Turbulence ahead

THE calm before the storm is always deceptive, and dangerous. Storm signals have been hoisted in many places concerning the risks of potential extreme turbulence in financial markets, even though these markets continue to float on a sea of liquidity with little volatility to ripple the surface and reveal the undercurrents.

The frequency and intensity of such warnings appears to be increasing. The Bank for International Settlements (BIS) in Basle, the Institute of International Finance (IIF) in Washington and the International Monetary Fund (IMF) are among those that have hoisted warnings, along with people such as Bank of Japan governor Haruhiko Kuroda.

This chorus of warnings is rising to a crescendo now as the US Federal Reserve completes the "tapering" of its purchases of government bonds and other securities and prepares to focus instead on controlling the cost rather than the quantity of money in the system, via interest rates.