What happens in the emerging markets does not stay in the emerging markets. The global banking system is hotwired for contagion:
“Spanish – and to a lesser extent French and Italian – banks have lent a lot of money to Turkey. So as that country spins closer to default, those banks and their governments are in danger of having massive holes punched in their financial structures.
“With Greece its usual mess and Italy’s bond yields spiking, the last thing Europe needs is a banking crisis…
“Next up apparently, will be an emerging market bailout in the form of a Europe-wide set of loan guarantees (managed and backstopped by Germany)… This might work if the guarantee is big enough relative to the debts coming due. But in effect, the result is the swapping of Spanish loans to Turkey for German loans. And there’s a limit to how much of the world’s debts even Germany can take on.
“Turkey, meanwhile, is just the beginning. Tunisia is teetering, Brazil’s currency is falling, and a big chunk of the Middle East has external debt but little in the way of resources to cover it.
“By the time this latest emerging market bailout is complete, the amount of debt added to developed world balance sheets could be enough to spread the pain pretty widely.”
[I’m sure the citizens of the developed world will be *thrilled* to subsidise the banks again]
“Turkey’s ailing economy has most likely plunged into a recession over the last month thanks to the rising crisis with the nation’s currency, and a fragile banking sector, according to new research from Capital Economics… A falling currency tends to mean rising inflation as the cost of imports increase, and that is just what has happened in Turkey. Even prior to the lira’s second collapse after US sanctions, inflation had already hit a 15-year high in July — close to 16%.”
“Turkey’s economy faces fresh challenges after 20 of its leading banks were downgraded and faith in the authorities’ ability to support the lira plummeted. Ankara’s central bank effectively tightened monetary policy by changing banks’ borrowing limits for overnight transactions on Wednesday… But the moves have failed to boost investor confidence, with the central bank having lost credibility by not raising interest rates amid rapid inflation.”
“In a little over two months, painful U.S. sanctions on Iran’s oil sector will take effect, but the Iranian economy is already showing signs of strain. Iran’s currency, the rial, has fallen by more than half since the start of the year. There is now a thriving black market for U.S. dollars as the rial continues to plunge. The turmoil has the government engaging in a bit of a circling firing squad. In July, the head of the central bank was sacked. In early August, the labor minister was ousted and just this past weekend the economy minister was removed.”
“The prospect of a slowdown was apparently too much for President Xi to bear. So, he ordered the authorities to loosen up on the monetary squeeze. The pretense for this change was the U.S.-China trade war. But in reality, President Xi’s change of heart has more to do with the dramatic surge in bankruptcies and sharp reduction in infrastructure investment, which has fueled much of China’s growth.
“We will have to wait and see whether President Xi’s gamble will pay off, or whether it’s too little, too late. At this point, the only thing we know is that exchange-rate flexibility has spawned imbalances and instability, Xi’s nightmare. And, this is bad news not only for China, the world’s locomotive, but for the international markets, too.”
“With a debt mountain of 12.17 trillion baht ($372 billion) at the end of March, the equivalent of 77.6 percent of gross domestic product, Thai households are among the biggest borrowers in Asia and they are finding it increasingly difficult to keep up with payments. In addition, their debt pain could increase because the Thai central bank has signalled it is likely to follow other central banks around the world and raise interest rates from near record lows.”
“The slide in business confidence [in New Zealand] shows no sign of slowing, with the headline measure falling to its lowest in more than 10 years. ANZ Bank’s monthly survey shows sentiment turned more gloomy with a net 50 percent of firms expecting the economy will deteriorate over the next year, down five percentage points from July. It’s the lowest level since April 2008 when the global financial crisis was breaking.”
“Argentina’s President Mauricio Macri has asked the International Monetary Fund for an early release of funds from a $50bn deal to ease concerns that the country will not be able to meet its debt obligations for 2019. Macri said in a televised address that Argentina had agreed with the IMF “to advance all necessary funds to guarantee compliance with next year’s financial programme”.”
“Argentina’s peso fell to a record low against the dollar Wednesday after President Mauricio Macri said that he has asked the International Monetary Fund to speed up delivery of a $50 billion bailout package.”
“Venezuelan immigrants were attacked earlier this month by residents at the border state of Roraima [Brazil], where they were forced out of their camps… This is only the latest development in what is shaping up to be a regional crisis, as neighboring countries respond to Venezuela’s deepening economic and political upheaval.”
“The Swedish krona fell for a fifth day against the euro on Wednesday, after hitting its weakest level in more than nine years. The decline followed weak retail sales data earlier in the week and brings the Swedish currency’s losses this year to more than 8 percent against the euro.”
“British shop prices rose for the first time in more than five years this month, as the British Retail Consortium warned that customers will face more severe price hikes if no Brexit deal is reached.”
“German consumers expect to have less money left in their pockets later this year despite wage increases in many sectors. “Higher energy prices that have driven inflation up to 2 percent may be drowning out the excellent conditions in the labor market and solid wage hikes,” GfK suggested. “People have realized that they don’t get any decent yields on their savings in this low-interest environment,” GfK economist Rolf Bürkl argued. “Plus they are seeing their money lose purchasing power as consumer prices go up by 2 percent.””
“Including the Bank of Italy’s Target 2 liabilities would take the country’s public-debt-to-GDP ratio to around 160 percent, or to the highest in the last 100 years… it is all too likely that Italy’s troubled banking system will at some stage need a government bailout. [A] sovereign debt crisis… would certainly not be good for the global economy since Italy’s economy is around 10 times the size of that of Greece and after the United States and Japan it is the world’s third-largest sovereign debt market.”
“A top banking CEO from Europe warned that his clients are starting to feel the impact from global trade tariffs, with production lines being changed and profit warnings being issued… “It is very clear that a trade war is not good for producer confidence to invest and for consumer confidence to consume. It already has (had) a negative impact on economic growth.””
“International trade in merchandise by the world’s biggest economies contracted for the first time since 2016 against a backdrop of a stronger dollar and rising protectionism… The biggest drop in exports was recorded in Argentina with 19.9 percent, followed by Brazil and the U.K. Imports contracted most in Turkey.”
“While the ever-climbing U.S. stock market (and the bubble forming in it) has been stealing most of the investing public’s attention, a dangerous bubble has been forming under-the-radar in the corporate bond market. Interestingly, this corporate bond bubble is one of the main reasons why the stock market has been consistently pushing to new highs, and it will also eventually prove to be its undoing… To put it simply, the root cause of the U.S. corporate bond and stock market bubble is ultra-low interest rates.”
Yet more extreme weather for Korea, which, like Japan, has been alternately hit by record-breaking heat and record-breaking flooding via multiple typhoons.
“Heavy downpours flooded homes, roads and farmland in central and southern South Korea on Tuesday, adding to the woes of regions already battered by a typhoon last week.
“Up to 455 millimeters of rain fell in South Jeolla Province in the country’s southwest between Monday and Tuesday, with more than 70 mm falling per hour at some points in some areas, according to the state weather agency.
“The downpours came after Typhoon Soulik pummeled the regions last week. Local government officials said that the typhoon and torrential rains caused a total of at least 9 billion won (US$8 million) in property damage in South Jeolla Province alone.”
“Typhoons and stalled fronts in Japan and on the Korean Peninsula this summer have brought unprecedented rainfall and flooding from Gifu prefecture down to Hiroshima… Japan’s meteorological agency has issued warnings of heavy rain that could lead to landslides and floods in Niigata and Ishikawa prefectures on Japan’s biggest island of Honshu… Tropical Storm Jebi, meanwhile, may hit the region in early September.”
“You aren’t imagining it — Perth is experiencing an exceptionally wet month, recording its highest August rainfall in more than five decades… “We were experiencing one of the driest autumns on record, but then we started to see the fronts arriving and they continued to arrive, almost really from the 1st of June.””
“The worst drought in living memory is sweeping through Australia’s east, the country’s main food bowl, decimating wheat and barley crops and leaving grazing land parched.”
“A multimillion dollar desalination plant built to address water shortages in Sydney a decade ago may not be fully operational until next August. As drought continues to grip New South Wales, Sydney’s dam levels are falling at such a rapid rate that the city’s only desalination plant could be needed for the first time since 2012.”
“Thought it was unusually chilly in Wollongong on Wednesday morning? Well, you’d be right – the city has just shivered through its iciest August night on record. The mercury dipped to just 5.3 degrees in Bellambi at 5.23am on Wednesday – delivering the coastal suburb [of Sydney, NSW] its coldest August minimum in about 20 years of records.”
“Leopard seals, normally found in Antarctica, are rarely spotted in Australia, but experts say sightings of the dangerous predator are becoming more common, particularly in Tasmania… It is has been unusually cold in Melbourne in recent days, with the city waking to the coldest morning this late in winter for more than 60 years.”
“Flash flood warnings were issued on Tuesday for the Hawaiian island of Kauai, with residents on the north coast told to evacuate and others left stranded by high water as the remnants of Hurricane Lane drenched the archipelago and a new storm brewed in the Pacific Ocean… Even as Hawaii residents sought to recover from Lane, they kept a watchful eye on Tropical Storm Miriam, spinning in the Pacific Ocean some 2,000 miles to the east and expected to become a hurricane by the time it approaches the islands.”
“Officials in Puerto Rico now say 2,975 people died following Hurricane Maria – a devastating storm that struck the US island territory in September 2017. The revised death toll is nearly 50 times the previous estimate of 64. Governor Ricardo Rossello “accepted” the findings in a long-awaited independent investigation. The mayor of the capital, San Juan, accused the US government of deliberately downplaying the impact of the storm.”
“It’s been a punishing summer in California. But it’s worse for those who live in the most polluted areas, and as a result are already at heightened risk for respiratory diseases like asthma and chronic obstructive pulmonary disease (COPD). By exacerbating this summer’s heat waves and wildfires, climate change is stacking health burdens on communities already breathing bad air.”
“For decades, scientists have predicted that B.C. would experience longer, more intense wildfire seasons as the climate warms. But the destruction of the last two years is still a bit surprising. According to Chilliwack fire ecologist Robert Gray, the scale of the wildfire emergencies we’ve lived through in 2017 and 2018 wasn’t expected for decades.”
“Rain-weary parts of Wisconsin were hammered once again by heavy rain Monday night into Tuesday, triggering flash floods that washed out roads, triggered mudslides and prompted evacuations. The line of severe thunderstorms raced across southern Wisconsin into Tuesday evening, enhancing already high water in southeastern Wisconsin… Along the western border of Wisconsin, the hardest hit were parts of Houston County, Minnesota, stretching into southern La Crosse, Vernon and Monroe counties in western Wisconsin, where reports of 4 to 10 inches of rain were received.”
“Above average temperatures are set to continue in most of Europe during the September to November period, forecasts by The Weather Company showed on Tuesday… “We’ve just experienced the warmest May-July period (ever) in many parts of northern and western Europe, including the UK,” said Todd Crawford, chief meteorologist at The Weather Company.”
“Summer 2018 was the second hottest on record in France, the country’s national weather agency has confirmed, with temperatures in July and August averaging 2C higher than seasonal norms. Anyone who spent time in France this summer won’t be surprised to discover that the scorching temperatures which hit most of the country in July and August were some of the hottest on record. With this summer ranking as the second hottest on record, 2018 follows hot on the heels of 2003 — the hottest — when temperatures were 3.2C above seasonal norms.”
“Alexandria [Egypt] is a city on the frontline of climate change. According to United Nations figures, even a 50cm sea-level rise will destroy its beaches entirely, while “the Alexandria lowlands – on which the city of Alexandria originally developed – are vulnerable to inundation, waterlogging, increased flooding and salinisation under accelerated sea-level rise”.”
“Record rainfall lashed parts of Delhi and its neighbouring areas early on Tuesday, killing one person in the national Capital, inundating arterial roads in Gurugram, affecting services on Metro’s Blue Line, and stranding commuters in parts of south-west Delhi in the morning rush hour. Delhi’s Palam recorded the decade’s highest August rainfall in a single day at 100mm, an India Meteorological Department (IMD) official said.”
“After nearly a decade of growth, new-vehicle sales in the world’s largest auto markets are entering their first sustained slowdown since the global financial crisis, putting pressure on profits as uncertainty around the U.S.’s trade policies looms.”
“A week ago, Trump said he was “not thrilled” by the Fed’s monetary tightening… Powell defended the need to raise rates, having declared that key indicators such as household and business spending, and employment and inflation rates all pointed to robust and sustainable growth without overheating. He reaffirmed a policy of gradual tightening. His appears to be the consensus view among fellow central bankers.”
“Given massive global corporate debt and a soaring US stock market – the cyclically adjusted price-to-earnings ratio is high by historical standards – one possible trigger for a downturn in the coming years is a negative shock that could send securities tumbling… the US [is] in a weak position to manage the next inevitable shock.”
“Brazil is sending troops to its northern border to “guarantee law and order” amid an ongoing crisis which is seeing thousands of Venezuelans attempting to cross into neighboring countries and beyond. Brazilian President Michel Temer signed a decree Tuesday to deploy the armed forces to the state of Roraima, making the announcement during a speech from Planalto Presidential Palace.”
“Economists had long argued that Argentina’s peso currency was overvalued, and the government acknowledged that it would depreciate gradually over the years. But no one expected the speed with which the peso plunged against the dollar in April, due to investor concerns about the government’s ability to control inflation and interest rate hikes by the U.S. Federal Reserve, which strengthened the dollar worldwide.”
“Iran’s President Hassan Rouhani has vowed to fight crippling US sanctions on the country while defending his cabinet’s performance after he was summoned by the Iranian parliament for the first time to explain the country’s worsening economic crisis… However, MPs were unconvinced with his answers and have referred the case to the judiciary, according to local news agencies.”
“Turkey’s currency crisis, spurred on by economic mismanagement and U.S. sanctions, may pose a significant risk to European financial institutions due to their credit lines to Turkish companies. The embattled lira, which continued to slide this week, is leaving European firms exposed to the turmoil in Turkey to the tune of tens of billions of dollars, both via their ownership of its financial institutions and the money they have lent to its once vibrant private sector.”
“The German government is considering providing emergency financial assistance to Turkey as concerns grow in Berlin that a full-blown economic crisis could destabilize the region, German and European officials said… Berlin fears a meltdown of the Turkish economy could spill over into Europe, cause further unrest in the Middle East and trigger a new wave of immigration toward the north.”
“Germany was shaken by the worst far-right rioting since 1992 when police with water cannon failed to stop thousands of neo-Nazis and other extremists chasing immigrants, hurling bottles and fireworks, giving Hitler salutes and chanting “foreigners out”.”
“Italy’s benchmark borrowing costs hit a four-and-a-half year high Tuesday as investors continued to trim government bond holdings amid concern that the country’s populist administration is on a collision course with EU officials in Brussels that echoes the worst of the region’s 2012 debt crisis.”
“House prices in London’s overvalued market will fall this year and next, a Reuters poll of analysts and experts predicted, and will tumble if Britain fails to reach a deal ahead of its departure from the European Union… “Central London is tanking because the traditional international buyers are staying away – and the quantum of buyers is falling. A disorderly Brexit will exacerbate this trend,” said Tony Williams at property consultancy Building Value.”
“Central banks and sovereign wealth funds are likely to sell up to £100bn of UK bonds and precipitate a balance of payments crisis if Brexit talks break down in acrimony, Bank of America has warned clients. The US bank said selling on this scale would send sterling cascading down to lows not seen since the mid-1980s, with a risk of cliff-edge falls if the exchange rate breaks below $1.10 against the dollar.”
“The opening up of Iraq’s enormous verified oil reserves to foreign expertise in the aftermath of the fall of Saddam Hussein was hailed as the means to kickstart its economy and potentially transform the south into an economic stronghold. Instead, ordinary Iraqis have seen little or no benefit from the proceeds of the country’s multibillion-dollar oil industry, much of which has been siphoned off by corrupt politicians. Across the south in recent months, simmering anger over corruption and unemployment has been fuelled by the dire state of public services, regular power cuts and water shortages.
“Once there was a time when the Bani-Mansour land, not far from where the Tigris and Euphrates meet, had water and more than 300,000 palm trees, villagers said. Large numbers of buffaloes and cows cooled themselves in the green muddy waters of its canals.
“But drought and the intrusion of saltwater from the Gulf have wiped out most of the palm groves, the cattle have been sold, local rivers have dried up and the canals have stagnated, clogged with rubbish. Corruption and mismanagement on the part of local and central government, both dominated by a kleptocracy of religious parties that have ruled Iraq for more than a decade, has exacerbated a slow-motion environmental disaster.
“The oil companies, which are supposed to train and hire a workforce from local populations and invest back into development projects, are forced to hire those with connections to powerful tribal sheikhs and the Islamist parties. Funds for those populations rarely materialise and almost none of the oil revenuestrickle down to the population. Meanwhile, local militias with links to clans and political parties have formed their own companies, which land lucrative security contracts with subsidiaries of foreign oil firms…
“The flashpoint came in early July, when the temperature soared to nearly 50C, the electricity failed repeatedly, and the tap water ran hot and as salty as sea water. Two dozen men gathered outside the gates of one of the oil company compounds, blocking the section of the road adjacent to their village…”
“Iran’s currency crisis has left ordinary citizens enduring soaring living costs, but prosecutors allege that corrupt business people have turned it into a moneymaking opportunity. In one case the name of a dead person was used to import 10,500 mobile phones using foreign currency issued at Iran’s favourable official rate… Many Iranians fear politically connected businessmen have taken advantage of the crisis to enrich themselves.”
“The commander of the navy of Iran’s Islamic Revolutionary Guard Corps, Gen. Alireza Tangsiri, warned on Monday that Iran maintained control of the Persian Gulf and that the U.S. Navy did not belong there… The Strait of Hormuz is one of the world’s most important maritime chokepoints. Approximately 18.5 million barrels of oil a day—more than 30 percent of the seaborne oil traded worldwide—flowed through the strait in 2016.”
“Mexican state oil company Pemex said Monday its oil production dipped 5,400 b/d month on month to 1.840 million b/d in July, and was down 145,000 b/d year on year, due to a decrease in production at mature fields in southern Mexico. Pemex’s production has been in constant decline since peaking at 3.4 million b/d in 2004.”
“Trinidad’s Energy Minister Franklin Khan is sending a strong warning that Petrotrin’s current state of affairs has the ability to “bankrupt” the country, as he yesterday described the state oil company as coming to what is referred to in astrophysics as a “black hole”.”
“President Nicolas Maduro said Venezuela will begin to sell certificates backed by gold ingots as a savings mechanism starting next month. The certificates, backed by 1.5 grams and 2.5 grams of gold, are meant as tools for pensioners and others to save money and use as credit lines to acquire cars and other items, Maduro said in a televised address. The gold is meant as a more stable way for Venezuelans to hold their diminishing funds as inflation in the socialist nation runs at over 100,000 percent.”
“The ongoing currency crisis in Argentina is likely to trigger a recession as soon as this year, the government said, and poverty is expected to rise as inflation is spiralling out of control.”
“…the dangers of unsustainable growth patterns [in the emerging markets] will bring the party to an abrupt halt, potentially triggering financial contagion. Already, as escalating trade tensions generate added uncertainty, nervous investors are edging toward the door.”
“Beijing wants to shore up growth without inundating the economy with cheap credit. To see how hard that will be, take a look at China’s roads and railways. China is the 800-pound gorilla of global infrastructure. Its building prowess has permeated popular culture, as in the disaster movie “2012” where China constructs giant ships to help humankind escape rising seas. Recently, however, China’s infrastructure build has all but ground to a halt.”
“South Korea proposed on Tuesday the sharpest expansion in fiscal spending in a decade for 2019 as policymakers focus on creating jobs and boosting welfare in the face of a deteriorating job market.”
“With some U.S. farm products getting slammed by retaliatory tariffs, the Trump administration is prepared to start its emergency plan for agriculture right after Labor Day in a “three-pronged approach” that will initially include about $6 billion in aid.”
“…while judgements differ about the sustainability of US government debt, they both accept the standard measure of it as accurate. This is a mistake, and possibly a catastrophic one. The Congressional Budget Office recently reported that the federal budget deficit in the first 10 months of this fiscal year was US$116 billion higher than it was at the same time last year. The CBO is now projecting that the annual deficit will reach US$1 trillion by 2020. This is worrying, but it does not reflect the harsh truth. The annual deficit almost certainly surpassed US$1 trillion last year.”
“A growing concentration of debt by a thin slice of corporate America has echoes of the subprime lending boom that contributed to the U.S.’s economy collapse and the humbling of its almighty financial industry in 2008.”
““…A Barrons commentator indicated that problems in the credit markets (and the BBB bond market) are a mere “six to 12 months away.” …the corporate debt market is in a worse position to cope with a recession than it was on the eve of the 2008 financial crisis.”
“Storm clouds are brewing over the global technology industry. A host of hardware companies, including Apple Inc., Samsung Electronics Co., Foxconn Technology Group and Intel Corp. are sitting on inventory stockpiles not seen since the financial crisis a decade ago.”
“Falling foreign demand for Italian government bonds is pressuring domestic banks to step into the breach, as they did back in 2011-2012. Yet they may find it harder to come to the rescue of the country’s debt this time around.”
“…there are growing signs of weakness [in the UK economy] after the Bank of England raised interest rates above the emergency level set since the financial crisis. Ushering in a new era of higher borrowing costs for consumers and businesses, the move comes as ministers prepare the public for Britain crashing-out of the EU without a deal with Brussels.”
“Speaking at the Jackson Hole meeting of central bankers in Wyoming at the weekend Carstens, the BIS general manager, provided a detailed road map of how protectionism could set of a ‘’succession of negative consequences’’ that endangered decades of global economic gains…
“Reversing globalisation, he said, could lead to higher prices, increased unemployment and lower growth while risking unravelling the financial inter-dependencies that enabled and encouraged trade and investment links.
“In turn that could unsettle financial markets and decrease capital spending and the interaction between the real and financial risks could amplify each other, creating that ‘’perfect storm.’’
“…The complexity of the trade issues is underscored by the development of global supply chains.
“Global trade in intermediate goods and services is now almost twice as large as the trade in final goods and services. Global value chains, he said, were particularly important in advanced manufacturing, like cars…
“Trump has said that trade wars are good and easy to win. The Carstens analysis underscores the reality that, despite the imperfections of the globalised system of trade and finance, no-one is likely to win from protectionism, not even the US. Indeed, everyone – including the US – is more likely to be a loser.”
“Besieged by increasing legal concerns, U.S. President Donald Trump is thought to be looking to shore up his political position ahead of the midterm elections in November. One way to do so could be to distract voters from the problems at home by shifting the focus to the ongoing trade war with China, analysts said. In other words, the U.S. may be on the verge of escalating the conflict between the world’s two largest economies.”
“U.S. officials seem to think they have the upper hand in trade talks with China because its economy is struggling. Judging by the string of measures they’ve recently announced to shore up growth, Chinese officials may privately agree… China’s growth woes are homegrown, not the result of U.S. tariffs. Two factors are largely to blame: the government’s concerted effort over the last five quarters to tighten credit and stabilize China’s debt levels, and, relatedly, a dramatic dropoff in investment spending by local governments.”
“It’s crunch time in Pakistan. Resolving Pakistan’s financial crisis is likely to require newly appointed prime minister Imran Khan to not only accept an International Monetary Fund (IMF) straightjacket but tackle his and Pakistan’s convoluted relationship to militancy.”
“…significant damage has already been done to the Turkish economy. The lira is now down 40 percent to the US dollar this year, raising widespread concerns over the sustainability of the country’s sizeable dollar-denominated debts… Turkey’s problems are far from idiosyncratic. Coming on the heels of recent interventions of the International Monetary Fund (IMF) in Argentina and Pakistan, they clearly reflect a set of deeper vulnerabilities in the emerging-market asset class as a whole.”
“The lira crisis has raised prices, heightened uncertainty and sent a chill through much of Turkish society, including Syrian refugees, who are some of the country’s most vulnerable communities. Around three million Syrian refugees live across Turkey after fleeing their country’s seven-year war… Many survive off informal work and as a result live hand to mouth without any social security system to protect them.”
“Iran’s parliament has voted to remove the economy minister from office as the country battles an economic crisis. Masoud Karbasian was targeted by a no-confidence vote over problems in the banking system, tax regulation and his failure to fix the economy.”
“The International Monetary Fund (IMF) has warned Saudi Arabia against increasing public spending as oil prices rise… Around half of state spending goes on the public sector wage bill, according to the IMF which suggested “the workforce could be gradually reduced through natural attrition”. Unemployment among Saudi citizens is at 12.8 percent, and sits at 31 percent among women. The country’s key challenge is to create around 500,000 jobs for its citizens over the next five years, the IMF said while stressing the need for more posts within the private sector.”
“The exodus of migrants from Venezuela is building towards a “crisis moment” comparable to the European refugee crisis of 2015, the UN has warned. Thousands of people flee the country every day, travelling by bus or sometimes by foot along migration routes across South America. They flee an economic collapse that has left food and basic medicine scarce while armed gangs rob and kill without consequence.”
“Theresa May has called for a crisis summit in order to prepare for a ‘no deal’ situation, amid fears the row between Brexiteers and Remainers is undermining negotiations with Brussels. The prime minister told cabinet ministers on Friday morning to be prepared to meet on September 13 to work out a plan for critical areas not yet covered by disaster plans.”
“In the past few weeks, international companies have begun to pull out of Iran after threats from US President Donald Trump that businesses must choose between trade with Tehran or trade with the US… Just a few weeks in, more than 80 million ordinary Iranians are starting to feel the pinch caused by the new sanctions, the National Iranian American Council (NIAC) said.
“”The “devastating” impact of sanctions amounts to “collective punishment” of Iranian citizens, NIAC president Jamal Abdi said in a statement.
““The grievous harm sanctions cause the Iranian people cannot be overstated: As the economy and unemployment levels make daily life unbearable for millions of Iranians, families are choked off from life-saving medicines and starved of critical infrastructure,” he said…
“The Iranian government can no longer purchase US bank notes, which has sent the already fragile rial tumbling, exacerbated Iran’s housing affordability crisis and caused food prices to rocket. A travel ban imposed last year has cut off millions of diaspora families.
“Imported medicines are increasingly hard to come by; jobs in Iran’s graphite, coal and metal processing industries are on the line; and air travel has become more expensive and difficult as international carriers phase out flights. On Thursday, British Airways announced its London-Tehran flight, popular with dual nationality families and adventurous tourists over the last few years, would end in September…
“The Iranian currency has already lost half of its value since April this year, leading to street protests in several Iranian cities over the cost of living and government corruption.”
“The Russian Central Bank said Thursday that it has decided not to purchase foreign currency on the domestic market from Aug. 23 to the end of September in order to counter market volatility… Russia’s ruble has plunged to its weakest since mid-2016 as a result of Washington’s latest decision to impose a new round of sanctions on Moscow, which was expected to take effect around Aug. 22.”
“The lira slid on Thursday after Turkey accused the United States of waging “economic war” amid a bitter standoff between the NATO allies over the fate of a Christian pastor detained by Ankara… The lira is down 37% this year, with the crisis in Turkish-US ties exacerbating losses prompted by concerns about Erdogan’s influence on monetary policy. He says interest rates are the “mother and father of all evil” and opposes hiking them.”
““There is no business. Nothing works in this country, everything is very expensive,” Harb said, standing woefully outside his now shuttered shop. Nearly four months after Lebanon held its first general elections in nine years, politicians are still squabbling over the formation of a new government amid uncertainty over a long stagnating economy, struggling businesses and concerns over the currency.”
“U.S. and Chinese officials ended two days of talks on Thursday with no major breakthrough as their trade war escalated with activation of another round of dueling tariffs on $16 billion worth of each country’s goods.”
““The continued interest rate hikes by the Federal Reserve have exerted depreciation pressure on currencies like the yuan and make it difficult for [the government to allow more] monetary expansion,” he added… According to Yu, previous economic stimuli relied heavily on investment – in particular, infrastructure spending – driven by looser monetary conditions to ensure sufficient credit. “The unavoidable result is excess money supply growth, the worsening of asset bubbles and a rapid increase in macroeconomic leverage,” he said.”
“Australia’s prime minister Malcolm Turnbull spent Thursday night drowning his sorrows as he was ousted from office in a bitter row that has thrust the country’s political landscape into turmoil.”
“The first quarter marked South Africa’s worst quarterly contraction in nine years, a reminder of the huge challenge faced by President Cyril Ramaphosa, who took over from Jacob Zuma in February…”
Argentina’s economy contracted 6.7%(!) in June from the year-earlier period, the third consecutive month of decline, the government said Thursday… Statistics agency Indec said the agriculture sector fell 31% in June from the same month last year, as crops were hammered by one of the worst droughts in decades. Manufacturing decreased 7.5%, while retail activity fell 8.4%… Earlier this month, the Central Bank of Argentina lifted its interest rate to 45%(!) from 40% in an unexpected meeting…”
“Anyone who thinks that the world’s emerging market woes will be confined to the likes of Argentina, Turkey and Venezuela has not being paying attention to the brewing Brazilian economic and political crisis. In particular, they have not noticed the dramatic swoon in the Brazilian currency. Since the start of this year, the Brazilian real has plunged by around 25 percent.”
“7% of [Venezuela’s] population, many suffering illness and malnutrition — have fled since 2014, but the patience and resources of regional host countries may soon wear thin.”
“Anti-immigration fervor has flared up in this year’s race for mayor of Lima, with conservative candidate Ricardo Belmont stoking fears that Venezuelans fleeing their country’s economic crisis are a threat to Peruvians’ jobs and to public order.”
“Stockpiles of at least six week’s supply of medicines will be held in the event of a “no-deal” Brexit, with urgent medicines airlifted to the UK to avoid lengthy delays at road, rail and sea borders. The government has asked the pharmaceutical industry to make plans to hold additional stocks amid concerns that hospitals and pharmacists could run short of supplies in the event of disruption at UK borders.”
“Fearing the direction of the Italian economy under a populist-led coalition government at a time that the country still has a massive public debt mountain and the shakiest of banking systems, foreigners have been reducing their Italian government bond holding at a rate of around EUR 40 billion a month. That withdrawal has been at a greater rate than that in 2012 at the peak of the Eurozone debt crisis.”
“The European Central Bank has become increasingly confident that it can wean the eurozone off some of its crisis-era support without endangering the region’s economy. According to minutes published on Thursday from the July 26 meeting of the bank’s governing council, the eurozone was set to grow at a “solid pace”, with the risks to the outlook “broadly balanced” despite the threat of a global trade war.”
“Federal Reserve Chairman Jerome Powell will not lack for urgent topics to address when he gives the keynote speech Friday to an annual gathering of global central bankers in Jackson Hole, Wyoming.
“Fed watchers will be listening for anything Powell has to say about financial turmoil in emerging markets, the economic threats posed by the growing trade war launched by President Donald Trump, and Trump’s criticism of the Fed’s recent interest rate hikes.
“Investors will especially want to hear whether Powell addresses the central question of whether any of those developments might lead the Fed to alter its plan to raise interest rates two more times this year and to keep raising them next year as well.”
“As far as I know, your work is unique in pulling together stories from all over the world. Very sobering but a better and more complete view. Terrific and necessary work. Thank you!” – Simon
“With the inundation of so much depressing news, Justin Panopticon presents it in a succinct format that one can quickly go thru and see the big picture of climate and economics/politics to stay current and if a particle topic is of interest one can delve into the details… I try never to miss any of his posts…I am a Patreon of his work.”
– Karina S.
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About This Site
Weekday updates on both climate change and the global economy. Stay current with what’s happening around the world with a quick scan of top news.
What happens in the emerging markets does not stay in the emerging markets. The global banking system is hotwired for contagion: 
“Turkey’s ailing economy has most likely plunged into a recession over the last month thanks to the rising crisis with the nation’s currency, and a fragile banking sector, according to new research from Capital Economics… A falling currency tends to mean rising inflation as the cost of imports increase, and that is just what has happened in Turkey. Even prior to the lira’s second collapse after US sanctions, inflation had already hit a 15-year high in July — close to 16%.”
“In a little over two months, painful U.S. sanctions on Iran’s oil sector will take effect, but the Iranian economy is already showing signs of strain. Iran’s currency, the rial, has fallen by more than half since the start of the year. There is now a thriving black market for U.S. dollars as the rial continues to plunge. The turmoil has the government engaging in a bit of a circling firing squad. In July, the head of the central bank was sacked. In early August, the labor minister was ousted and just this past weekend the economy minister was removed.”
“The prospect of a slowdown was apparently too much for President Xi to bear. So, he ordered the authorities to loosen up on the monetary squeeze. The pretense for this change was the U.S.-China trade war. But in reality, President Xi’s change of heart has more to do with the dramatic surge in bankruptcies and sharp reduction in infrastructure investment, which has fueled much of China’s growth.
“With a debt mountain of 12.17 trillion baht ($372 billion) at the end of March, the equivalent of 77.6 percent of gross domestic product, Thai households are among the biggest borrowers in Asia and they are finding it increasingly difficult to keep up with payments. In addition, their debt pain could increase because the Thai central bank has signalled it is likely to follow other central banks around the world and raise interest rates from near record lows.”
“Argentina’s President Mauricio Macri has asked the International Monetary Fund for an early release of funds from a $50bn deal to ease concerns that the country will not be able to meet its debt obligations for 2019. Macri said in a televised address that Argentina had agreed with the IMF “to advance all necessary funds to guarantee compliance with next year’s financial programme”.”
“Venezuelan immigrants were attacked earlier this month by residents at the border state of Roraima [Brazil], where they were forced out of their camps… This is only the latest development in what is shaping up to be a regional crisis, as neighboring countries respond to Venezuela’s deepening economic and political upheaval.”
“British shop prices rose for the first time in more than five years this month, as the British Retail Consortium warned that customers will face more severe price hikes if no Brexit deal is reached.”
“A top banking CEO from Europe warned that his clients are starting to feel the impact from global trade tariffs, with production lines being changed and profit warnings being issued… “It is very clear that a trade war is not good for producer confidence to invest and for consumer confidence to consume. It already has (had) a negative impact on economic growth.””
Global economy headed for car-wreck status fairly imminently now, I would suggest.
Yet more extreme weather for Korea, which, like Japan, has been alternately hit by record-breaking heat and record-breaking flooding via multiple typhoons. 
“Typhoons and stalled fronts in Japan and on the Korean Peninsula this summer have brought unprecedented rainfall and flooding from Gifu prefecture down to Hiroshima… Japan’s meteorological agency has issued warnings of heavy rain that could lead to landslides and floods in Niigata and Ishikawa prefectures on Japan’s biggest island of Honshu… Tropical Storm Jebi, meanwhile, may hit the region in early September.”
“The worst drought in living memory is sweeping through Australia’s east, the country’s main food bowl, decimating wheat and barley crops and leaving grazing land parched.”
“Leopard seals, normally found in Antarctica, are rarely spotted in Australia, but experts say sightings of the dangerous predator are becoming more common, particularly in Tasmania… It is has been unusually cold in Melbourne in recent days, with the city waking to the coldest morning this late in winter for more than 60 years.”
“Flash flood warnings were issued on Tuesday for the Hawaiian island of Kauai, with residents on the north coast told to evacuate and others left stranded by high water as the remnants of Hurricane Lane drenched the archipelago and a new storm brewed in the Pacific Ocean… Even as Hawaii residents sought to recover from Lane, they kept a watchful eye on Tropical Storm Miriam, spinning in the Pacific Ocean some 2,000 miles to the east and expected to become a hurricane by the time it approaches the islands.”
“Officials in Puerto Rico now say 2,975 people died following Hurricane Maria – a devastating storm that struck the US island territory in September 2017. The revised death toll is nearly 50 times the previous estimate of 64. Governor Ricardo Rossello “accepted” the findings in a long-awaited independent investigation. The mayor of the capital, San Juan, accused the US government of deliberately downplaying the impact of the storm.”
“For decades, scientists have predicted that B.C. would experience longer, more intense wildfire seasons as the climate warms. But the destruction of the last two years is still a bit surprising. According to Chilliwack fire ecologist Robert Gray, the scale of the wildfire emergencies we’ve lived through in 2017 and 2018 wasn’t expected for decades.”
“Rain-weary parts of Wisconsin were hammered once again by heavy rain Monday night into Tuesday, triggering flash floods that washed out roads, triggered mudslides and prompted evacuations. The line of severe thunderstorms raced across southern Wisconsin into Tuesday evening, enhancing already high water in southeastern Wisconsin… Along the western border of Wisconsin, the hardest hit were parts of Houston County, Minnesota, stretching into southern La Crosse, Vernon and Monroe counties in western Wisconsin, where reports of 4 to 10 inches of rain were received.”
“Alexandria [Egypt] is a city on the frontline of climate change. According to United Nations figures, even a 50cm sea-level rise will destroy its beaches entirely, while “the Alexandria lowlands – on which the city of Alexandria originally developed – are vulnerable to inundation, waterlogging, increased flooding and salinisation under accelerated sea-level rise”.”
“Record rainfall lashed parts of Delhi and its neighbouring areas early on Tuesday, killing one person in the national Capital, inundating arterial roads in Gurugram, affecting services on Metro’s Blue Line, and stranding commuters in parts of south-west Delhi in the morning rush hour. Delhi’s Palam recorded the decade’s highest August rainfall in a single day at 100mm, an India Meteorological Department (IMD) official said.”
“After nearly a decade of growth, new-vehicle sales in the world’s largest auto markets are entering their first sustained slowdown since the global financial crisis, putting pressure on profits as uncertainty around the U.S.’s trade policies looms.”
“Given massive global corporate debt and a soaring US stock market – the cyclically adjusted price-to-earnings ratio is high by historical standards – one possible trigger for a downturn in the coming years is a negative shock that could send securities tumbling… the US [is] in a weak position to manage the next inevitable shock.”
“Brazil is sending troops to its northern border to “guarantee law and order” amid an ongoing crisis which is seeing thousands of Venezuelans attempting to cross into neighboring countries and beyond. Brazilian President Michel Temer signed a decree Tuesday to deploy the armed forces to the state of Roraima, making the announcement during a speech from Planalto Presidential Palace.”
“Iran’s President Hassan Rouhani has vowed to fight crippling US sanctions on the country while defending his cabinet’s performance after he was summoned by the Iranian parliament for the first time to explain the country’s worsening economic crisis… However, MPs were unconvinced with his answers and have referred the case to the judiciary, according to local news agencies.”
That would be popular with this lot:
“House prices in London’s overvalued market will fall this year and next, a Reuters poll of analysts and experts predicted, and will tumble if Britain fails to reach a deal ahead of its departure from the European Union… “Central London is tanking because the traditional international buyers are staying away – and the quantum of buyers is falling. A disorderly Brexit will exacerbate this trend,” said Tony Williams at property consultancy Building Value.”
“The opening up of Iraq’s enormous verified oil reserves to foreign expertise in the aftermath of the fall of Saddam Hussein was hailed as the means to kickstart its economy and potentially transform the south into an economic stronghold. Instead, ordinary Iraqis have seen little or no benefit from the proceeds of the country’s multibillion-dollar oil industry, much of which has been siphoned off by corrupt politicians. Across the south in recent months, simmering anger over corruption and unemployment has been fuelled by the dire state of public services, regular power cuts and water shortages.
“The commander of the navy of Iran’s Islamic Revolutionary Guard Corps, Gen. Alireza Tangsiri, warned on Monday that Iran maintained control of the Persian Gulf and that the U.S. Navy did not belong there… The Strait of Hormuz is one of the world’s most important maritime chokepoints. Approximately 18.5 million barrels of oil a day—more than 30 percent of the seaborne oil traded worldwide—flowed through the strait in 2016.”
“Trinidad’s Energy Minister Franklin Khan is sending a strong warning that Petrotrin’s current state of affairs has the ability to “bankrupt” the country, as he yesterday described the state oil company as coming to what is referred to in astrophysics as a “black hole”.”
“The ongoing currency crisis in Argentina is likely to trigger a recession as soon as this year, the government said, and poverty is expected to rise as inflation is spiralling out of control.”
“Beijing wants to shore up growth without inundating the economy with cheap credit. To see how hard that will be, take a look at China’s roads and railways. China is the 800-pound gorilla of global infrastructure. Its building prowess has permeated popular culture, as in the disaster movie “2012” where China constructs giant ships to help humankind escape rising seas. Recently, however, China’s infrastructure build has all but ground to a halt.”
“With some U.S. farm products getting slammed by retaliatory tariffs, the Trump administration is prepared to start its emergency plan for agriculture right after Labor Day in a “three-pronged approach” that will initially include about $6 billion in aid.”
“A growing concentration of debt by a thin slice of corporate America has echoes of the subprime lending boom that contributed to the U.S.’s economy collapse and the humbling of its almighty financial industry in 2008.”
“Storm clouds are brewing over the global technology industry. A host of hardware companies, including Apple Inc., Samsung Electronics Co., Foxconn Technology Group and Intel Corp. are sitting on inventory stockpiles not seen since the financial crisis a decade ago.”
“…there are growing signs of weakness [in the UK economy] after the Bank of England raised interest rates above the emergency level set since the financial crisis. Ushering in a new era of higher borrowing costs for consumers and businesses, the move comes as ministers prepare the public for Britain crashing-out of the EU without a deal with Brussels.”
“Speaking at the Jackson Hole meeting of central bankers in Wyoming at the weekend Carstens, the BIS general manager, provided a detailed road map of how protectionism could set of a ‘’succession of negative consequences’’ that endangered decades of global economic gains…
“U.S. officials seem to think they have the upper hand in trade talks with China because its economy is struggling. Judging by the string of measures they’ve recently announced to shore up growth, Chinese officials may privately agree… China’s growth woes are homegrown, not the result of U.S. tariffs. Two factors are largely to blame: the government’s concerted effort over the last five quarters to tighten credit and stabilize China’s debt levels, and, relatedly, a dramatic dropoff in investment spending by local governments.”
“…significant damage has already been done to the Turkish economy. The lira is now down 40 percent to the US dollar this year, raising widespread concerns over the sustainability of the country’s sizeable dollar-denominated debts… Turkey’s problems are far from idiosyncratic. Coming on the heels of recent interventions of the International Monetary Fund (IMF) in Argentina and Pakistan, they clearly reflect a set of deeper vulnerabilities in the emerging-market asset class as a whole.”
“The lira crisis has raised prices, heightened uncertainty and sent a chill through much of Turkish society, including Syrian refugees, who are some of the country’s most vulnerable communities. Around three million Syrian refugees live across Turkey after fleeing their country’s seven-year war… Many survive off informal work and as a result live hand to mouth without any social security system to protect them.”
“The International Monetary Fund (IMF) has warned Saudi Arabia against increasing public spending as oil prices rise… Around half of state spending goes on the public sector wage bill, according to the IMF which suggested “the workforce could be gradually reduced through natural attrition”. Unemployment among Saudi citizens is at 12.8 percent, and sits at 31 percent among women. The country’s key challenge is to create around 500,000 jobs for its citizens over the next five years, the IMF said while stressing the need for more posts within the private sector.”
“The exodus of migrants from Venezuela is building towards a “crisis moment” comparable to the European refugee crisis of 2015, the UN has warned. Thousands of people flee the country every day, travelling by bus or sometimes by foot along migration routes across South America. They flee an economic collapse that has left food and basic medicine scarce while armed gangs rob and kill without consequence.”
“Theresa May has called for a crisis summit in order to prepare for a ‘no deal’ situation, amid fears the row between Brexiteers and Remainers is undermining negotiations with Brussels. The prime minister told cabinet ministers on Friday morning to be prepared to meet on September 13 to work out a plan for critical areas not yet covered by disaster plans.”
“In the past few weeks, international companies have begun to pull out of Iran after threats from US President Donald Trump that businesses must choose between trade with Tehran or trade with the US… 
““The continued interest rate hikes by the Federal Reserve have exerted depreciation pressure on currencies like the yuan and make it difficult for [the government to allow more] monetary expansion,” he added… According to Yu, previous economic stimuli relied heavily on investment – in particular, infrastructure spending – driven by looser monetary conditions to ensure sufficient credit. “The unavoidable result is excess money supply growth, the worsening of asset bubbles and a rapid increase in macroeconomic leverage,” he said.”
Argentina’s economy contracted 6.7%(!) in June from the year-earlier period, the third consecutive month of decline, the government said Thursday… Statistics agency Indec said the agriculture sector fell 31% in June from the same month last year, as crops were hammered by one of the worst droughts in decades. Manufacturing decreased 7.5%, while retail activity fell 8.4%… Earlier this month, the Central Bank of Argentina lifted its interest rate to 45%(!) from 40% in an unexpected meeting…”
“7% of [Venezuela’s] population, many suffering illness and malnutrition — have fled since 2014, but the patience and resources of regional host countries may soon wear thin.”
“Stockpiles of at least six week’s supply of medicines will be held in the event of a “no-deal” Brexit, with urgent medicines airlifted to the UK to avoid lengthy delays at road, rail and sea borders. The government has asked the pharmaceutical industry to make plans to hold additional stocks amid concerns that hospitals and pharmacists could run short of supplies in the event of disruption at UK borders.”
“The European Central Bank has become increasingly confident that it can wean the eurozone off some of its crisis-era support without endangering the region’s economy. According to minutes published on Thursday from the July 26 meeting of the bank’s governing council, the eurozone was set to grow at a “solid pace”, with the risks to the outlook “broadly balanced” despite the threat of a global trade war.”
“Federal Reserve Chairman Jerome Powell will not lack for urgent topics to address when he gives the keynote speech Friday to an annual gathering of global central bankers in Jackson Hole, Wyoming.