Stephen Roach warns of global economic crisis

Wednesday, 28 Aug 2013 | 1:29 PM ET
The next global crisis?
Stephen Roach of Yale University rings the alarm on emerging markets and explains why he thinks the global economy could be in the early stages of a crisis. "Large current account deficits make emerging markets vulnerable," he says.

As the Indian rupee slumped to a fresh record low, economist Stephen Roach warned that the global economy is in the early stages of another crisis, as taper talk spurs severe stock market corrections, interest rate hikes and currency deflation around the world.

Currencies are plunging and stocks are under pressure in emerging markets including India, Indonesia, Brasil, South Africa and Turkey, Roach said. All those countries have sizable deficits that have benefited from capital inflows attributable to quantitative easing, he said.

"So as the QE spigot gets turned off, how are these big current account deficits going to get funded on the types of terms they've been receiving to date without currency deprecation, interest rate increases or falling stock markets?" Roach asked. "That's a tough question, and right now the verdict is not a good one."

If emerging markets are unable to address their deficits, Roach told CNBC's "Fast Money Halftime Report," there's no telling how low currencies can go, especially in India.

"I'd be reluctant to say the worst is over given the policy gridlock that is evident in India," he said.

—By CNBC's Drew Sandholm. Follow him on Twitter @DrewSandholm

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