (with Yanis Varoufakis at 2.17 min); 3 of 3, 39.18 min (with Costas Panayotakis for the questions-answers part).