Ben Bernanke Admits The Largest Risk to Global Economy Right Now Is…
New Debt Ceiling
IPM Group: As I wrote in March of 2015 about the carry trade with the imminent risks see here, it seems major figures in the central bank community are now talking about it publicly - 'better late than never' as they say !
The build-up of debt over the last 5 years in emerging markets poses the "most meaningful risk" to the global financial system right now, according to the former chairman of the Federal Reserve.
Ben Bernanke said the world had failed to learn lessons from the Asian crisis in the 1990s when local banks and non-banks borrowed in dollars but lent to domestic projects in local currencies – the carry trade !
Speaking at an event organised by the Spectator in London, Mr Bernanke said: "One thing that puzzles me a bit is that we thought we learned in the Nineties (Asian financial crisis of 1997 to 1998) that currency mismatches - that borrowing in dollars and then lending in whatever the local currency was - was a dangerous thing."
Emerging markets enjoyed huge capital inflows after central banks in advanced economies such as the Fed slashed rates and investors sought higher returns.
However, the International Monetary Fund has warned that tighter US monetary policy could trigger a wave of emerging market corporate defaults and a fresh credit crunch as the dollar strengthens.
Mr Bernanke said: "It's probably the most meaningful financial risk right now, the emerging market situation."
"Policy implication for this is not that the Fed should change monetary policy. I think that a much more direct approach [is needed]. Banks in emerging markets need to be told by the regulators that they need to be very careful about currency mismatches. They have to protect themselves from unexpected movements."
IPM Group : To clarify this is very US$ bullish !
While Ben Bernanke ‘waxed lyrical’ about the dangers of the world carry trade (which are genuine and real), across the water the US Congress just agreed a new debt ceiling and increased spending for budgets 2016 and 2017.
The world debt bubble crisis just keeps on giving ….
As Zerohedge stated: US and its latest and greatest debt target has just been increased to just shy of $20 trillion, a number that will be reached in about 14-16 months (depending on how many more wars the US will start in the interim). Because when it comes to spending like drunken sailors, well there really is zero difference between republicans and democrats.
New Debt load which will be over 110% of 2015 GDP, is just set to grow exponentially during the next 10 years...
No Problem here , now move on !!
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