Three good reads freely available:
(…) Officials from the Bank for International Settlements say privately that developing countries may be just as vulnerable to a dollar shock as they were in the Fed tightening cycle of the late 1990s, which culminated in Russia’s default and the East Asia Crisis.
The difference this time is that emerging markets have grown to be half the world economy. Their aggregate debt levels have reached a record 175pc of GDP, up 30 percentage points since 2009. Most have already picked the low-hanging fruit of catch-up growth, and hit structural buffers. (…)
The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar. (…)
Investors are counting on the European Central Bank to keep the world supplied with largesse as the Fed pulls back. Yet the ECB could not pick up the baton even if it were to launch a blitz of quantitative easing, and there is no conceivable consensus for action on such a commensurate scale.
The world’s financial system is on a dollar standard, not a euro standard. Global loans are in dollars. The US Treasury bond is the benchmarks for global credit markets, not the German Bund. Contracts and derivatives are priced off dollar instruments.
Bank of America says the combined monetary stimulus from Europe and Japan can offset only 30pc of the lost stimulus from the US. If you think that the sheer force of the US recovery will lift the whole global economy regardless of fading monetary stimulus, none of this may matter. (…)
In the end, the Fed may not be able to raise rates, or at least not by much. By the same token, it is questionable whether China’s leaders can easily purge the excesses left from their investment bubble without paying an escalating political price.
Both of the G2 monetary superpowers may have to pull the stimulus lever yet again. First markets must endure a rare few months of chilly discipline.
In “The Risk Pivot: Great Powers, International Security and the Energy Revolution,” Bruce Jones and David Steven point out that the expansion of the middle class in huge countries such as India and China will drive energy demand well into the future. This rise of the “global middle” will in turn push energy exploration and production to fragile economies. Meanwhile, the boom in shale oil production in the United States raises the question of whether American energy independence will encourage thoughtful leadership on global energy issues or isolationism. The Financialist caught up with Jones, deputy director of the Foreign Policy program at the Brookings Institution, to discuss the geopolitical landscape for energy markets over the next few decades.