BRICs implosion begs the question, Now what?

The global landscape is not looking very good. The periphery is in a whole lot of trouble, which doesn’t bode well for anyone.

South America’s economy is imploding. Brazil’s currency value is being decimated on a daily basis. Argentina is a leg down in advance of Brazil.

Brazil’s largest conglomerate Petrobras is teetering on the verge of bankruptcy just 8 months or so after it did a 100-year bond offering, which is underwater already.

China’s economic wonder has investors wondering where all the “growth” went. As a result the BRICs are all suffering.

Japan, which said this week it would like to do more easing, but can’t find offerings to buy in order to support the yen, cannot grow its economy with a stronger yen. Hence Japan is saying Rock, meet hard place.

Norway, which is not part of the euro, cut interest rates as its economy suffers from the crude oil price plunge. Taiwan cut its rates since exports have fallen off the table due to the global slowdown.

How does all this come ashore in the US?

Many institutions chased returns into the BRICs. Pension funds, annuity funds and money market funds all have positions in these cratering markets, since interest rates have been artificially low for seven years.

This is how contagion travels overnight from China to Europe, to the US.

Don’t believe any country’s ability to pull itself out of this by cutting rates, since that’s “beggar thy neighbor” monetary policy, which has no long-term viability.

Currency wars lead to hot wars in short order.


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