Another day, another global asset bubble warning.
This time it comes courtesy of the World Bank’s chief economist for the East Asia & Pacific region, Vikram Nehru, who cautioned on Wednesday that risks to a sustainable recovery in the region still remain strong, saying:
“Some governments in the region will have the fiscal space to sustain fiscal stimulus until recovery is on a firmer footing,” he said. “The time to begin removing monetary accommodation may come earlier however, especially given concerns about asset price bubbles.”
And if that wasn’t enough, the IMF came out on Tuesday saying global interest rates will need to rise by up to 2 percentage points to rein in increasing debt levels in major advanced economies, while calling for the announcement of exit strategies. Specifically they wrote:
New IMF research on government debt, deficits and interest rates. Fiscal deficits and government debt levels both affect interest rates. Stabilizing debt at post-crisis levels would imply higher interest rates (perhaps by 2 percentage points). Moreover, there are important nonlinearities: the impact on interest rates of each additional percentage point of debt or deficit increases as the initial debt or deficit level rises, pointing to a risk that government debt could snowball without corrective action. This underscores the need for governments to announce credible exit strategies now, even if it is premature to begin exiting from fiscal support.
Related link:
A ticking time-bomb or the mother of all carry trades? – FT Alphaville
