Rumors of a future financial crisis are spreading once more, as subprime mortgages have made a return under new labels such as “impaired credit” or “complex prime”. On an international level, the latest report by the IMF warns against the “risks of rollback, waning multilateralism, and regulatory fatigue” that may bring about a slowdown in global economic activity and a destabilization of global financial markets. The Economist’s October cover story argues that the cause of the next global recession is likely to be uneven momentum: “This divergence [in growth rates] between America and the rest means divergent monetary policies, too. The Federal Reserve has raised interest rates eight times since December 2015. The European Central Bank is still a long way from its first increase. In Japan rates are negative”.

What “convergent” monetary policies involve, at a global level, is easily deduced from what occurred over the last 10 years. The three rounds of quantitative easing initiated by the Fed in 2013 provided liquidity injections not only in U.S. domestic bank vaults but also in foreign banks (approximately half of the $US 1.3 trillion). This operation sometimes dubbed a ‘stealth bailout’, was possible due to the highly connected world capital markets. Once U.S. QE3 ended in October 2014 and the dollar began to appreciate, it was the turn of the ECB, and soon after of the Bank of Japan, to begin their own rounds of purchases of asset-backed securities. Emerging economies joined the game, and either offset the outflow of capital with domestic credit expansion, in order to prevent their currencies from rising and hurting exports, or allowed a slight increase in government bond yields compared to U.S. Treasuries, to attract more foreign funds as a buffer in case interest rates abroad were to rise further. Countries aligned themselves to a level of ‘global inflation’, compensated its reduction or stimulated its growth with additional monetary injections keeping interest rates as low as possible.