At some point over the last few years, many of us have considered moving our retirement savings overseas in order to avoid the financial calamity now sweeping the nation.
Almost without exception that strategy turned into a major loser. Amazingly when you consider the collateral damage on Wall Street, just about every market in the world has done worse than America's this year.

And just when you didn't think it couldn't get any worse, the global financial crisis appears to be mutating from a credit crunch to a more serious global currency crisis.

Iceland's financial system and currency suffered a complete collapse last week. A default on sovereign debt now seems imminent.
The question on the minds of everyone on Wall Street is: who's next?

Argentina's government seized $29 Billion in the nation's pension funds yesterday. For those of you that remember the 2001 crisis, this was what the Argentina government did right before defaulting on its debt.
The markets reacted as you might expect.

Emerging-market bonds, currencies and stocks plunged from Brazil to Russia as speculation Argentina may default added to concerns of a global recession.

"Argentina heaps another negative onto an already very delicate global picture," said Tom Fallon, head of emerging markets at La Francaise des Placements in Paris, which manages $11 billion. "What started not as an emerging market crisis has become one."

Credit-default swaps tied to Argentina's debt are "already at default levels," said Fallon at La Francaise.
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The IMF is preparing to help Iceland, Hungary and Ukraine weather the credit crisis. Hungary, which cut its economic growth forecast to 1.2 percent from 3 percent last week, unexpectedly raised its key interest rate by 3 percentage points today to shore up the forint.

The forint and Turkey's lira may follow Iceland's krona, the Ukrainian hryvnia and South Africa's rand to a "currency crisis" in "a matter of days," Merrill Lynch & Co. emerging- market strategist Benoit Anne said today.

Many of these currency crisis are happening even before the countries dip into recession.
For instance, Hungary was forced to their benchmark interest rate to 11.5% yesterday in order to defend their currency, which dipped to a record low against the Euro. The European Central Bank recently lent Hungary five billion euros. It was the first time that the ECB has lent money outside of the eurozone.

Hungary's financial problems are the same problem that afflicts all the old Soviet Union countries and much of the third world - heavy borrowing of foreign currencies and lending in local currencies.
That works fine when the foreign currency is falling, but it backfires in a big way when the trends reverse.

The trend has reversed in a very big way. In fact, it is picking up speed in recent days.
The reason for this is the credit crunch on American banks and hedge funds is forcing them to raise capital in any way possible. This includes selling assets overseas and repatriating the funds. This forces down foreign currencies while pushing up the dollar.

Estonia, Latvia, Lithuania, and the Ukraine are all in danger of a currency and banking collapse, with Ukraine leading the pack. As their currencies fall domestic prices spike. This is especially true for these nations who rely on imports for consumer products.
Kazakhstan is right behind them in financial difficulty.

Russia is not immune from the crisis either. Fully a third of all local-currency bonds are under "distress", and yield are expected to soar to levels so high that they will be "impossible" to roll over. The stock market in Russia has already dropped more than 60% from its highs earlier this year.

"International investors ran away and Russian banks are just thinking about themselves, so there are no investors to buy," Gaevski said. "No new issues are being placed, so six months down the road we'll have no market" because most of the outstanding debt matures within a year, he said.

Brazil is also suffering effects from the global crisis, although it should weather them better than Argentina.

A Real Muslim Problem

Quite probably the most dangerous geopolitical problem stemming from this financial crisis is Pakistan.

The global financial crisis is close to knocking out its most important and potentially most dangerous victim yet: Pakistan needs a financial support package of $10 billion to $15 billion to avoid collapse.
f the government in Islamabad goes bankrupt, then the extreme Islamist forces spearheaded by the Taliban of Afghanistan, who already enjoy broad support among the Pashtun tribes of the NWFP, will have a far greater chance to turn the great cities of Pakistan, especially giant Karachi, into chaos.

A nuclear power with a collapsing economy and government, facing a determined fanatical insurgency is not something I want to think about. Yet that is exactly what we may be facing in just a few weeks.

Pakistan isn't the only muslim nation in trouble. Turkey has its own problems. However, they are unlikely to be as serious as Pakistan's because Turkey's economy was restructured after the 2001 meltdown.