What happens when the US tightens rates

What happens when the US tightens rates. Ambrose Evans-Pritchard says the Fed is now clearly signaling that monetary tightening is coming sooner rather than later. Janet Yellen has admitted that the Fed misjudged the pace of jobs recovery. He believes this will have serious repercussions for overseas markets, particularly those who drank deepest from the draught of dollar liquidity. The massive tide of dollars that left America when rates went to zero could now come flooding back to the US which could cause: 1) A blistering dollar rally, perhaps akin to the early 1980s or the mid-1990s and 2) A liquidity shock in European and UK banks where much of the dollar business is conducted. Such episodes can be ferocious. It was a dollar liquidity shock that turned the Lehman affair into a global banking crisis, instantly engulfing Europe in October 2008. (VIEW LINK)

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