Emerging markets were in turmoil last week. Bloomberg reported that the Chicago Board Options Exchange Emerging Markets ETF Volatility Index rose 40 percent to 28.26, the biggest increase since September 2011.
Reuters attributes the emerging market sell-off partly to the Federal Reserve's impending reduction in bond-buying.
Indeed, Ed Yardeni thinks that these markets may have been in a speculative bubble that was fuelled by the Federal Reserve's easy monetary policy in the first place.
Could it be that the Fed’s ultra-easy monetary policy has already inflated yet another speculative bubble that is about to burst, or at least lose lots of air very quickly? If so, the obvious candidate is emerging economies, which borrowed lots of money (often in dollars) in recent years. They were able easily to attract foreign buyers, who were “reaching for yield” because interest rates were so low in the bond markets of the US, Europe, and Japan...
If this bubble is about to burst, then once again Fed officials didn’t see it coming. They’ve been aware of the possibility, but minimized its likelihood. Obviously, they once again are failing to learn from history, which shows that easy credit conditions always lead to speculative bubbles that inevitably burst...
But the Fed is not the only central bank whose monetary policy may have produced unwanted results.
The Bank of Japan's easy monetary policy has weakened the yen and caused Japan's trade deficit to balloon due to higher cost of energy imports. A report from the Finance Ministry on Monday showed that Japan's trade deficit hit a record 11.5 trillion yen in 2013, almost double the previous year's 6.9 trillion yen.
For December, exports rose 15 percent from a year earlier but imports surged 25 percent, resulting in a monthly deficit of 1.3 trillion yen.
No comments:
Post a Comment