Policy makers in the US would be wrong to assume tapering will only affect US assets. Domestic risk assets could also be hit by the end of the massive liquidity programme, argues Mariana Capital's Chetun Patel.
The US economy has been a balance sheet trade, namely through the Federal Reserve's balance sheet. This has contributed to asset inflation and has also facilitated the carry trade which has built up asset prices abroad. In addition, it has enabled the dollar to fulfil its role as the global reserve currency in the face of a shrinking current account deficit (thanks to increased domestic oil supplies). This means that the act of tapering during 2014 is central to the state of the global economy in the coming year. What is interesting is how tapering is being interpreted. Whether righ...
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