How Safe is Your Money From Impending US Default?
October 10, 2013
Last week, Christine Lagarde, managing director of the International Monetary Fund (IMF), announced that the global financial system is “not safe” after the fall of Lehman Brothers.
Since then, the IMF is “concerned” about the Federal Reserve Bank (FRB) purchasing mortgage-backed securities (MBS) at $85 billion a month to prop up the global economy.
Jose Vinals, financial counselor at the IMF explained: “The Fed controls the policy tools, but does not control market rates, especially long term interest rates. This may have some systemic consequences. The main financial impact on emerging markets is likely to be a tighter financial environment, which may mean capital outflows that could be significant in a number of cases. These countries have more corporate leverage than ever, more consumer debt than ever…they have to pay more attention to these financial vulnerabilities.”
The IMF released the Global Financial Stability Report (GFSR) that outlines who much of a challenge containing the “side effects” of the MBS will have on an international transition within the economy to build investor confidence.
Top financial regulators such as the FRB, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Federal Deposit Insurance Corporation (FDIC) are being represented by the GFSR.
Currently, the purveying philosophy is that as a new regime takes control, higher interests rates and even more uncertainty will plague the markets.
As the FRB begins the process of halting their 3rd round of quantitative easing (QE3), the effect on the global market could cause economies to rise quickly without anything to back them up in the long run.
The IMF stated: “At the same time, the Fed must take care in calibrating an exit. If it moves too soon, by cutting its bond purchases before the end of the year, for example, the central bank could stunt growth for years.”
A long term government shutdown in the US could be “quite harmful” to the economy.