US taper risks fresh crisis, says Deutsche Bank

Deutsche Bank says policymakers have become so used to “throwing liquidity” at structural problems that asset prices had become distorted and risked triggering a fresh crisis

Scaling back the Federal Reserve’s massive bond-buying programme risks throwing the global economy into disarray next year, Deutsche Bank has warned, with lenders unable to cope with higher borrowing costs, despite stronger economic growth.

However, analysts at Deutsche Bank said policymakers had become so used to “throwing liquidity” at structural problems that asset prices had become distorted and risked triggering a fresh crisis.

“Bubbles could easily form which could ultimately be the catalyst for the imbalances that will likely lead to the next recession or crisis,” the report said.

Jim Reid, co-author of the report, said US growth would not be strong enough to help it withstand the impact of tapering and resulting increase in borrowing costs.

Deutsche Bank also warned that the global financial crisis had permanently lowered long-term growth rates. “The worrying feature of the [developed] economy over the last decade or so (and perhaps longer) is that it seems that we’ve needed to pursue ever looser policy to enable us to hang on to what has actually been lower and lower trend growth,” it said.

Full article: US taper risks fresh crisis, says Deutsche Bank (The Telegraph)

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