Sunday, June 24, 2018

Rickards and Rogoff on Emerging Market Debt

Recently, Jim Rickards and Kenneth Rogoff have both written articles warning about US dollar debt building up in emerging markets. When we have two very different analysts both talking about the same potential problem, it is probably worth a mention. In my recent mid year review I mentioned that global debt remains a potential systemic risk even though I have no information suggesting a crisis related to that is on the near term horizon.

Jim Rickards appears to disagree with me in his new article (he says a new global debt crisis has begun). You can read it and decide for yourself. 

One interesting note. Both Jim Rickards and Kenneth Rogoff talk about the IMF stepping in as a lender of last resort in their articles on emerging market debt, but Jim is more negative about the outcome than Kenneth Rogoff. Below is an excerpt from each article on that issue. (I added the underline for emphasis).


Kenneth Rogoff on the IMF:

"The International Monetary Fund, moreover, has sufficient resources to handle a first wave of crises, even if it includes, say, Brazil. The main concern is not that the IMF will fail to deliver funds, but that it will make the same mistake it did in Greece, by not imposing a realistic deal on debtors and creditors."

. . . . .

"Even if the best bet is that any emerging-market bond meltdown would remain contained, today’s jitters ought to be a wake-up call, even for advanced economies. After all, no country, however rich, should bet its future on the prospect that today’s ultra-benign interest-rate environment will last forever."

Jim Rickards on the IMF:

"A full-blown EM debt crisis is coming soon. It is likely to start in Turkey, Argentina or Venezuela, but it won’t end there.

The panic will quickly affect Ukraine, Chile, Poland, South Africa and the other weak links in the chain.

The IMF will soon run out of lending resources and will have to pass the hat among the richer members. But the Europeans will have their own problems, and the U.S. under President Trump is likely to reply, “America First,” and decline to participate in bailing out the EMs with U.S. taxpayer funds.

At that point, the IMF may have to resort to printing trillions of dollars in special drawing rights (SDRs) to reliquify a panicked world. . . . . ."

Added note: Normally I would try to reach out to Jim Rickards for any further comment on this kind of article, but he is currently part of an expedition that is climbing Mt. Denali until the end of June. My guess is that this is an article Jim actually wrote before leaving on the expedition that he dated to be posted on 6-21-18 while he is gone on the expedition.

No comments:

Post a Comment