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Emerging Market Crises:1998 Vs.2014


 

wealthymattersOil prices were tanking. Emerging market currencies were in a freefall.Venezuela was mired in a financial crisis and Russia had sunk into debt default and devaluation. The year was 1998.Emerging markets today, look a lot like they did back then. Here’s a look at the similarities and differences between now and then.

SIMILARITIES

Falling Oil Prices

Crude has dropped 48% since June to about $55 a barrel, squeezing exporters from Venezuela to Russia and Nigeria.Credit default swaps show a 97% probability Venezuela will default on bonds within five years, according to data compiled by Bloomberg. The Russian economy , which is under sanctions by the US and the European Union over the Ukraine conflict, will contract as much as 4.7% next year if oil remains at $60.

Currencies Sink

A Bloomberg index tracking 20 of the most traded emerging-market currencies fell to the lowest since 2003 on December 15. The ruble tumbled past 64 per dollar for the first time, Turkey’s lira fell to an all-time low while Indonesia’s rupiah retreated to levels last seen in 1998.During the Asian financial crisis in 1997 and 1998, countries from Thailand to Malaysia capitulated on defending their currency pegs, leading the Thai baht to lose half its value in six months. Read more of this post

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Results of Falling Crude Oil Prices


wealthymatters1. Reduction of India’s crude oil import bill.

2.Soft crude oil prices threaten growth in oil producing economies and has an effect on foreign fund flows into India.

3.Falling crude prices means lower income for oil-exporting countries, leading to slowdown in global demand and fall in Indian exports.

 

Giving Birth In The US


wealthymattersChoosing to give birth in the US,has so far been a smart option available to well to do Indian mothers. Doing so enabled the babies,and later the parents themselves to acquire the prized US citizenship and the opportunities available in America.

The US already taxed its citizens and residents on their global income and with the passage of FACTA, suppressing asset ownership in India is going to be harder.

Worse,if a person wishes to give up US citizenship, they have to pay an expatriation tax on the market value of their world-wide assets. Now imagine the mess if this person owns a pricey house in India, they have no interest in selling!

So going to the US to give birth, is no longer a no-brainer but requires a great deal of careful planning and ring-fencing of assets.

From “Who are the Kauravas, and Who the Pandavas?”


wealthymatters“Dharmaraj has not overcome

His addiction to dice.

In every panchayat

Draupadi is robbed of her honour.

Without Krishna

Today

The Mahabharata will be fought.

No matter who claims the throne,

The poor will continue to suffer.”

-AB Vajpyee

Here’s why we’d best each focus on doing what we can, at our own level, to improve  our material situation.

Thus Spoke Raghuram Rajan


walthymattersI always read what Raghuram Rajan says with interest. He has often been dead right and remarkably prescient. Here is the full text of a speech he gave yesterday. It gives us a framework to think about economic matters for the next few years.

Make in India, Largely for India
(Talk delivered by Dr. Raghuram Rajan, Governor Reserve Bank of India at the Bharat Ram Memorial Lecture on December 12, 2014 in New Delhi)

The global economy is still weak, despite a strengthening recovery in the United States. The Euro area is veering close to recession, Japan has already experienced two quarters of negative growth after a tax hike, and many emerging markets are rethinking their export-led growth models as the industrial world stagnates. In the last couple of years, the IMF has repeatedly reduced its growth forecasts. After 6 years of a tepid post-crisis recovery, the IMF titled its most recent World Economic Outlook “Legacies, Clouds, Uncertainties”. Read more of this post

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