Twin deficits face twin threats of US dollar and US Fed.

The global economy is facing many problems but there are two which are important, wrote VA Nageswaran. "One is debt in emerging markets. The second is US commercial debt. These will set off chain reactions in other assets, including in American and emerging stock markets." Turkey's economy is in big trouble with its currency, the lira falling 18% against the US dollar this year. "The reason? Erdogan has been sitting on interest rates, opting for a monetary policy that prioritizes growth over controlling its double-digit inflation. Turkey's growth rate reached an impressive 7.4 percent for 2017 and leads the G-20, but at the expense of inflation, which has shot up to 10.9 percent." Erdogan has brought general elections forward to next month and has said he wants to reduce interest rate. This led to a market sell-off and, eventually, Erdogan was forced to allow the central bank to raise interest rate by 300 basis points to 16.5%. In Argentina the central bank raised interest rate by an eye-watering 675 basis points to 40% from 33.25%, one day after they were raised from 30.25%. Inflation rate is at 25% and the central bank is struggling to bring it down to 15%. So far the Indian rupee has dropped only 6%, but that is because of the vigilance of the Reserve Bank of India, RBI. Like Indonesia and Philippines, India has a twin deficit problem of high fiscal and current account deficits. Core inflation has already started to rise and rising oil prices will add to the current account burden. The RBI has to fight inflation, exchange rates and bond yields, and maintain liquidity while raising interest rate. Bond markets view developed and emerging markets differently. "Just compare the yields on the 10-year government bonds of Greece, Portugal, Spain and Italy with those of Indonesia, Brazil, India and Malaysia. The yields do not seem either right or fair but they are there." Stock market valuations for the world have reached $100 trillion for the first time ever and yields on two-year bonds of most European countries are in negative territory. Total world debt has reached $164 trillion which is 225% of the global GDP. "A big China manufacturing group, DunAn Group, sent a letter begging the Chinese government to help it out with its $7 billion (in equivalent domestic currency debt)." "The Chinese currency is more overvalued in real terms than most other currencies of developing economies." Satellite pictures of illumination at night seem to suggest that China's economy may not be as robust as they claim. If another crisis should occur governments will not be able to increase borrowing, because of already high debt levels, to stimulate growth and this will make things worse. Should have saved when oil prices were low.