Emerging Market Economic Crisis
- The current crisis is far from over. It is still early days in what will become the Great Depression of the 21st century. Oil prices crash below US$40/barrel on Thursday 18 Dec. This should be good right?
- Not necessarily. Latin American countries rely a lot on oil revenue for their tax revenues. So when oil price crashes, countries like Venezuela, Mexico, Ecuador are badly affected. This of course is also true of ME countries and Russia.
- The other negative effects are on emerging Green industries to replace oil. Like : Wind turbines/mills, solar photovoltaic, solar thermal, electric cars, fuel cells, bio-ethanol, bio-diesel.. These emerging industries need oil price around US$75-100 for them to be viable. Sustained price below US$70, means that investment in these new industries will stopped. Many such companies will go bust. This will again result in sky high oil prices 5 years down the road when there are less alternatives.
- Back to emerging economies, Ukraine’s currency is rocking , Ecuador defaults on Debts, we all know that Argentina has recently nationalized their pension fund. This is in effect a move towards defaulting on their loans. There are fears that many emerging economies will follow suit ie default.
- Jack Crooks writes in : European Banks to be Hit by Collapsing Emerging Markets :
” Over the last few years, the historic economic growth in emerging markets like Ukraine, South Korea, the Czech Republic, Poland, and others was driven almost entirely by demand for their exports from the U.S. and Europe. Now, with the U.S. and Eurozone economies sliding, that demand has started to evaporate. And because these countries have little domestic demand to drive their economies, they’ve suddenly been thrown into a struggle for their very survival. ”
- When emerging economies collapse, Jack says : ” European Banks Loaned These Countries A Staggering $3.5 Trillion. When They Go Down, So Will Europe’s Largest Banks! ” And what are the chances that many emerging economies will collapse? Highly likely. World economy is contracting rapidly and there is simply insufficient reaction time for countries to find alternate growth areas. A sharp demand contraction has been happening for the past 2 months. How do you create new demand, new markets to replace the lost demand in such a short period of time?
- The prognosis is not good. More tsunamis to come! Even bigger ones. Europe can do without this upcoming problem. Many countries in Europe are on the brink of collapse. UK is doing particularly bad. Sterling slide is worst since 1931 . Iceland hs gone down. The exposure to European banks is estimated at US$75B. Greece is in deep crisis. Spain, Italy.. you name it.
- Deutsche Bank, Germany’s top lender, refused to redeem a Euro 1 Billion bond issue this week, shocking the European market. Deutsche Bank shocks markets .
- Wherever we look in the world today, every country is in deep trouble. (unless you are living in some 4th world country) . USA, Eurozone, Eastern Europe, Asia, Russia, Latin America… all are rocking. Who is going to bailout the entire world?
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