- The Global Financial System Is Unraveling, And No, the U.S. Is Not immune
by CHARLES HUGH SMITH, http://charleshughsmith.blogspot.com/
Currencies don’t melt down randomly. This is only the first stage of a complete re-ordering of the global financial system.
Take a look at the Shanghai Stock Market (China) and tell me what you see:(top of post).
A complete meltdown, right? More specifically, a four-month battle to cling to the key technical support of the 200-week moving average (the red line). Once the support finally broke, the index crashed.
As the chart below illustrates, a great many currencies around the world are in complete meltdown. This is not normal. Nations that over-borrow, over-spend and print too much of their currency to generate an illusion of solvency eventually experience a currency crisis as investors and traders lose faith in the currency as a store of value, i.e. the faith that it will have the same (or more) purchasing power in a month that it has today.
Here’s the key takeaway: a currency crisis is a symptom of a deeper disease–it is not the illness. The same is true of stock market declines like the Shanghai Index that break long-term support levels: a crashing stock market is a symptom of a deeper disease, it’s not the illness.
The fact that so many currencies are melting down at the same time is telling us the global financial system is unraveling, and unraveling fast. This is a symptom of a fatal disease. Currencies reflect all sorts of financial information; they’re akin to taking an economy’s pulse: trade balances, debt levels, interest rates, central bank policies, fiscal policies, and so on.
The global financial system is inter-connected, but this is not a viable excuse for the meltdown. The general explanation floating around is that currency weakness is like the flu: one currency gets it, and then it spreads to other weak currencies.
This diagnosis is misleading. What’s actually happening is the unprecedented global bubble of debt and assets of the past decade is popping, and it’s laying waste to the most indebted, over-leveraged and mismanaged nations first, either via stock market declines or meltdowns in currencies.