Emerging Market Meltdown May Plunge Global Economy Into Recession…(Depression)
by Tyler Durden
ZeroHedge.com
10/04/2015
When the Fed effectively telegraphed its new reaction function last month, the FOMC served notice to the world that it was not only acutely aware of what’s going on in emerging markets, but also extremely worried about the possibility that hiking rates could end up triggering something far worse than the “tantrum” that unfolded across EM in 2013.
The dire scenario facing the world’s emerging economies has by now been well documented.
In short, slumping commodity prices, depressed raw materials demand from the Chinese growth engine, a slowdown in global trade, and a loss of competitiveness thanks to the yuan devaluation have conspired with a number of idiosyncratic, country-specific political risk factors to wreak havoc on EM FX and put an immense amount of pressure of the accumulated stash of USD-denominated reserves.
For the Fed, this presents a serious problem. Hiking rates has the potential to accelerate EM capital outflows and yet not hiking rates does too. That is, a soaring dollar will obviously ratchet up the pressure on EM FX but then again, because the uncertainty the FOMC fosters by continuing to delay liftoff contributes to a gradual capital outflow, not hiking rates endangers EM as well.
The Rest…HERE
