The Credit Bubble, the Bears and the Central Bankers

Emerging markets are following the pattern of developed economies with stagnant growth. Attempts to stimulate economies may lead to another credit bubble, notes Gillian Tett, adding that “the way that financial flows operate today in, say, Shanghai is almost as mysterious for investors as subprime mortgages were in California a decade ago, and just as dangerously contagious.” Between 2004 and 2014, emerging market corporate debt increased more than fourfold to $18,000 billion, with much of the growth occurring after 2008, reports the International Monetary Fund. Analysts question if emerging markets can service the high debt, especially once the US Federal Reserve lifts interest rates. Growth may be faltering, Tett suggests, because of “credit exhaustion.” Investors should realize that emerging markets are no longer a special category on their own but deeply intertwined with the global economy. – YaleGlobal