IMF Fears "Taper Tantrum"; Rear View Mirror Discovery

The totally useless and always late to the party, Christine Lagarde, just now warns of Emerging Markets Instability

 The head of the International Monetary Fund warned on Tuesday that emerging markets are set to face a renewed period of economic instability when US interest rates rise this year, forecasting a repeat of 2013’s damaging “taper tantrum” episode of capital flight and rapid currency depreciation. 

The IMF chief said she feared that negative “spillover” effects from these increases would lead to a re-run of the crisis that hit developing economies such as India and Turkey nearly two years ago, following hints from then Fed chair Ben Bernanke about an early end to the institution’s bond purchasing programme known as quantitative easing.

“I am afraid this may not be a one-off episode,” Ms Lagarde said. “The timing of interest rate lift-off and the pace of subsequent rate increases can still surprise markets. The danger is that vulnerabilities that build up during a period of very accommodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility.”

Taper Tantrum

How did Lagarde arrive at her not so amazing prediction?

I believe she finally opened her shades and looked out the window.

She saw a currency crisis in Brazil, a currency crisis in Turkey, and capital flight out of China.

Turkish Lira vs. US Dollar

Brazilian Real vs. US Dollar

Chanos Sees China Capital Flight

Flashback October 28, 2014: Short-Seller Chanos says China Seeing Faster Capital Flight

 Hedge fund manager Jim Chanos, who has a long-running bet against China, said that the country's credit bubble was starting to cause capital outflows to accelerate and may ultimately lead to weakness in the nation's currency.

"It's safe to say it's accelerating," said Chanos, speaking of capital flight out of China, and said China's quarterly drop in foreign exchange reserves was "noticeable."

China's foreign exchange reserves fell in the third quarter by $105.5 billion, the first quarterly fall since 2012 and the largest dollar decline on record, according to People's Bank of China data.
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