Global QE exit crisis coming, Fed ‘steeped in denial’
A global crisis is coming as the Fed winds down its policy of bond purchases known as quantitative easing, according to economist and Yale University professor Stephen Roach.
Roach says that crises are already appearing in major developing economies as “currency and stock markets in India and Indonesia are plunging, with collateral damage evident in Brazil, South Africa, and Turkey.”
The 20 most traded developing economy currencies have fallen “about 4.4 percent in the past three months,” according to Bloomberg.
The cause of these problems, as Roach sees it, is relatively simple:
Instead of undergoing necessary reforms over the past few years to address growing current account deficits, the governments of the aforementioned countries opted for a “sugar high” of foreign investment, eagerly facilitated by the US Federal Reserve.
Now with the prospect of Fed “tapering,” a long list of developing economies have suffered an “exodus of cash,” and are forced into a catch-22 of leaving interest rates as they stand, risking further currency deterioration, or raising rates in the face of downward pressure on growth.
While the developing nations deserve considerable blame for their predicament, the Fed, “steeped in denial…is just as guilty, if not more so, for orchestrating this failed policy experiment in the first place.”
Read Roach’s article in full here.