Be afraid.

Photographer: Andrew Harrer/Bloomberg

Fearing the Fed

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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However difficult it may be to parse the signals on what exactly the Federal Reserve will or won't say in its monetary policy report next week, it's worth trying. After all, the unelected academics at the world's central banks are firmly in control of both the global economy and the world's financial markets. These days, their actions dictate everything from how much your car loan costs to whether the stock market rises or declines.

At the moment, investors are in a tizzy over whether the Fed will repeat its mantra that interest rates are on hold for a "considerable time." If it drops that language, the prospect of higher borrowing costs becomes just that much more real. And given how indebted most of the world is, there are more reasons than ever to fear the Fed.  

The End of Fed Stimulus

The surge in government and corporate borrowing since 2000 means the net debt per capita for every man, woman and child in the developed world has ballooned by almost $50,000 in that period, according to Jan Dehn, the head of research at London investment firm Ashmore Group. In emerging markets, meantime, per capita debt has declined by $3,500:

Source: Ashmore

Dehn reckons that the indebtedness of developed economies has grown by $66 trillion while their gross domestic product has expanded by less than $17 trillion. Emerging market economies, meantime, added almost $36 trillion to GDP while their debts have grown by only $12 trillion.  Dehn says the day of reckoning is fast approaching:

Developed economies have wallowed for years in the pleasant fiction that the debt does not cost anything. We suggest this dream ends when the Fed begins to raise rates.

The unprecedented experiment of keeping interest rates at zero and introducing quantitative easing -- purchasing billions of dollars worth of securities to flood the economy with cash -- turns out to be quite easy. But reversing those policies without triggering a panic? We'll find out soon enough.

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Mark Gilbert at

To contact the editor on this story:
Mary Duenwald at