Heading toward a Cliff By Andy Xie 11.05.2013
The global economy is likely experiencing a bigger bubble than the one that unleashed the 2008 crisis, and should it burst the ensuing recession would be mammoth
The U.S. Federal Reserve is unlikely to taper its quantitative easing in 2013. The recent improvement in the global economy is due to its surprise decision in September to not taper. The resulting return of hot money or increase in leverage for speculation boosted the economy.
The market is again increasing the odds for Fed tightening. It may trigger some deleveraging, which would cool the economy again. The Fed would be forced to postpone tapering again.
The Fed’s QE policy has caused a gigantic liquidity bubble in the global economy, especially in emerging economies and asset markets. The improvement in the global economy since 2008 is a bubble phenomenon, centering around the demand from bubble goods or wealth effect. Hence, real Fed tightening would prick the bubble and trigger another recession. This is why some talk of the Fed tightening could trigger the global economy to trend down. ...