The world’s largest emerging markets recovered quickly from the 2008 financial crisis because consumers and companies went on a borrowing binge. Now that credit spree is coming back to haunt banks in those countries.
Financial markets have become increasingly dependent on the Federal Reserve. The Fed is dependent on data (just in case you didn’t know). The data for the next few months will be distorted by the federal government shutdown during the first half of October. So what’s a responsible policy maker or investor to do to get a handle on how the U.S. economy is faring?
Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.
Carmen Reinhart, a Harvard University economist and co-author of a history of debt crises, said emerging markets are deteriorating as the U.S. recovers and may worsen as global interest rates begin to increase.
As a seven-year-old in Cuba, Carmen Reinhart memorized the routes of ships carrying silver from Peru and Bolivia to Spain. By 16, she had moved to Miami and got a job at a Sears Holdings Corp. store reviewing credit applications and payment records.
China and Japan, which together hold more than $2.4 trillion in U.S. Treasuries, raised pressure on the U.S. to resolve a political impasse on its debt ceiling that threatens to destabilize global financial markets.
As financial markets from New York to Hanoi are focused on the U.S. Federal Reserve’s next move, Daniel Alpert’s “The Age of Oversupply” explains that there are limits to how much monetary policy can help the global economy escape its five-year rut.