Global markets in for some shocks as a result of monetary tapering

THE "Great Taper" is about to begin, it seems, as key central bank policymakers meet this week to decide on how far and how fast they should slim their bloated balance sheets by reducing their rate of financial asset purchases, or in some cases, paring back their existing holdings.

The received wisdom (promoted by anxious financial officials and securities dealers) is that there is nothing to worry about from this development and that any risks that arise from consequent interest rate hikes are already "priced into the market".

Maybe, but this is far from certain because the scale of those risks is by no means as well understood as they need to be. Uninterruptedly since 2008, markets have floated on a wave of liquidity - so much so that they have forgotten what happens when the tide goes out.