Here’s How ‘External Dollar Debt’ Produces An ‘Emerging Market Crisis’
The comments below are an edited and abridged synopsis of an article by John Rubino
Emerging market currencies are collapsing pretty much everywhere these days. But it’s safe to assume that most people don’t understand what’s causing this outbreak, why it’s happening now, or what ‘external dollar debt’ has to do with it. Rubino offers a quick primer.
Up for discussion: Cheap dollar financing; the turn (the dollar stops falling and starts rising); and systemic issues.
“We’ve been here before, of course. Emerging markets seem to implode about once a decade, and each and every time since Alan Greenspan’s tenure as Fed chair in the 1990s, the developed world’s governments and central banks have responded exactly as they should in a capitalist system, allowing the offending banks to fail, thus sending the message that risky behavior carries a downside as well as an upside.”
“Just kidding. They bailed out everyone in sight every time, convincing the major banks that no risk is too great in pursuit of outsized profits because once an institution achieves ‘too big to fail’ status it has the government permanently at its back. And so here we are, with yet another set of systemically threatening crises bubbling up and another round of massive bail-outs soon to follow.”