TraderStef: Global Currency Reset Implosion With A $250 Trillion Debt Bomb

TraderStef says don’t focus on the “when”, but rather prepare your finances ahead of time. Here’s TraderStef explaining what is coming down the pike…

by TraderStef of CrushTheStreet (connect withTraderStef via Twitter or at TraderStef’s website)

Are you tired of the boring 1988 Economist magazine cover art depicting a new world currency in 2018? Me too, so I gave it a slight overhaul with a golden (pun intended) halo of the sun and Earth in today’s headline graphic. Today is ground zero if you extrapolated the date engraved upon the future coin as prophetic. The truth of the matter is that currency and financial system resets occur over a period of time, then a D-Day eventually comes to pass upon the peasantry. The great financial crisis that transpired ten years ago was a financial system reset slow train wreck, and D-Day culminated over a weekend with the Lehman Brothers collapse decision at the NYFRB.

As a primer to the leading up of a potential reset, or a reset to avoid another salvage operation that does not fix underlying issues, consider reviewing Three (Four) Bankers of a Financial Armageddon Salvage Operation, published on Sep. 14. The reset topic came up at the end of my interview with Dr. Dave Janda this past weekend without much time to expound on it, so the following are my humble two cents. I do not know how or when it will come to fruition, but we can peek into the whys and roads that are building to facilitate it.

Here is a flow chart of sorts that lays out the backbone of our current financial order of core players, as I understand them to be. More entities can be added, but this synopsis serves the purpose. A portion of the following information incorporates insights covered by Kenneth Storey.

A large amount of press has surfaced about growing risks within the financial markets, despite efforts by several goldilocks power brokers to the contrary, and a few others included among the editorials in the link garden below to add color to the unfolding de-dollarization process.

The role of gold in a multicurrency reserve system – World Gold Council, Jul. 5

Ray Dalio Spells Out America’s Worst Nightmare… “The hedge fund titan warns the U.S. not to take its reserve currency for granted.” – Bloomberg, Sep. 12

BIS warns global economy risks crisis ‘relapse’… “There is little ‘medicine’ left to treat the patient a second time. ‘Things look rather fragile,’ BIS chief economist Claudio Borio told reporters in a conference call. The Basel-based BIS, considered the central bank for central banks, warned in its annual report that the recovery after the 2007-2008 global financial crisis had been ‘highly unbalanced’, with emerging economies especially facing mounting pressure… After years of ultra-accommodating monetary policy, the US Federal Reserve has begun hiking interest rates, while the European Central Bank (ECB) recently announced it would end its stimulus program at the end of this year. But amidst this normalization process, BIS noted a stark divergence between growth in the US market and the situation in emerging economies especially.” – The Business Times, Sep. 25

A Three-Way Train Wreck Is About to Derail the Markets… “Markets have been notably docile lately despite crises in Argentina, Turkey, Indonesia, Iran, China, Venezuela and elsewhere. Political crises related to Brexit and U.S. political dysfunction have not roiled global markets so far. The calm and low volatility are about to end. The China-Iran nexus in confrontation with the U.S. is the last straw.” – Jim Rickards at The Daily Reckoning, Oct. 1

Stan Druckenmiller sees ‘massive’ debt fuelling next financial crisis… “We tripled down on what caused the crisis. And we tripled down on it globally.” – Financial Review, Oct. 1

Chairman of the Economic and Development Review Committee at the OECD: Bad Financial Moon Rising… “In reality, all is not well beneath the surface. Should another financial crisis materialize, the subsequent recession might be even costlier than the last one, not least because policymakers will face unprecedented economic and political constraints in responding to it.” – Project Syndicate, Oct. 3

Trump’s Policies Will Displace the Dollar – Jeffrey Sachs, Sep. 3

World economy at risk of another financial crash, says IMF… “Debt levels are well above 2008 and failure to reform banking system could trigger crisis – ‘large challenges loom for global economy to prevent a second Great Depression’” – The Guardian, Oct. 3

World’s Most Important Bank Issues Urgent “Zombie Alert” – Nomi Prins at The Daily Reckoning, Oct. 3

The global economy not looking quite as rosy, IMF says…“International Monetary Fund cuts growth forecast for this year and next and said downside risks are now elevated” – MarketWatch, Oct. 9

Chinese currency set to explode internationally as IMF formally places it in the SDR’s basket of currencies… “The IMF had already announced the acceptance of the Yuan into their monetary reserves more than two years ago, but this week the currency became fully adopted and on equal par with the dollar, euro, pound, and yen… China has also been given sole authority to sell IMF (SDR) bonds, which when coupled with the fact that they are already the world’s largest banking entity means that transitioning the RMB into an international settlement currency is now just a mouse click away for Beijing…” – Shotgun Economics, Oct. 8

*TRUMP SAYS HE DOESN’T LIKE WHAT THE FED IS DOING – Oct. 9

Turkish President Erdogan calls on African countries to use local currencies for trade and businesses with Turkey – “dependence on USD dollar is becoming more of a burden instead of a convenience.” – China Xinhua News, Oct. 10

Jim O’Neill: Kingpin’ role of the dollar is ‘idiotically’ outsized – CNBC, Oct. 5

The following list of circumstances is priming the pump for a currency reset scenario. A majority have already taken place to some degree, are ongoing, or are in the process of surfacing and are not listed in any particular order, although some require another for implementation with reason.

√ Low-intensity conflicts proliferate into hot regional wars

√ The consolidation of and creation of currency blocks (i.e. EUR within the European Union)

√ U.S. drains the swamp and attempts are made to roll back the globalist agenda

√ U.S. demands the world fund its fair share of U.N., NATO, and war on terror expenses

√ U.S. reduces or eliminates aid to foreign countries and organizations

√ Diminishing role of the USD as a global reserve currency (2Q18 at 62%)

√ Fed initiates Quantitative Tightening (QT) w/o Quantitative Easing (QE) or increase of cash in circulation

√ Yuan and IMF SDRs increase in use as reserve currencies

√ Sanctions, tariffs, and trade wars escalate with some resolution

√ U.S. trade pacts renegotiated; trade balance must shrink to near zero and exports increase

√ E.U. and Japan begin QT w/o QE or increase of cash in circulation

√ U.S. citizens forced to purchase or convert existing retirement accounts to include U.S. Treasury Bonds

√ Countries implement currency controls as cash bleeds into alternative safe havens, such as gold

√ IMF increases SDR liquidity via a QE-like program

√ Global oil and gold to be priced in SDRs, USD, yuan

√ EURO dollars and petrodollars replaced by SDRs flow back to U.S., causing inflation

√ IMF adjusts SDR basket, with the yuan having a larger percentage leading to being on par

√ Massive U.S. military base closures overseas

A liquidity crisis beyond the central banks’ ability to subdue a total blowout could force an injection of SDRs by the IMF. A debt jubilee restructure of sovereign debts prior to a liquidity crisis would help ward off the worst of consequences but would take place anyways post-crisis to facilitate the restructuring of existing debt and monetary systems. A new world currency (backed by what as a guarantee?) and multi-reserve system will surface for international trade and settlements. The Federal Reserve would eventually liquidate, while a new U.S. Treasury notes system is implemented and a domestic USD backed by gold and/or silver could replace current Federal Reserve notes. No matter the outcome, an upward revaluation in the price of gold is highly likely.

Since the formation of the Federal Reserve and IRS in 1913, the USD has depreciated by a stunning 95%.

It is unlikely that the power brokers who formulated the Bretton Woods Agreement in 1944 following WWII expected the USD to dominate the global reserve forever, but it is difficult to ascertain a forward-looking mindset dominated by a Keynesian Economics theory. In the U.S. alone, monetary standards have shifted many times since 1770, with the Nixon Shock in 1971 as a standout that ended the ability to exchange USD for gold as set forth at Bretton Woods.

Because of U.S. fiscal and monetary mismanagement, the Bretton Woods financial system collapsed and was a key factor that influenced Europe to form a monetary union and launch of the euro in 1999. U.S. debt is currently over $21 trillion and growing daily, and it does not include $200+ trillion in unfunded liabilities. In 2011, Standard & Poor’s downgraded U.S. sovereign debt for the first time, from AAA to A, and the U.S. Treasury’s printing press continued unabated with a USD “exorbitant privilege” intact. Fast-forward to present day and financial pundits such as Jeffrey Sachs believe that “America’s monetary stewardship has stumbled badly over the years, and Trump’s misrule could hasten the end of the dollar’s predominance.”

The lack of sound fiscal and monetary policy telegraphs to the world that nothing has changed, with China and Russia taking the lead by diversifying their foreign reserves and taking decisive measures to reduce their dependence upon the USD hegemony. The USD still accounts for approximately 85% of all forex transactions, despite making up only 25% of the world economy.

Winds of change are blowing, and it would be foolish to focus on the when and whys for a global currency reset event. The global debt bomb is chiming in at $250 trillion and counting. It would be prudent to prepare your financial house ahead of time, rather than finding yourself in this casino situation with your capital crushed through inflation and devaluation and seeing access to safe haven assets are sparse and priced beyond your means when you need them the most while the house wins.

Casino (1995) – Money Scene

Plan Your Trade, Trade Your Plan

TraderStef on Twitter

Website: https://traderstef.wordpress.com

Weaponizing the US Dollar Is Accelerating Global De-Dollarization

Donald Trump has in just over two years abandoned the Trans-Pacific Partnership (TPP), ditched the Transatlantic Trade and Investment Partnership (TTIP), withdrawn the US from the Paris climate agreement, and unilaterally removed American participation in the Iranian nuclear agreement known as the Joint Comprehensive Plan of Action (JCPOA).

Some of these decisions have undoubtedly received popular support from far beyond America’s shores. Washington’s withdrawal from the TPP was welcomed by the People’s Republic of China. During the Obama presidency, Xi Jinping strongly protested the exclusion of Beijing from the TPP. In the case of the TTIP, European allies for the most part were strongly opposed to the treaty because European multinationals would be subjected to sanctions and fines from American authorities.

The climate agreement, placing important limits on CO2 emissions as well as imposing regulations governing pollution, has been strongly resisted by US energy oligarchs. The withdrawal from the Paris accord has satisfied a substantial proportion of Trump’s donors linked to the hydrocarbon industry and beyond. Finally, the abandonment of the JCPOA was praised by Riyadh and Tel Aviv, two essential partners in Trump’s domestic and foreign strategies.

Observing the consequences of these political choices in the months since, it is easy to see how the world has reacted in a more or less similar fashion, which has been by ignoring the United States and emphasizing cooperation amongst themselves. The TPP, with its agreements between 11 countries, has remained in place without Washington. The development of relations between ASEAN and China continues on without Washington’s participation. While the TTIP has been halted, the Comprehensive Economic and Trade Agreement (CETA), is in its final approval stage, an agreement between Canada and the EU that bypasses the American-inspired TTIP. The Iran deal remains in force despite Washington’s cowardly withdrawal, and the five countries remaining in the Iranian nuclear agreement have every intention of respecting the JCPOA, which had been negotiated over a number of years.

In addition to withdrawing from the above treaties, Washington has started a serious trade war and is imposing tariffs on allies and enemies alike. From Russia to the EU, as well as China, South Korea, Japan and Turkey, everyone is facing the unprecedented decision to apply tariffs on trade. In Trump’s mind, this is the only way to balance a trade deficit that has now reached more than 500 billion dollars.

In addition to the dismantled treaties and imposition of tariffs, Trump strongly criticized some pillars of the post-World War II liberal order, such as NATO and America’s European allies themselves. The suggestion that NATO may be obsolete has shaken the European capitals to their core, even as the Russian Federation may see it as signalling the prospect of positive relations with the United States. Later it was understood that Trump’s strategy was to present himself before his electors with tangible achievements, in this case a substantial increase in military spending by NATO countries in Europe. Trump wants a commitment of 2% of GDP to be spent on defense, and NATO’s leaders are now agreeing on the need to invest more money.

Finally, the devastating blow came with the abandonment of the Iranian nuclear agreement, creating significant tensions with European allies. Washington has decided to impose sanctions on companies that do business with Tehran from November 2018. The EU immediately passed a law to shield EU companies from American fines, but many French and German companies appear to have already abandoned their projects in Iran, fearing Washington’s retribution.

Trump even began directly targeting historical allies, first strongly criticizing May in the UK over the slowness of Brexit, then Erdogan’s Turkey for the purchase of the S-400 system as well as the detention of an American pastor (accused of having participated in the attempted coup of 2016), and giving the green light to Saudi Arabia for its commercial and political war with Qatar, a close ally of Turkey.

Challenging the Dollar: China and Russia’s Plan from Petroyuan to Gold

In this uncertain and unprecedented environment, Donald Trump’s best friends are Israel and Saudi Arabia, with the Italian government offering a friendly face in Europe, the only big European country not opposed to The Donald. The Italian government intends to present itself in contradistinction to France and Germany, returning to influencing the European decisions. We shall come to see how valid this political path is, especially in light of what Trump will ask Conte in exchange for political support, especially with regard to Libya and on various trade and tariff issues.

Trump seems to have been outlining, over almost 24 months of his presidency, his political strategy. The neoconservatives, in the wake of 9/11, used military force in Iraq and Afghanistan, with no rival power able to stand in their way. With Obama, the strategy turned to operating under the cover of democracy and human rights, using more subtle means for bringing about regime change, such as color revolutions. It seems this general strategy continues with Trump, through the means currently available to him. US military planners nowadays must contend with an effective military force that keeps throwing a spanner in their works, Moscow returning Crimea to the Russian Federation and intervening in Syria to support the legitimate government of Syria.

Trump seems to have understood the message coming from Beijing and Moscow regarding the inviolability of their territory, their spheres of influence and their sovereignty. For this reason, Washington’s aggression seems to be focussing more on the economic arena. Trump has weaponized the dollar and is wielding it against allies and enemies alike to extract benefits for the United States. What the current administration intends to do is use the status of the dollar (already a reserve currency and the medium of exchange for such things as oil) as a weapon against adversaries and allies. And it is painful for those at the receiving end, given that the global economy revolves around Washington and the dollar.

The ability to bar European companies from operating in Iran derives from the status of the petrodollar. Washington forbids foreign banks from working with Iranian banks, effectively blocking the flow of US dollars into the country. This is aside from excluding targets from the SWIFT banking network.

To understand the consequences of these actions, it is important to note how presidents prior to Trump worked to advance American imperialism. As noted, following the wars in Iraq and Afghanistan, several countries began to anticipate and plan against scenarios of American aggression. Alliances have been strengthened (Pakistan with China, India with Russia, Qatar with Turkey, Iran with Russia and China, Iran with Russia and Turkey), many issues are being slowly resolved (India and Pakistan, South Korea and North Korea) and many countries prefer to buy arms from Russia and China in order to keep American imperialism at bay.

The methodology of color revolutions, in the light of the protection now being offered by the likes of Russia and Iran, was employed in the place of direct military intervention (as occurred in Iraq and Afghanistan) in other theaters (Libya, Ukraine and Syria). After the wars in 2002 and 2003 in Iraq and Afghanistan, China, Russia and Iran drew a red line regarding Washington’s interventionism. The effectiveness of color revolutions was diminished when the Russians, the Chinese and Iranians started expelling the various NGOs funded by the likes of Soros and other globalist financiers to bring about regime change under the cover of democracy and human rights.

The outlook of Washington’s political establishment is based on military hard power that is now inferior in offensive capability than the Sino-Russo-Iranian one, ensuring the strategic independence of Eurasia and its partners (Turkey, India, Qatar, Pakistan, Lebanon, Syria, Libya, Egypt, the Philippines, etc.). In terms of color revolutions, the artifice has now been brought to light, and countries on the receiving end of such attacks can now recognize them and quickly act to forestall them, as happened in Hong Kong in 2014.

Donald Trump seems to have resorted to the only weapon left available to him, namely, the economic power of the US dollar, offering him the opportunity to shape events. It is a strategy with short-term benefits by devastating effects for Washington in the long run. Indeed, the only way to combat US financial dominance is to ditch the US dollar for other currencies. Washington’s economic power derives from the use that the world makes of the dollar. Clearly, then, Trump’s decision to use the US dollar as a weapon will cost his country dearly in the future, the dollar probably bound to lose its role as a global reserve currency. As history has shown, when a reserve currency is transferred to another currency, the empire that depended on this reserve-currency status itself went into decline. This occurred with the France and Britain, and it will likely occur with the United States.

If the S-400 militarily represents the middle finger to Washington, denying as it does US air dominance, de-dollarization is the obvious answer to Trump’s use of the US dollar as a weapon to wield against friends and enemies.

This vulnerability is a wake-up call for US allies, who have filled their pockets and state coffers with US dollars printed at zero interest rates. Just look at the situation in Turkey, with almost 100 billion dollars in foreign debt. Ankara suffers from the excessive dollarization of its economy. It thus remains vulnerable to a US dollar attack by Trump, and without Qatar coming to the rescue with 15 billion dollars worth of investment, the Turkish lira would have not been able to resist for much longer. The danger of an economic collapse is real, along the same lines as was experienced in Asia in the late 1990s through devastating financial-speculation attacks. In contrast, Moscow finds itself with a very low public debt and just 13 billion in dollar-denominated securities, continuing apace the de-dollarization of its economy.

Trump has indirectly set in motion a much needed global rebalancing. Washington’s downsizing into a smaller power will come about above all through a fundamental change at the global economic level. As long as Washington is free to print money, increase debt, exchange dollars for real goods, and remain credible to the rest of the world that continues to purchase US treasuries instead of gold as a safe haven, Trump will be free to use the US dollar as a baseball bat with which he can whack friends and opponents over the head.

The potential use of the US dollar as a baseball bat has been evident for more than a decade for Russians, Chinese and Iranians. For this reason, they have been exchanging their dollars for other currencies for years. The United States, as a declining empire, is lashing out, employing every weapon available to try and arrest its diminishing status as the world’s sole superpower. Now it is the turn of America’s allies to relinquish the dollar, coming to understand that real sovereignty is ensured through economic sovereignty.

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Federico Pieraccini is an independent freelance writer specialized in international affairs, conflicts, politics and strategies. He is a frequent contributor to Global Research.

Featured image is from the author.

The original source of this article is Strategic Culture Foundation

Copyright © Federico Pieraccini, Strategic Culture Foundation, 2018

Turkey’s Financial Crisis Raises Questions About China’s Debt-driven Development Model

Financial injections by Qatar and possibly China may resolve Turkey’s immediate economic crisis, aggravated by a politics-driven trade war with the United States, but are unlikely to resolve the country’s structural problems, fuelled by President Recep Tayyip Erdogan’s counter intuitive interest rate theories.

The latest crisis in Turkey’s boom-bust economy raises questions about a development model in which countries like China and Turkey witness moves towards populist rule of one man who encourages massive borrowing to drive economic growth.

It’s a model minus the one-man rule that could be repeated in Pakistan as newly sworn-in prime minister Imran Khan, confronted with a financial crisis, decides whether to turn to the International Monetary Fund (IMF) or rely on China and Saudi Arabia for relief.

Pakistan, like Turkey, has over the years frequently knocked on the IMF’s doors, failing to have turned crisis into an opportunity for sustained restructuring and reform of the economy. Pakistan could in the next weeks be turning to the IMF for the 13th time, Turkey, another serial returnee, has been there 18 times.

In Turkey and China, the debt-driven approach sparked remarkable economic growth with living standards being significantly boosted and huge numbers of people being lifted out of poverty. Yet, both countries with Turkey more exposed, given its greater vulnerability to the swings and sensitivities of international financial markets, are witnessing the limitations of the approach.

So are, countries along China’s Belt and Road, including Pakistan, that leaped head over shoulder into the funding opportunities made available to them and now see themselves locked into debt traps that in the case of Sri Lanka and Djibouti have forced them to effectively turn over to China control of critical national infrastructure or like Laos that have become almost wholly dependent on China because it owns the bulk of their unsustainable debt.

The fact that China may be more prepared to deal with the downside of debt-driven development does little to make its model sustainable or for that matter one that other countries would want to emulate unabridged and has sent some like Malaysia and Myanmar scrambling to resolve or avert an economic crisis.

Malaysian Prime Minister Mahathir Mohamad is in China after suspending US$20 billion worth of Beijing-linked infrastructure contracts, including a high-speed rail line to Singapore, concluded by his predecessor, Najib Razak, who is fighting corruption charges.

World Markets Brace for Impact of Turkish Lira Crisis

Mr. Mahathir won elections in May on a campaign that asserted that Mr. Razak had ceded sovereignty to China by agreeing to Chinese investments that failed to benefit the country and threaten to drown it in debt.

Myanmar is negotiating a significant scaling back of a Chinese-funded port project on the Bay of Bengal from one that would cost US$ 7.3 billion to a more modest development that would cost US$1.3 billion in a bid to avoid shouldering an unsustainable debt.

Debt-driven growth could also prove to be a double-edged sword for China itself even if it is far less dependent than others on imports, does not run a chronic trade deficit, and doesn’t have to borrow heavily in dollars.

With more than half the increase in global debt over the past decade having been issued as domestic loans in China, China’s risk, said Ruchir Sharma, Morgan Stanley’s Chief Global Strategist and head of Emerging Markets Equity, is capital fleeing to benefit from higher interest rates abroad.

“Right now Chinese can earn the same interest rates in the United States for a lot less risk, so the motivation to flee is high, and will grow more intense as the Fed raises rates further,” Mr. Sharma said referring to the US Federal Reserve.

Mr. Erdogan has charged that the United States abetted by traitors and foreigners are waging economic warfare against Turkey, using a strong dollar as ”the bullets, cannonballs and missiles.”

Rejecting economic theory and wisdom, Mr. Erdogan has sought for years to fight an alleged ‘interest rate lobby’ that includes an ever-expanding number of financiers and foreign powers seeking to drive Turkish interest rates artificially high to damage the economy by insisting that low interest rates and borrowing costs would contain price hikes.

In doing so, he is harking back to an approach that was popular in Latin America in the 1960s and 1970s that may not be wholly wrong but similarly may also not be universally applicable.

The European Bank for Reconstruction and Development (EBRD) warned late last year that Turkey’s “gross external financing needs to cover the current account deficit and external debt repayments due within a year are estimated at around 25 per cent of GDP in 2017, leaving the country exposed to global liquidity conditions.”

With two international credit rating agencies reducing Turkish debt to junk status in the wake of Turkey’s economically fought disputes with the United States, the government risks its access to foreign credits being curtailed, which could force it to extract more money from ordinary Turks through increased taxes. That in turn would raise the spectre of recession.

“Turkey’s troubles are homegrown, and the economic war against it is a figment of Mr. Erdogan’s conspiratorial imagination. But he does have a point about the impact of a surging dollar, which has a long history of inflicting damage on developing nations,” Mr. Sharma said.

Nevertheless, as The Wall Street Journal concluded, the vulnerability of Turkey’s debt-driven growth  was such that it only took two tweets by US President Donald J. Trump announcing sanctions against two Turkish ministers and the doubling of some tariffs to accelerate the Turkish lira’s tailspin.

Mr. Erdogan may not immediately draw the same conclusion, but it is certainly one that is likely to serve as a cautionary note for countries that see debt, whether domestic or associated with China’s infrastructure-driven Belt and Road initiative, as a main driver of growth.

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This article was originally published on the author’s blog site: The Turbulent World of Middle East Soccer.

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title and a co-authored volume, Comparative Political Transitions between Southeast Asia and the Middle East and North Africa as well as Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa and just published China and the Middle East: Venturing into the Maelstrom

Featured image is from Daily Reckoning Australia.

The original source of this article is Global Research

Copyright © James M. Dorsey, Global Research, 2018

Amidst Turkish Crisis Indian Rupee Falls to All-time Low

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With the ongoing crisis involving Turkish lira, the Indian rupee fell to an all-time low on Tuesday. The Indian currency dropped to the level of 70.1 to the US dollar and ended at 69.93 at the end of the day, recording its largest one-day fall in five years.

Indian officials have attempted to downplay the severity of the crisis confronting the Indian economy and its currency. Economic Affairs Secretary Subhash Chander Garg told the media on Tuesday that there was “nothing at this stage to worry” about the fall of the rupee as it was due to “external factors.” He claimed that India had sufficient foreign exchange reserves to withstand the decline.

At the same time, Garg admitted that the country’s central bank, known as the Reserve Bank of India, was limited in what it could do to contain the fall. He said:

“As currencies of other economies are also depreciating, intervention by the Reserve Bank of India, by selling dollars in the country, will not help much at this stage for stabilising the rupee.”

Indian officials have been forced to admit their inability to control “external factors” on the country’s economy. According to Garg, the Reserve Bank of India (RBI) has spent about $US23 billion so far in this year in its attempt to stabilise the rupee.

The fall of the Indian rupee has been unfolding over several months, in response to moves by the US Federal Reserve to lift interest rates and end its “quantitative easing,” thus reversing the flow of relatively cheap dollar-denominated loans. The Indian currency has declined about 8 percent so far this year. Now, amidst the sharp fall of the Turkish lira, which underscores the far-reaching implications of an upward movement of the dollar as a result of the US Fed’s moves on so-called emerging markets, the decline of the Indian rupee is accelerating.

Pointing to the role of foreign investors in the fall of the rupee, B. Prasanna, group executive and head of ICICI Bank, said:

“The swift move [of the rupee] past 69 happened due to foreign portfolio investor (FPI) outflows and the need to hedge existing short dollar positions in the market, driven by global market sentiment rather than actual importer demand.”

The decline of Indian rupee is a part of global rush by investors away from so-called emerging markets. Radhika Rao, an economist at DBS Bank in Singapore, said:

“The fall in rupee was not in isolation, rather a part of the broader sell-down in emerging markets currencies.”

As a further indication of the growing economic crisis confronting the Indian elite, the country’s trade deficit rose to $18 billion last month, from $16.6 billion in June. The major factor was the increase in oil prices. India imports more than 80 percent of its crude-oil needs.

Some sections of Indian big business welcome a weaker rupee as a favourable factor for exports, arguing that it will make the country’s products competitively cheaper in the world market. Anand Mahindra, the executive chairman of the Mahindra Group, which has interests ranging from cars to construction equipment to insurance, tweeted:

“With this boost to India’s export competitiveness could we now convince global companies that it’s time to switch to India for world-scale, export-focused manufacturing?”

However, a weaker rupee will not favour all sections of Indian industries as argued by Mahindra. Those which rely on imported raw materials, component parts and machinery will face increases in their manufacturing costs in rupee terms.

Moreover, a weaker rupee could lead to higher inflation under conditions of increases in import bills of crude-oil, commodities, electronic items and engineering equipment. According to the Indian oil ministry, every rupee change in the exchange rate against the US dollar makes a change of 108.8 billion rupees ($1.58 billion) in the country’s crude-oil import bill, which reached $12.4 billion in July, 57.4 percent higher than a year ago.

While Indian officials boast the country’s foreign reserves are sufficient to push back against the downward pressures on the rupee, the current level of about $402 billion would not cover import costs for a year.

The global economic shocks will intensify the political crisis confronting the government of Prime Minister Narendra Modi. The Hindu supremacist Bharatiya Janatha Party (BJP) will face national elections next year. Its ability to allocate spending toward some cosmetic social policies, in an effort to retain support, is increasingly limited.

The higher inflation resulting from the depreciation of the rupee will intensify the already immense burden on the working people and rural poor in the form of increasing prices for fuel, food and other essential goods and services. It will lead to a further escalation of class struggle.

This year, significant sections of workers and the oppressed have engaged in strikes and mass protests over the attacks on their wages, jobs and working conditions, by both the national BJP government and administrations at state level. Bank employees throughout the country, public-sector bus workers in the southern state of Tamil Nadu, cab drivers attached to major taxi companies Uber and Ola, and farmers in western, eastern and northern India were among them.

Immense class antagonisms exist due to the poverty and widening social inequality caused by the pro-investor economic reforms carried out by successive governments since 1991. The top 1 percent of country’s population enjoys nearly a quarter of all income and owns 60 percent of the country’s total wealth, under conditions where about 70 percent of the population lives on less than $2 a day. Only a tiny minority of big bourgeoisie and privileged section of upper middle class has benefited from more than a quarter century of economic reforms in the expense of vast majority of workers and oppressed masses.

India’s social powder keg is on the verge of explosion under conditions where the main opposition Congress Party and the Stalinist parliamentary parties—the Communist Party of India (Marxist) or CPM and the Communist Party of India (CPI)—are discredited among the workers and oppressed masses due to their role in imposing pro-investor economic policies and associated austerity measures. These organisations will not be able to contain working-class resistance as they have in the past.

Collapsing Asian Currencies? Why is the Indian Rupee Depreciating?

The original source of this article is World Socialist Web Site

Copyright © Deepal Jayasekera, World Socialist Web Site, 2018