FED UP OF THE FED
So now we are on our own ?
The world, I mean. Without the Fed.
Because .. SURPRISE, the FED DOES NOT WORK FOR THE GLOBAL GOOD !!
“You have to remember that we are a legal creature of
Congress and that we only have a mandate to concern ourselves
with the interest of the United States,” Dennis Lockhart,
president of the Atlanta Fed, told Bloomberg Television’s
Michael McKee. “Other countries simply have to take that as a
reality and adjust to us if that’s something important for their
James Bullard, president of the St. Louis Fed, said in an
interview with Bloomberg Radio that the domestic economy is the
primary objective of policy. “We’re not going to make policy
based on emerging-market volatility alone,” he said.
Source : Bloomberg
I admit I say this with a wistful tinge because I never really went along with the ride from the start and missed out aplenty along the way.
Yesterday we had the USDINR at 66. The India story just fizzled so quickly which is sending shivers up my spine because just one year ago, India and Brazil were suffering from a glut of QE funds with Brazil vowing a currency war and India, the poster child of BRICS.
As the currencies depreciate and countries sit out the J curve, Fed comes and wash their hands clean. So things will likely get worse.
“What they are concerned about is the J-curve effect, an observed tendency for a trade balance to initially weaken as the currency depreciates because the prices of imported goods rise but the country continues to import the same volume of goods.”
J curve + Capital Flight + Dampened Commodity prices + Political Instability = FED UP
A crisis of confidence has erupted. US$1 Trillion has been wiped off EM stocks to date, according to Bloomberg.
Yet it shall be a vicious cycle as the US is not going to emerge unscathed. The spill over will be tortuous on US growth especially with the uncertainty of the Taper + Fed Chairperson + US debt ceiling.
We cannot blame the Fed. They are not responsible for capital flows, what we choose to eat for breakfast or the mad rush into teething economies that can barely stand without the aid of a constant stream of FDI.
And we cannot blame ourselves too. The is research that shows that pilots today trust a plane’s automation more than their own skill and judgment.
Thus when the Fed is gone and autopilot is lost, I guess a crash is just the inevitable outcome.