Emerging Markets & Political Crisis Ahead

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by Martin Armstrong

China has asked the Fed to please not raise rates. This has confused many to wonder when China would be asking the Fed not to raise rates. The real reason is the crisis we have in emerging markets and the Sovereign Debt Crisis. Emerging Markets are one of the main victims of tightening US monetary policy. Emerging Markets have splurged by issuing more than $3 trillion dollars in US dollar-denominated debt and that was going into 2019 -(private and public combined). The Federal Reserve’s post-pandemic policy to respond to inflation with higher rates is exposing the vulnerabilities in emerging markets with high private external debt, and that includes China.

In order to sell the debt to the West, it has been a standard practice for more than 100 years to issue debt in the currency in which you seek to raise capital. Before World War I, the British pound was the reserve currency of the world and Britain was the financial capital of the world. Hence, we find bonds from around the world, including public and private, issued in British pounds. Today, the emerging markets have issued debt in dollars. They have taken on the risk of both US interest rates as well as the value of the dollar.

So far, China has benefited whereby provinces and companies that issued debt in dollars have seen at least a 15% profit as the dollar has declined against the yuan thanks to the stupid COVID policies that have drastically harmed the global economy.

Of course, the Euro has been under tremendous selling pressure as they have embraced Schwab’s Great Reset and have been deliberately crushing their economy pushing for a Green New World Order decades before they have any replacement for fossil fuels.

The Fed’s position of raising interest rates to fight inflation is a classic Keynesian Textbook, but the problem is Keynesian Economics has utterly failed. Jenet Yellen, the latest to join the Schwab Marxist agenda, has come out and announced that the Fed will do its best to reduce inflation their COVID policies created, and they have little choice with Biden’s polls collapsing.  The public always blames or credits the president for the economic trends and this time the Democrats live in fear that they will be thrown out of office. The January 6th Investigation will desperately try to criminally charge Trump and they think this will save their majority. This is only fulfilling the Panic Cycle our computer projected for the 2022 elections and again in 2024.

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So the Fed is not likely to lower rates to help emerging markets. It will be far worse if the dollar starts to rise after February. That will cause a lot of economic problems throughout the emerging markets.

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