“I am afraid this may not be a one-off episode... 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.”
These are the words of IMF head, Christine Lagarde and are taken from an article in the FT quoting a speech she gave yesterday in Mumbai in which she 'warned' of potential instability in Emerging Markets once interest rates begin to rise.
The article went on:
"...Ms Lagarde also warned that emerging economies faced a second risk from the recent strength of the US currency, with indebted companies that took advantage of low rates to borrow in dollars facing sudden and steep jumps in debt servicing costs."
There is a distinct lag in the delivery of messages such as these from the world's smartest investors and the world's smartest bureaucrats.
By the time the likes of Lagarde issue such warnings, it's likely too late to do anything about them.
For Lagarde to verbalise these ideas now, when the damage is already being done is of little use to anybody - other than to give the IMF the ability to say they foresaw the crisis.
Basil Fawlty called it "stating the bleeding obvious".
'Potential' instability in emerging markets, eh, Christine?
See that chart? That would be the BRICS currency moves versus the dollar in the last 8 months.
Potential trouble spot? You think?...and these moves are essentially predicated upon the mere likelihood that the word 'patience' may be removed from a prepared statement issued later this afternoon.
Funnily enough, no sooner had Ms. Lagarde dazzled us all with her brilliant insight, than the other international home for financial geniuses, the OECD, wheeled out their chief economist, Catherine Mann, who offered the world this piece of cutting analysis:
"Excessive reliance on monetary policy alone is building-up financial risks, while not yet reviving business investment".
What would we do without them?
The serious point to understand about all this is that these are the same group of people who were certain subprime was contained, that the GFC was perfectly manageable, that QE1 would solve everything and that growth would have been back to 3% long ago.
The very fact that they are making these forecasts now tells us we are far nearer the denouement than many believe. If the IMF and the OECD think the world is in a degree of trouble, you can guarantee one thing; we're in WAY more trouble than that.