Bernanke loose monetary policy:the catalyst for Middle East unrest
Andy Xie, an independent economist who used to work for Morgan Stanley, has fiercely criticised major central banks, especially the U.S. Federal Reserve, for inflating a succession of asset price bubbles by keeping policy too loose for too long.
In Xie’s view, the unrest in the Middle East has to be seen in this broader context: corruption and oppression provided the tinder for the explosion of anger; inflation set it alight.
“Loose money has caused the riots in Tunis and Cairo,” Xie said in an email.
It was no coincidence, he said, that food and energy prices started to rise last year right after the Fed floated the idea of relaxing policy further.
Even if unrest does not spread to energy-producing countries, the rising risk to their stability will boost oil prices anyway, Xie said.
He said he still expected another global crisis in late 2012, triggered either by a collapse of the U.S. treasury market or a hard landing in emerging economies.
“The political events in the Arab world point to another possibility: surging oil prices could sink us all earlier,” he said.
As for food, rice prices are still only around half of the peak levels scaled in early 2008, he added. The odds were that this reflected the release of stockpiles by East Asian governments.
“We don’t know how long the reserves can last. When the turning point comes, the rice price could double or even triple quickly,” Xie said.
“There are a lot more rice eaters than wheat eaters in Asia. What is happening in North Africa — a wheat-eating region — could spread to Asia.”
Entry filed under: Watch your step.