Economist Roche: End of Central Bank Easing Will Trigger Financial Crisis

Friday, 10 May 2013 08:01 AM

By Dan Weil

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
When central banks across the world finally stop easing, a financial crisis will ensue, says David Roche, president of research firm Independent Strategy.

"Yes it [a financial crisis] will happen, and yes, it will be bigger [than the credit crisis of 2008-09]," he tells CNBC. "Once you re-price the burden of the world's debt, . . . the ugly truth will be revealed."

All the easing has helped push 10-year Treasury yields down to 1.81 percent, 10-year German government bonds down to 1.30 percent and 10-year U.K. government bond yields down to 1.85 percent as well Friday.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

But once central banks cut off the gravy train, buying will dry up in a hurry in those markets, Roche says. And that's a major problem.

"As long as the central bankers print money, . . . the yields won't go up, and the day they stop, the yields will go up by so much we will have a financial crisis on our hands," he notes.

"You are looking at a massive capital loss on a mark-to-market basis for a lot of financial institutions in the world and for people who have put their savings into those bonds," Roche explains.

"[That] will hit demand and hit the real economy, because if wealth goes down people's optimism about the world economy will fade."

So how should you invest with this risk on the horizon?

Roche advises investors to go long on global equities and short safe-haven government bonds.

Some critics have complained that in the United States, the Federal Reserve is easing excessively.

"[Fed Chairman] Ben Bernanke is running the most inappropriate monetary policy in the history" of the developed world, Stanley Druckenmiller, the retired head of Duquesne Capital Management, said at an investment conference in New York Wednesday, Reuters reports.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

© 2014 Moneynews. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
Privacy: We never share your email.
 

You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved