Behold The Sudden Stop. Risk of Emerging Markets Collapse

May 20, 2018

The recent collapse of the Argentine Peso and other emerging currencies is more than a warning sign.

 

It could be the arrival of a “sudden stop”. As I explain in Escape from the Central Bank Trap (BEP, 2017), a sudden stop happens when the extraordinary and excessive flow of cheap US dollars into emerging markets suddenly reverses and funds return to the U.S. looking for safer assets. The central bank “carry trade” of low interest rates and abundant liquidity was used to buy “growth” and “inflation-linked” assets in emerging markets. As the evidence of a global slowdown adds to the rising rates in the U.S. and the Fed’s QT (quantitative tightening), emerging markets lose the tsunami of inflows and face massive outflows, because the bubble period was not used to strengthen those countries’ economies, but to perpetuate their imbalances.

 

Read more here...

Share on Facebook
Share on Twitter
Please reload

Suggested Posts

EVERYTHING YOU WANTED TO KNOW ABOUT MMT

February 6, 2019

1/10
Please reload

Current Posts

April 17, 2019

Please reload

Archive
Please reload

Hashtags