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Fed Interest Rate to Worsen Global Recession
World Economy

Fed Interest Rate to Worsen Global Recession

The world’s 7th largest economy, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. Japan (the third largest economy in the world) has lapsed into recession. So has Canada. And so has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as the world heads into the end of the year.
At this point, global trade is already down about 8.4% for the year, and last week the Baltic Dry Index plummeted to a brand new all-time record low. “Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse,” Michael T. Snyder wrote for Investing.com.
Throughout 2015, the US dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything one has ever seen before.
But much of that debt was denominated in US dollars, and now this is creating a massive problem. As the US dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining.

 Next Economic Crisis
It is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.
Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising US dollar, Brazil has already plunged into a very deep recession…
As Brazilian President Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10% while unemployment jumped to 7.9%, according to the latest official data. The dour state of affairs has Barclays forecasting a 4% economic contraction this year, followed by 3.3% shrinkage next year, the investment bank said in a research note last week.
The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.

 QE & Rise of Dollar
Many “experts” seem mystified by all of this, but the explanation is very simple. For years, global economic growth was fueled by cheap US dollars. But since the end of quantitative easing, the US dollar has been surging, and according to Bloomberg it just hit a 12 year high…
The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.
A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66% from 50% odds at the end of October.
But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December.
“Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do. But it looks like they are going to do it anyway,” says the author.
The truth is that the world has already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that the people witnessed in August, was just a foreshock of what is coming next.

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