World keeps faith in Treasuries if not U.S. politics

Dimon, Prot

Draghi echoed others in predicting U.S. delinquency would be dodged because of the economic and financial havoc it would wreak.

A default “would ripple through the global economy in a way you couldn’t possibly understand,” said JPMorgan Chase & Co. CEO Jamie Dimon. Baudouin Prot, chairman of Paris-based BNP Paribas SA, said the consequences “would be absolutely disastrous, considering the role of the U.S. dollar.”

The state of emerging markets was the other main subject of debate as German Finance Minister Wolfgang Schaeuble said “risks have shifted” in their direction. The IMF predicts developing nations are on course this year for the weakest growth since 2009, when they helped lift the world from recession.

Transition Tension

The worry of such economies is that the Federal Reserve and other major central banks will pull back monetary stimulus too fast, prompting an exodus of capital and higher borrowing costs.

“There is transition tension,” South Korean Finance Minister Hyun Oh Seok said in an interview. The risk of a backlash means policies need to be managed “cautiously,” he said.

Emerging markets were in turn told to fortify their own economies, especially those with current account deficits. The Fed’s September decision to delay a tapering of its $85 billion asset-purchase program was viewed as buying more time for countries to act.

“Spillovers should not be an excuse for emerging economies not doing what many of them need to do,” said U.K. Chancellor of the Exchequer George Osborne.

Mexico central bank Governor Agustin Carstens said if the Fed was respon1ding to a strengthening of expansion that may ultimately be the best news.

“If the Fed manages to get a strong U.S. economy, that will benefit all the world,” he said in an interview.

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