In my prior blog post (Stock Market in Overdrive: Watch Out!) I wrote about how the Venezuelan Bolivar, the Argentine Peso, and the Turkish Lira were collapsing. Let me be clear, these are not the only three problematic currencies, but are instead the worst of a large, and increasing, number of collapsing currencies.
The chart above shows the most problematic of the world’s currencies. What is disturbing is that over half of the world’s population is represented here. So it’s not just some insignificant 3rd-world country.
THE INDIAN RUPEE:
The Indian Rupee in August experienced the biggest monthly drop in three years, and has fallen over 10% this year. This is an all-time low against the US dollar.
India is a major trading partner to the United States, especially when it comes to software services, and has a population of nearly 1.4 billion people out of the world’s total of nearly 7.7 billion. Since oil is priced in only dollars worldwide, the price of gasoline in India has skyrocketed for this population as the currency falls, and the problem will get worse as India’s central bank continues to print more and more rupees.
In a nutshell, India has an inflation problem. They have 2 choices. They can continue on the current path, which will lead to the same place as Argentina, Venezuela, and Turkey. Or, they can hike interest rates, which will severely hurt the economy. Governments almost never opt for the latter as it is politically unpalatable to cause economic recessions in order to stabilize a currency. So look for the rupee to continue deteriorating.
THE CHINESE YUAN:
China represents 1.5 billion people in the world. The Chinese Yuan has also taken a beating this year, dropping almost 10% against the dollar since February.
China has a different story in that their massive state-run banking system, propped up with a web of lies and accounting “sleight of hand” by the communist Chinese government, is extremely weak. The trade war with the United States, costing billions of dollars in tariffs, has only made things worse for the Chinese. By continuing their current path, they are facing a banking system implosion, ready to cave in if confidence in the currency weakens any further.
WORLDWIDE CURRENCY CRISIS:
With just India and China alone, nearly half the world’s population is undergoing a currency crisis. That does not even count the Brazilian Real, the Russian Rouble, or the South African Rand.
Remember the “PIGS” nations: Portugal, Italy, Greece, & Spain? These European nations are all still in deep trouble economically. Spain’s population is nearly splitting the country in two because of the political and social unrest caused by the economic situation. None of these countries have ever truly recovered from the Great Recession.
Between all of them, this is like a house of cards ready to collapse! There is NO WAY the IMF (International Monetary Fund) or the World Bank has enough capital to save all of them! One or two, maybe. But not all!
THE END GAME:
As this currency dilemma plays out, governments around the world will either increase interest rates, sending the world back into a severe recession, or they will continue to inflate currencies to appease the population and thereby accelerate a worsening inflation problem. History has shown that the inflationary option is chosen every time.
As the currencies worldwide begin to collapse, many will run to the dollar as the safe haven, making the imbalances worse. In fact, this IS happening now. That is, until the dollar itself collapses. So look for the dollar to continue rising, and then to do a 180-degree turn lower once the US economy itself begins to weaken. It may already be weakening as real estate sales and prices are beginning to see a reversal across the entire country.
The problems with the dollar are also that too many dollars were printed since the last recession! The Federal Reserve is committed to mopping up the excess, but there will be a price to pay. Free money is never free, and in this case, a “mop” will be inadequate to clean up a flood of money.