Sunday, October 11, 2015

Will There Be A Credit Bubble?

As this year’s IMF meeting went underway in Lima, Peru – will there be an impending “credit bubble” because central banks around the world had been keeping the cost of borrowing money too low for far too long?

By: Ringo Bones

As this year’s annual IMF meeting was hosted by Peru and was held in the capital city Lima, IMF’s managing director, Christine Lagarde recently calls for the world’s central banks to be more courageous after warning of the financial risk of the low borrowing costs that lasted since the 2008 as a part of the economic stimulus used to counter the global credit crunch. In a way, various central banks around the world had been busy printing money for a little over 7 years now and a 3-trillion US dollar corporate credit crunch now looms as debtors face that “day of reckoning” – the day when the US Federal Reserve finally decides to increase the cost of borrowing money. 

During the IMF annual meeting, which for this year was held in Lima, Peru, the IMF flashes its warning lights on the emerging market credit bubble which is around 18 trillion US dollars. With plunging commodity prices and the recent Chinese economic slowdown, will a “credit bubble” seems inevitable? 

Ina recent interview, US Federal Reserve chair Janet Yellen said that during the minutes of their September meeting, many of the top brass at the Fed had reached a conclusion that the US jobs market is robust enough to withstand an interest rate increase yet reached a consensus of choosing not to increase for fear that the decision could have a deleterious effect on the global economy – especially on emerging markets. Are low interest rates here to stay given that the Fed might not increase it until the middle of 2016? 

No comments: