Yellen frets US may not be able to han­dle new risks

For­mer Fed chief sees lack of ap­pro­pri­ate tools

The Star Malaysia - StarBiz - - Foreign News -

HONG KONG: For­mer Fed­eral Re­serve chair Janet Yellen warned the US might strug­gle to cope with prob­lems as lend­ing risks mi­grate to non-fi­nan­cial in­sti­tu­tions from banks.

“We are more at­ten­tive to the emer­gence of risks out­side the bank­ing sec­tor, but it’s un­clear that we ac­tu­ally, at least in the United States, have ap­pro­pri­ate tools to deal with these,” Yellen said at a panel dis­cus­sion at the Bloomberg New Econ­omy Fo­rum (NEF) in Sin­ga­pore.

The au­thor­ity of US bank­ing reg­u­la­tors to deal with risky debt is lim­ited, she added.

Open­ing the sec­ond day of the fo­rum – or­gan­ised by Bloomberg Me­dia Group, a di­vi­sion of Bloomberg LP, the par­ent com­pany of Bloomberg News – for­mer Trea­sury Sec­re­tary Hank Paul­son is­sued a stark warn­ing that an “eco­nomic iron cur­tain” could emerge as the US and China throw up walls on each side. Paul­son warned that push­ing a harder line may back­fire.

“In its ef­fort to iso­late China, the United States risks iso­lat­ing it­self,” Paul­son said.

The US-China eco­nomic con­fronta­tion was a re­cur­ring theme on the first day of the NEF. Henry Kissinger – who helped bro­ker the US’ 1970s rap­proche­ment with China – said he was “fairly op­ti­mistic” a wider clash could be avoided, but warned that fail­ure would “de­stroy hope for world or­der.”

Yellen was joined on a panel by Ravi Menon, man­ag­ing di­rec­tor of the Mon­e­tary Au­thor­ity of Sin­ga­pore.

He noted that loose liq­uid­ity and ex­pan­sion­ary pol­icy in de­vel­oped economies had led to a build-up of debt in emerg­ing mar­kets. In ramp­ing up their dol­lar bor­row­ing, such economies be­come ex­posed to a strength­en­ing green­back and ris­ing in­ter­est rates.

Menon set out some ideas for man­ag­ing spillover ef­fects of global pol­icy moves: reg­u­la­tory co­or­di­na­tion; mon­e­tary pol­icy guided by do­mes­tic man­dates but recog­nis­ing ef­fects on other coun­tries; and a global fi­nan­cial safety net.

“If you have global cap­i­tal mar­kets, you need some form of global fi­nan­cial safety net – that is sorely lack­ing to­day,” Menon said.

He called for a mech­a­nism to pre­pare for a global dol­lar short­age, sim­i­lar to the Fed’s dol­lar swap lines dur­ing the 2008-2009 cri­sis.

Yellen said the In­ter­na­tional Mon­e­tary Fund was the “log­i­cal” en­tity to take the role of lend­ing to those who need liq­uid­ity. While the Fed could do it in cri­sis, she said, it’s hard to make the case out­side of those cir­cum­stances.

The third mem­ber of the panel was Sri Mulyani In­drawati, In­done­sia’s fi­nance min­is­ter, whose econ­omy has shown solid growth, low debt, mod­est cur­rent-ac­count deficits and re­strained in­fla­tion.

Yet its cur­rency has tum­bled more than 8% against the dol­lar this year and the cen­tral bank has been forced to re­peat­edly raise in­ter­est rates as the Fed tight­ened pol­icy.

In­drawati made the point that the Fed needs to pay at­ten­tion to the knock-on ef­fects of its poli­cies.

Yellen had strug­gled with this crit­i­cism when she was at the helm and cur­rent chair Jerome Pow­ell is now re­ceiv­ing it – de­spite both in­sist­ing they keep in­ter­na­tional risks in mind.

The prob­lem, as Yellen pointed out, is the Fed is con­gres­sion­ally man­dated to put Amer­ica first. — Bloomberg

If you have global cap­i­tal mar­kets, you need some form of global fi­nan­cial safety net – that is sorely lack­ing to­day. Ravi Menon

Es­sen­tial soft­ware: A Grab taxi drives on a street in Hanoi, Viet­nam. Su­per Apps have be­come in­te­gral to big cities, with their dense pop­u­la­tions and in­tense com­mer­cial ac­tiv­ity. — Reuters

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