Powell pushing Asia into a new financial crisis

Asia Times ^

[FarCenter]

US rate hikes are doing more to devastate Asian economies and currencies than tame US inflation and overheating

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The Fed’s hikes are their own nightmare for Xi Jinping’s China. Rising US rates put China’s giant export engine at risk. It complicates things for highly indebted mainland property developers struggling to avoid default. And then there’s the nearly US$1 trillion of state wealth parked in US government debt.

The yen’s dwindling value – down 18% so far this year – is a crisis in slow motion for Prime Minister Fumio Kishida and Bank of Japan Governor Haruhiko Kuroda. Asia’s No 2 economy is importing increasing waves of inflation via food and energy markets.

The Thai baht is already down more than 10% against the dollar this year. In Manila, the new Ferdinand Marcos Jr. regime is struggling with a peso down 9.3%. As costs of food and other vital items surge, millions of Philippine families who escaped poverty over the last decade risk sliding back under the line.

Both the Malaysian ringgit and Indian rupee are down nearly 7%, while the Indonesian rupiah has lost 5% of its value. The won is down more than 9.5% this year, causing its own headaches for the Bank of Korea. From Taiwan to Vietnam, powerful capital outflows into higher-yielding dollar investments are adding to pressures on Asian governments.

[FarCenter]

This latter problem makes today’s echoes of the 1990s all the more relevant. The Fed’s 1994-1995 tightening cycle, under then-chairman Alan Greenspan, greatly angered the Washington political establishment. His doubling of short-term rates in just 12 months caused great collateral damage — in Mexico, on Wall Street, in municipalities around the US and, especially, in Asia.

The dollar’s epic rally then — as now — put Asia at grave risk. By 1997, the strain on dollar pegs from Bangkok to Jakarta to Seoul became impossible to defend. A wave of devaluations set in motion the 1997-98 Asian financial crisis.

[kabar]

If the Fed doesn’t raise interest rates, inflation will destroy OUR economy. As Bannon says, the USD is the tallest midget. The Fed has kept interest rates artificially low for 12 years. Its dollar holdings have risen from $880 million to $9 trillion.

And now the Dems including Manchin want to pass a $700 billion climate change bill, which will only exacerbate matters.

[Abathar]

I’m in negotiations to buy a new Taiwanese machine here at my business, roughly a half million. They quoted me about 2 months ago but now since I’m paying in dollars they don’t want to look at that number again, hoping I’m that stupid not to take into account the value of my money verses theirs now.

If you are in the market for overseas capital, now is a good time to visit the idea. With the dollar at .99 Euros this morning negotiating large purchases has become fun again.

[SaxxonWoods]

I remember the mid-90’s situation. Rates jumped, we thought recession was imminent. It didn’t happen.

Scream when the FED raises.
Scream when it lowers.
Scream when it does nothing.

As always, we’ve got this covered!

[Wuli]

The Fed, the central bank of the largest economy, spends years generating inflation, printing money so U.S. consumers could by trillions in Asian exports, and when it has to draw back on that inflation Asian economies and their currencies feel the impact. Duh.