Bad News. Better Pay Attention? A Central Bankers Fear; By John Kimelman In 2005, Raghuram Rajan, then chief economist at the International Monetary Fund, warned an audience of prominent economists and bankers gathered at Jackson Hole, Wyo., that risk was building in the worlds financial system. According to a profile of Rajan in Time magazine this week, he argued nine years ago that increasingly complex markets, which spewed out complicated instruments like credit-default swaps and mortgage-backed securities in ever greater quantities, had made the global financial system a riskier place, not less so as many believed. Such comments were considered near blasphemy at the time, and Rajans audience didnt take him very seriously. Three years later in 2008, however, his views proved prophetic, writes Michael Schuman, a Time correspondent in India. Unfortunately, Rajan, now governor of the Reserve Bank of India, the countrys central bank, is worried again. This time, hes fretting about the impact of the super-loose monetary policies pursued by the U.S. Federal Reserve and other central banks to combat the financial crisis and resulting recession. Long-term low interest rates and unorthodox programs to stimulate economies—like quantitative easing, or QE—could be laying the groundwork for more turmoil in financial markets, writes Times Schuman. As Rajan told Time, My sense is that monetary policy can only do so much and beyond a certain point if you try to use monetary policy it does more damage than good. In the Time interview, Rajan didnt pinpoint specifically where the most dangerous spots in global finance may be, but he did say that he believed assets of all sorts have become inflated. I dont know what the right level of the market is, he told the magazine. But I do know that, when I look at my portfolio and try to figure out where to invest, I cant think of what I think is fairly valued.
Posted on: Fri, 12 Sep 2014 12:04:01 +0000
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