KW: Readers. I have put this article up word for word. What really hacks me off is that the finacial  commentaries I recieve are so  U.S. centric, almost mocking other countries like Turkey and Venezuala for being in the mess they are but missing out on self criticsm of the war being declared on these economies by Trump and his henchmen with sanctions, tarrifs and penalties becasue they can. Every country including a small economy like us here in New Zealand to (and especially) a big economy that was/is challenging the power of the $U.S. like China seeking its place in the world are vulnerable to this new warfare now raging around the world. These financial commentaries all boast about the power of the U.S. and are super critical about China daring to expand without stating the obvious that this finacial warfare just might tip the whole world into a major recession

On another tangent…… Knowing now like we do that the CIA is active all around the world backing, funding and agitating with dissident groups in countries, New Zealand should be aware that we have in power here a socialist leaning coalition government that is showing signs of a Prime Minister more aligned to thinking like a’la David Lange than a John Key and not meekness and submissive to the American Way having voted out the Nats now left with the drongo Western alligned party leader Simon Power in charge. Previously John Key, a servant of U.S. policy, was in charge, his charm disguising what he was really up to  allowing the NSA to now spy directly on New Zealanders with his last few strokes of the Prime Ministerial pen. All this anti Don Brash agitation from extremist maori groups could be being used to turn the knife on our political stability before our very eyes. Just why is Don Brash so disliked and opposed by maori and others when he seems to me to represent middle New Zealand when dicussing the Hobson Pledge issue and non elected maori representation on local body councils and who are all too meek or busy to say it themselves but do so privately? I have no concrete proof of this theory but just saying, this is how the CIA works all around the world and they will be trying to divide by causing social disruption, particlarly about race relation issues, New Zealand’s archilles heal. Plus to disrupt continuing friendship with China our biggest trading partner. Already they have the militarist Defence Minister Ron Marks ear. Just saying.

…..to the devloping news

Dear Reader,

Sound the alarm!

“Dow Tumbles Triple Digits as Turkey’s Crashing Currency Rattles Global Markets,” shrieked CNBC this morning. “Dow Tumbles 222 Points as a Currency Crisis in Turkey Rattles Wall Street,” quailed MarketWatch. Zero Hedge weighed in with typical understatement: “Turkey Meltdown: Lira Implodes as Panicked Sellers Spark Global Contagion.” “The Turkish currency crisis is finally here and it is sending shock waves around the globe,” they added.

Let us roll up our sleeves, spit upon our hands… and proceed to business… The Trump administration announced plans early today to double tariffs on Turkish steel and aluminum imports.

The announcement came in apparent retaliation for Turkey’s refusal to release a jailed American pastor — at least in part. Turkish authorities claim this American man of God supported a failed coup attempt against President Recep Tayyip Erdoğan in 2016. Trump has demanded his freedom.

And so at 5:47 this morning, the president announced the tariffs through his usual medium:

Already teetering, the bottom immediately dropped from beneath the Turkish lira — which plunged as much as 24%. Chaos fell upon the Turkish market.  A free-falling lira translates to spiraling inflation. Unless the Turkish central bank raises interest rates à la Paul Volcker, Turkey could descend into hyperinflation… and economic collapse.

“Seems like a complete crash, so they need to act now,” panted Morten Lund, strategist at Copenhagen’s Nordea Bank.  “The lira will keep falling if they don’t hike rates today.”  As we go to press… the Turkish central bank has failed to act upon Mr. Lund’s counsel.

Panic raced throughout global markets this morning… like brush fire through a parched wood. European, Asian, U.S. markets all sold off today. The Dow Jones ended the day down 196 points. The S&P fell a good hard 20… the Nasdaq, 53. European bank shares took an especial trouncing today, as investors fretted over their exposure to the ailing currency.

“The sudden falls in bank stocks underscore the potential for contagion,” as reports The Wall Street Journal.”  Though it adds the European Central Bank’s concern “isn’t too high at present.”

Question: Would they admit if they were concerned? A panic can spread quick as thought itself. And they do not wish to alarm the rubes — that is how bank runs begin.

Today’s financial markets form a deeply intertwined global tapestry. One pull anywhere in the fabric threatens to unravel the entire business.

That is the great bugaboo of today’s hyperconnected markets. Bart Hordijk, market analyst at London-based foreign exchange firm Monex Europe:

In financial markets everything is interlinked. You don’t know if one bank has huge exposure to the Turkish lira.

Jim Rickards has been expecting an emerging-markets crisis.  “Emerging-market debt crises are as predictable as spring rain,” says Jim. “They happen every 15–20 years, with a few variations and exceptions.” The last emerging-market crisis fell in 1997 — another crisis is therefore overdue.

And Turkey was high on Jim’s list of candidates. As he wrote on June 13: “It is likely to start in Turkey, Argentina or Venezuela.”  “But it won’t end there,” he continued:

The problem is contagion. History shows that once a single nation defaults, creditors lose confidence in other emerging markets. Those creditors begin to cash out investments in EMs across the board and a panic begins. 

And then?

Once that happens, even the stronger countries such as China lose reserves rapidly and end up in default. In a worst case, a full-scale global liquidity crisis commences, this time worse than 2008.

The good news, Jim says, is that a new crisis could take a full year to spread. That allows time for investors to prepare. You can, if you wish, affix blame for the unfolding events on our very own Federal Reserve — at least in part. It is raising interest rates and reducing its balance sheet.

These tend to yield a stronger dollar, certainly in relation to foreign currencies whose central banks are still easing. (like New Zealand, Ed) A stronger dollar makes dollar-denominated debt a heavier burden to countries with weaker currencies. And foreign investors flee these currencies for the dollar’s greater returns.

Many Turks in fact blame the United States for the developing crisis. President Erdoğan’s drummers consider it a U.S. attempt to sabotage Turkey and its president. “This crisis is created by America,” said one Turk. “They are ruling the world on their own,” said an Istanbul trader. “Somebody must find a solution and say ‘stop’ to the United States.”

But who?

Addressing his people, Erdoğan himself announced this morning:  “Don’t forget, if they have their dollars, we have our people, our God.”

Just so.

But if the crisis unfolds as Jim Rickards fears, the entire world may need all of the above — especially number three.

Below, Jim shows you how Turkey could be “ground zero” in the next global debt crisis. Read on.

Regards,

Brian Maher
Managing editor, The Daily Reckoning