Your article argues that its actions have dramatic and significant international consequences. What do you mean by that? STEIL: Very significant; in fact, I also argue that these are ultimately going to feed back over here and create even greater tensions in the global trading system. But go back to what I think was really the -- the seminal event, driving this message home may have last year when Ben Bernanke made his first famous taper comments. This was an exquisitely hedged statement indicating that the Fed might, at some point in the coming months if economic circumstances are warranted, begin paring back or tapering its monthly purchases of U.S. Treasury securities and mortgage-backed securities. The reaction in emerging market, currency and bond markets was immediate and savage. Emerging markets with a specific set of characteristics, in particular, countries running large current account deficits -- these are countries that were very dependent on the short-term capital inflows that were being facilitated by the Feds, kiwi, their monthly asset purchases, were hit very hard. And in fact, the country that was hit most hard, was Ukraine, which was supporting an 8 percent current account deficit. At the time you saw yields on Ukrainian 10-year bonds soaring from under 7 percent up to near 11 percent, a level at which it stayed for most of the rest of the year. ROSE: So Ben Bernanke caused the Ukraine crisis? STEIL: You can certainly say that Bernanke was at least the butterfly wings that precipitated the crisis. I would argue that if the Fed had remained dovish, say for another six months or so, it is possible that Ukraine could have gotten over this hump and Yanukovych would still be in power today. The reason I say this is that at 11 percent yield on 10-year Ukrainian sovereign bonds, Yanukovych was unable to keep rolling over his short-term debt. And as we know, he was ultimately forced into turning to Moscow for -- for a bail-out, and the rest is history.
Posted on: Sun, 10 Aug 2014 20:33:58 +0000
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