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Alasdair Macleod: Rising rates lead to financial accidents
By Alasdair Macleod
GoldMoney, Toronto
Thursday, December 15, 2022
A recent Bank for International Settlements paper warning of unappreciated risks in foreign exchange markets echoes my earlier warning in an article for Goldmoney published over a month ago describing derivative risks in FX markets.
In this article I also show evidence that banks in both the U.S. and Eurozone are reducing the deposit side of their balance sheets by turning away big deposits that are ending up in central bank reverse repos, parking unwanted liquidity out of public circulation. The great unwind is well underway.
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Credit contraction is not only driving a bear market in financial assets, but the exposure to malinvestments by rising interest rates is having negative consequences for the non-financial economy as well. Private equity, which has thrived on cheap finance used to leverage targeted businesses, is showing signs of unwinding with two major Blackrock funds suspending redemptions.
As we approach the season for year-end window dressing, we must hope that the volatility in thin markets that often accompanies it does not destabilise global financial markets.
... For the remainder of the analysis:
https://www.goldmoney.com/research/rising-rates-lead-to-financial-accidents?gmrefcode=gata
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