World Braces for Next Financial "Storm"

May 21, 2014 • 6:50PM

An unnamed official at India's central bank, the Reserve Bank of India, told Reuters that the country fully expected to be hit again by capital flight and chaos in the international financial markets, as had happened a few years ago. "We need to prepare ourselves against any kind of storm that is going to come up," he stated, including both bolstering foreign exchange reserves and putting protections measures in place, including various forms of capital controls.

The Bank of England is also bracing for what comes next, as the British Empire deploys to implement its "bail-in" policy, accompanied by rising interest rates, and damn the torpedoes. Departing Bank of England deputy governor Charles Bean told an audience at the London School of Economics that Great Britain faces a "bumpy" return to higher interest rates. "I do not expect central banks' collective management of the exit from the present exceptionally stimulatory monetary stance will be easy." According to the Guardian, "he warned that with rising interest rates the value of some financial markets could plummet as investors shift away from risky assets." Bean did of course reassure everyone that the banks were in much better shape to withstand problems now than previously—a patent lie—although he did admit that he was concerned that "some banks may look for ways to get around restrictions on risky but highly profitable activities." He thought that emerging markets would be hit particularly hard as interest rates rise.

Meanwhile, the Federal Reserve's governors are also battling it out publically over when interest rates will rise. After San Francisco Fed president John Williams said the first increase will occur in the second half of 2015, and St. Louis Fed's James Bullard said it will be at the end of the first quarter of 2015, NY Fed chief William Dudley pulled rank and said: "No one knows when the timing of liftoff is," but that when it does happen it will be done slowly, and won't exceed the 4.25% average level historically. Tapering, he added, will continue on its "glide path" downward by $10 billion per month.