Courtesy of Mish.
The totally useless and always late to the party, Christine Lagarde, just now warns of Emerging Markets Instability.
The head of the International Monetary Fund warned on Tuesday that emerging markets are set to face a renewed period of economic instability when US interest rates rise this year, forecasting a repeat of 2013’s damaging “taper tantrum” episode of capital flight and rapid currency depreciation.
The IMF chief said she feared that negative “spillover” effects from these increases would lead to a re-run of the crisis that hit developing economies such as India and Turkey nearly two years ago, following hints from then Fed chair Ben Bernanke about an early end to the institution’s bond purchasing programme known as quantitative easing.
“I am afraid this may not be a one-off episode,” Ms Lagarde said. “The timing of interest rate lift-off and the pace of subsequent rate increases can still surprise markets. The danger is that vulnerabilities that build up during a period of very accommodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility.”
Taper Tantrum
How did Lagarde arrive at her not so amazing prediction?
I believe she finally opened her shades and looked out the window.
She saw a currency crisis in Brazil, a currency crisis in Turkey, and capital flight out of China.
Turkish Lira vs. US Dollar
Brazilian Real vs. US Dollar
Chanos Sees China Capital Flight…
