The biggest global “tail risk” is China’s deteriorating economy and an emerging market debt crisis, according to BofA Merrill Lynch’s monthly poll of fund managers. And 48% of them were expecting the Fed to raise rates, despite languid growth and low inflation expectations.

Hot money is already fleeing emerging markets. Higher rates in the US will drain more capital out of countries that need it the most. It will pressure emerging market currencies and further increase the likelihood of a debt crisis in countries whose governments, banks, and corporations borrow in a currency other than their own.

This scenario would be bad enough for the emerging economies. But now China has devalued the yuan to stimulate its exports and thus its economy at the expense of others. And one thing has become clear on Wednesday: these struggling economies that compete with China are going to protect their exports against Chinese encroachment.

Hence a currency war.

It didn’t help that oil plunged nearly 5% to a new 6-year low, with WTI at $40.55 a barrel, after the EIA’s report of an “unexpected” crude oil inventory buildup in the US, now, during driving season when inventories are supposed to decline!

And copper dropped to $5,000 per ton for the first time since the Financial Crisis, down 20% so far this year. Copper is the ultimate industrial metal. China, which accounts for 45% of global copper consumption, is the bull’s eye of all the fretting about demand. 5,000 is the line in the sand. A big scary number. Other metals fared similarly.

Copper powerhouse Glencore, whose shares plunged nearly 10% on Wednesday, blamed “aggressive and synchronized large-scale short selling” for the copper debacle, instead of fundamentals. But fundamentals have been whacking copper for years, and shorts have simply been joyriding the trend.

Kazakhstan saw what’s happening to oil, its main export product, and to the currencies in China and Russia, its biggest trading partners. The yuan devaluation was relatively small, compared to the ruble, which is now allowed or encouraged to drop with oil. It has plunged 14% against the dollar over the past 30 days and 45% over the past 12 months, to 66.7 rubles to the dollar. With the Russian economy losing its grip, the ruble is dropping perilously close to the panic levels of last December and January.

And Kazakhstan freaked out and devalued the tenge by 4.5% on Wednesday, to 197.3 per dollar, the biggest drop since that infamous day in February 2014 when the central bank let the tenge plunge 20%. So that move is likely just a foretaste of what is still to come.

[UPDATE – Thursday: It sure didn’t take long. The government abandoned the peg, and the tenge collapsedto 252 per dollar. Now that’s a real devaluation.]

The Turkish lira dropped 1.3% on Wednesday to a new record low of 2.93 per dollar, now down 4% since the yuan devaluation, and 8% for the past month. Turkey’s own political turmoil (to put it mildly) and proximity to a war zone are adding totally unneeded spice to the already difficult fundamentals in its economy and in the broader emerging market.

Vietnam lowered the reference rate by 1% on Wednesday and widened the reference band to 3% on either side. In response, the dong fell 1.2%. After similar devaluations in January and May, the dong is down 4.4% against the dollar for the year.

Then there’s Japan. Shinzo Abe had announced in late 2012, just before he came to power, that his official policy would be to crush the yen, and that he would get the Bank of Japan to do it for him. He succeeded wonderfully. Since then, the yen has lost 36% against the dollar, annihilating over a third of the yen-denominated wealth of the Japanese.

The shenanigans of the Bank of Japan have driven the Koreans nuts. The two countries compete directly with each other in numerous areas. And last year, Korea lost its patience and retaliated. Now China has added fuel to the fire. The Korean won is down 2.9% against the dollar in 30 days and 15% over the past 12 months.

The Indian rupee which had swooned badly during the Taper Tantrum in 2013, but then recovered, has been re-swooning starting a year ago and is now back to the Taper Tantrum levels of 65.2 rupees to the dollar, having lost another 1.5% since the yuan devaluation.

The Taiwanese dollar dropped 1.2% since the yuan devaluation; the Malaysian ringgit 2.7%, now down 6.4% for the month and 15% for the year. The Indonesian rupiah lost 1.4% since the yuan devaluation and is down 11% so far this year. Other Asian countries, such as Azerbaijan and Georgia, have already devalued their currencies over the past year.

But devaluations are not free lunches. They’re desperate measures that demolish domestic consumption and real incomes (see Japan), business investment, and overall credibility. And capital flees. They can also heat up inflation. But many emerging market countries and their banks and corporations borrow in other currencies to get access to lower interest rates. That foreign-currency debt can’t be devalued or inflated away.

Instead, the opposite happens. Their struggling or battered economies have to service foreign-currency debt with their own devalued currencies. Commodity exporters are getting sapped additionally by plunging commodity prices. Then that foreign currency debt, that cheap easy money everyone got to used playing with, becomes an insurmountable pile of expensive debt in a currency they can’t control and whose exchange rate might run away from them.

This is when a debt crisis begins to spiral elegantly through the emerging markets, taking down banks, entire economies, and gobs of investors as it goes – or taxpayers in other countries if there is a bailout. It’s always the same story. But this time, it’s different: after years of global QE, low interest rates, and hot money sloshing through the system, the sums are larger, and the risks are higher.

The start of a tsunami? Read… LEAKED: GM Sees Overcapacity Fiasco in China, Hopes Americans Will Buy Lots of Chinese-Made Buicks

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