- Deflation may occur more frequently in long-term
- Central banks are not inflating away public debt
- US, major emerging economies in recovery
- Attractiveness of US bonds versus emerging markets falling
- US, Europe have a long way to go to to recover from debt build-up
I’ve highlighted what I think is the most interesting bit in the headline. If emerging economies stop accumulating reserves at a break-neck pace, the developed world could be in for very different conditions going forward. Higher prices are likely as CNY and other currencies are no longer kept artificially cheap and interest rates will rise as fewer reserves will be recycled into government bonds.
US and European exports could be more competitive in that environment, if it unfolds, while exports from Asia and LatAm could fall as domestic consumption rises.
Overall, it would be an important rebalancing of the global economy if Posen, an uber-dove, is right.
