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Beware The Ides Of September: A Turbulent Month For The Economy

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September is a dangerous month. Five years ago this month, Lehman Brothers went belly-up. Twelve months earlier there was the run on Northern Rock. Black Wednesday in September 1992 saw Britain's departure from the exchange rate mechanism; the pound left the gold standard in September 1931.

The signs are that September 2013 will also be an interesting month. That's interesting as in scary. There are five potential flashpoints: Syria, the G20 summit, emerging markets, the Federal Reserve meeting to discuss scaling down the US stimulus, and the German election. Any one of them has the potential to damage the global economy.

Let's start with Syria. Military action by the west against the Assad regime could affect growth in two ways: directly, through higher oil prices, and indirectly, by depressing business and consumer confidence.


That is more likely to be the case if the G20 summit in St Petersburg ends in acrimony. The conclave of developed and developing countries was supposed to usher in a new epoch of more co-operative global governance, and so it did – for the first 12 months after the G20's inaugural meeting in Washington in 2008.

Since then it has been downhill all the way. G20 countries have failed to agree a joint line on economic stimulus versus austerity, and in the end member countries have simply done their own thing.

But this time the summit could get really nasty if Vladimir Putin cuts up rough over US policy towards Syria, and gets backing from China. On past form, the chances of a big diplomatic bust-up are high, in which case expect markets to respond in their time-honoured fashion by seeking out safe havens in gold, the Swiss franc and the US dollar.

This would exacerbate the problems of the more vulnerable emerging market economies, which have already seen sharp falls in their currencies against the dollar. India, which saw the rupee sink to a record low last week, and Indonesia, which raised interest rates to defend the rupiah, are the most exposed.


More at the link.

Sept to be fun month.

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He's got things back to front.

QE caused the damage (continued asset price inflation) only by withdrawing it can we hope to effect a cure i.e. asset price deflation.

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