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Albert Edwards: EM currency crisis will trigger global recession
by Danielle Levy on Aug 30, 2013 at 11:00
The rout in emerging market currencies could trigger another global crisis, according to Société Générale strategist Albert Edwards.
The perma-bear expects the sell-off in emerging Asian currencies to lead China to devalue the yuan to remain competitive, which in turn will trigger deflation in Western economies and result in a worldwide downturn.
Edwards described the recent sharp decline in emerging market currencies as 'merely the final tweet of the canary in the coalmine'.
'I see this as the beginning of a process where the most wobbly domino falls and topples the whole precarious, rotten, risk-loving edifice that our policy makers have built,' Edwards said, according to CNBC.
He forecast that if this scenario plays out, gold could rise to $10,000 per ounce, the S&P could fall to around 450, with US Treasuries yielding less than 1%.
Against a backdrop of global recession, he forecast the Fed would embark on another phase of aggressive quantitative easing, a sharp reversal to its recent pledge to turn off the stimulus tap once unemployment falls to an acceptable level.
Back in June, in the wake of the sell-off sparked by Fed taper talk, the strategist said he expected quantitative easing's end would happen only gently.
Edwards said it would take place not because the US economy was too strong or core wage inflation has been sustained, arguing neither of which will be seen for years to come.
He said the Fed would taper because it is getting fearful of creating a number of significant and dangerous leverage-driven speculative bubbles that could threaten the financial stability of the US.
Edwards previously forecast a hard landing in China in 2012, while in July of last year he tipped the S&P 500 would fall to 666.
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