The Global Economy in Turbulent Times

CHAPTER 42 An Unnecessary Disaster Spawns Market Fears¹

As I travel across Spain and Portugal, the focus of my concerns was on how to identify and best manage risk emanating from the great growth deceleration in emerging Asia in the face of “Abenomic” expansionary thrusts and threat of QE (quantitative easing) tapering by US Fed, which resulted in a massive withdrawal of funds from Asian markets. As I write, the threat of US fiscal impasse is once again upon us in early October 2013.

Already, US government has been shut down for 16 days, and in just another working day, US Treasury’s October 17 deadline to raise the debt ceiling (US$16.7 trillion) will pass. At this late hour, US politicians are still grappling with how to reopen the shuttered government and avoid a potentially calamitous failure for the first time to service on time the nation’s debt obligations. The standing of the United States (trust in the US signature) is at risk. Five years after the 2008 crisis, the debt standoff has plunged markets into uncertainty, a showdown not dissimilar to the 2011 brush with calamity.

Many readers have asked why this was allowed to happen, and asked to be better informed of the implications of such madness, which for even the most knowledgeable are just too vast and dynamic to fully fathom. Some scary views from experts: “would wreak havoc in the world economy and financial markets” (JP Morgan Chase); “would trigger failures in collateral markets” (PIMCO, world’s largest bond ...