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by Michael Snyder
July 29, 2015
from
TheEconomicCollapseBlog Website
Most nations in South America are either
already experiencing an economic recession or are right on the verge
of one.
In general, South American economies are
very heavily dependent on exports, and right now they are being
absolutely shredded by the twin blades of
a commodity price collapse and a skyrocketing U.S. dollar.
During the boom times in South America,
governments and businesses loaded up on tremendous amounts of debt.
Since much of that debt was denominated in U.S. dollars, South
American borrowers are now finding that it takes much more of their
own local currencies to service and pay back those debts.
At the same time, there is much less
demand for commodities being produced by South American nations in
the international marketplace. As a result, South America is heading
into a full-blown financial crisis which will cause years of pain
for the entire continent.
If you know your financial history, then
you know that we have seen this exact same scenario play out before
in various parts of the world.
The following comes from a recent
CNN article…
The dollar's gains should make
history nerds shake in their boots.
Its rally in the early 1980s
helped trigger Latin America's debt crisis.
Fifteen years later,
the greenback surged quickly
again, causing Southeast Asian economies, such as Thailand, to
collapse after a run on the banks ensued.
In particular, what is going on right
now is so similar to what took place back in the early 1980s. At
that time, Latin American governments were swimming in debt, the
U.S. dollar was surging and commodity prices were falling.
The conditions were perfect for a debt
crisis in Latin America, and
that is precisely what happened…
When the world economy went into
recession in the 1970s and 80s, and oil prices skyrocketed, it
created a breaking point for most countries in the region.
Developing countries also found
themselves in a desperate liquidity crunch. Petroleum exporting
countries - flush with cash after the oil price increases of
1973-74 - invested their money with international banks, which
'recycled' a major portion of the capital as
loans to Latin American
governments.
The sharp increase in oil prices
caused many countries to search out more loans to cover the high
prices, and even oil producing countries wanted to use the
opportunity to develop further.
These oil producers believed that the high prices would remain
and would allow them to pay off their additional debt.
As interest rates increased in the
United States of America and in Europe in 1979, debt payments
also increased, making it harder for borrowing countries to pay
back their debts.
Deterioration in the exchange rate with the US dollar meant that
Latin American governments ended up owing tremendous quantities
of their national currencies, as well as losing purchasing power.
The contraction of world trade in
1981 caused the prices of
primary resources (Latin America's largest export) to fall.
Sadly, the same mistakes have been
repeated once again.
In recent years South American nations
have loaded up on vast amounts of debt, and now that commodity
prices are tanking and the U.S. dollar is surging, all of that debt
is creating tremendous headaches.
For instance, just consider what is
happening in
Brazil…
Brazil's real plummeted to
a 12-year low of 3.34
to the dollar, reflecting the country's
heavy reliance on
exports of iron ore and other raw materials to China.
The devaluation tightens the noose
on Brazilian companies saddled
with $188bn in dollar debt taken out during the glory days of
the commodity boom. The oil group Petrobras alone
raised $52bn on the US bond markets.
Today, Brazil has the 7th largest
economy on the entire planet.
So a major financial crisis in Brazil
would be extremely significant. And that is precisely what is
starting to happen.
It is being projected that Brazilian
government debt will soon be reduced to junk status, Brazilian
stocks have already entered "correction
territory", and economic forecasters say that the Brazilian
economy is heading into its worst recession
in at least 25 years…
Brazil needs to brace itself for
some very tough times. Brazilian banks are currently forecasting
another economic contraction for the South American country in
2016, marking the first time
that Brazil's economy has shrunk in two consecutive years since
the Great Depression.
Last Friday, economist Nelson
Teixeira of Switzerland-based financial services holding company
Credit Suisse released a revision of his already dour forecast
for the Brazilian GDP, moving this year's numbers from -1.8
percent to -2.4 percent.
The IMF is also projecting that 2015
will be a year of recession for the second largest economy in South
America (Argentina) and the third largest economy in South America
(Venezuela).
And actually Venezuela is in the deepest
trouble of all.
According to a recent Bloomberg
article, it appears to be inevitable that there will be a debt
default by the Venezuelan government in the very near future…
Harvard University Professor Ricardo
Hausmann last year questioned Venezuela's decision to keep
paying bondholders as the country sank deeper into crisis and
suggested it stop honoring the debt.
Now, he's saying Venezuela
will have no choice but to
default next year.
Hausmann's comments come as a
deepening collapse in oil prices and a shortage of dollars stoke
concern Venezuela is fast running out of money to stay current
on debt.
The country's bonds plunged last
year after Hausmann, who served as Venezuelan planning minister
after Hugo Chavez's failed 1992 coup, raised the specter of
default, saying he found "no moral grounds" for the government
to pay debt at a time when Venezuelans were
facing shortages of everything
from basic medicine to toilet paper.
The inflation rate in Venezuela today is
an astounding 68.5 percent, and the country is plunging into
full-blown economic collapse.
The following comes from Zero
Hedge…
As we recently warned,
the hyperinflationary collapse
in Venezuela is reaching its terminal phase.
With inflation soaring at least 65%,
murder rates the 2nd highest in the world, and chronic food (and
toilet paper shortages), the
following disturbing clip shows what is rapidly
becoming major social unrest in the Maduro's socialist paradise…
and perhaps more importantly, Venezuela shows us
what the end game for every
fiat money system looks like (and perhaps Janet and her
colleagues should remember that).
Here below is
the video that was mentioned in the excerpt above.
As you watch this, please keep in mind
that the United States is on the exact same path that Venezuela has
gone down…
Economic chaos is beginning to
erupt all over the planet, and the depression that we are entering
into will truly be global in scope. For the moment, many in the United
States still believe that what is going on in the rest of the world
will not affect us.
But the truth is that we are also
right on the verge of a major financial crisis, and it is going
to be even worse than what we experienced
back in 2008...
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