Saturday, September 24, 2011

BRICS, Europe, And Where We Are At

At this point it is well known that European banks were the largest benefactors of the Fed intervention of recent years. But were they really? It's been no secret that the Chinese and other emerging market economies have been on fire...until recently. So now that the European debt crisis is reaching fever pitch who could be the hardest hit? If what I think is about to happen occurs I believe that the BRIC countries could see the worst of it, and that those like Jim Chanos and Hugh Hendry could turn out to be right more than they anticipated.

According to the Bank Of International Settlements European banks had claims of 3.5 trillion dollars to emerging market economies, followed by America with 740 billion dollars and Japan with 310 billion dollars. So it should be no surprise that following the financial meltdown of 2008 and the trillions of dollars pledged to both foreign and domestic banks that countries like China and India saw their inflation and GDP skyrocket by blistering double digits. Well it's no secret where the funding for that growth came from...US taxpayers. It's also why you are seeing China starting to get all hot-n-bothered wanting a different global monetary system all of a sudden; shit meet fan

But let's go back to the European crisis and it's possible contagion. Going back to what I said earlier European banks had claims of $3.5 trillion to the emerging market economies. So it should be expected with European liquidity freezing that BRIC countries will see their funding needs dry up and countries like China not likely able to continue building empty cities in perpetuity and thus global growth grind to a halt. Let's look at some charts.

SHCOMP(China): -25% YTD

SENSEX (India): -24% YTD

RTSI (Russia): A BRUTAL -36%

So these are the countries that were supposed to lead us out of this recession. Well these countries were funded via the Fed and by proxy US taxpayers through mainly European banks. This is funny because China likes to buy UST securities through London so it seems like Europe is the conduit for China and America to conduct shadow political deals. And with liquidity becoming ever scarcer and funding drying up (we know why now) it's easy to see how the European debt crisis could reverberate through the global financial system like the 9.0 earthquake that rocked Japan. Also, it should be noted, that these were the countries that were supposed to be buying up all the gold in the world.

Look for trade wars, currency wars, and than wars (we've already seen the first two begin to materialize)Also look for a mad dash to the fiat king the USD.

And a question for my readers to think about:

If the BRICS are the "White Knight" that is going to bailout the world...who is going to bailout the BRICS?

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