The global economy’s rising debt problem4 min read 21 May 2018, 11:22 PM IST
As long as developing countries, including India and China, tie their currencies to the dollar in a hard or soft peg, and as long as borrowers from these countries are tempted to engage in their own version of 'carry trade', spillover risks will remain
I do not know if it is possible to have two epiphanies in a short period. Well, why not? I have had two now, on global risks. The US Federal Reserve is raising interest rates. There is political uncertainty in a few parts of the world, including the developed world. There are trade disputes. These are serious threats to the global economy and global financial assets. But which ones, in particular, are threatened the most? The identification of the vulnerable ones constitutes my epiphanies. I think there are two of them. One is debt in emerging markets. The second is US commercial debt. These will set off chain reactions in other assets, including in American and emerging stock markets.