Flash Economics 18 January 2018 - 77 Patrick Artus Tel. (33 1) 58 55 15 00 patrick.artusnatixis.com PatrickArtus www.research.natixis.comCrises are always triggered by US monetary policy Since the late 1990s, financial crises and the associated recessions have systematically been triggered by US monetary policy. In the second half of the 1990s, the Federal Reserve let the US equity bubble inflate without reacting; the bursting of this bubble in 2000 triggered a global recession;From 2002 to 2007, the Federal Reserve allowed a property bubble to inflate in the United States without reacting and allowed the development of mortgage loan securitisation with abnormally low risk premia; the bursting of the property bubble from 2007 triggered the global subprime crisis;In 2013, the Federal Reserves announcement that it would end quantitative easing in 2014 triggered capital outflows from emerging countries and a steep deterioration in these countries economies.The Federal Reserve has therefore triggered global recessions either through laxity in the face of bubbles and debt or by conducting a monetary policy without looking at its effects on other countries. What risks of such a nature are now found in US monetary policy? Probably the risk of the Federal Reserve causing the bond bubble that it allowed to swell burst in the future. Distribution of this report in the United States. See important disclosures at the end of this report. Flash Economics 2 Our theory: For more than 20 years, global crises and recessions have stemmed from US monetary policy US monetary policy: - Has been lax: it allowed the equity bubble to inflate in the second half of the 1990s; the property bubble (and associated credit) to inflate from 2002 to 2007; and the bond bubble to inflate since 2010; - Has made changes to US monetary policy without considering the consequences for the rest of the world. This was the case in the recent period with the announcement of the end of quantitative easing. We think that both characteristics of US monetary policy are behind the global crises and recessions of the past 20 years. US monetary policy and global recessions 1- The second half of the 1990s In the second half of the 1990s, US monetary policy remained quite accommodating (Chart 1A) and allowed an equity bubble to inflate in the United States (Charts 1B and C). -4-202468-4-202468959799010305070911131517Chart 1A United States: Nominal GDP and Fed Funds rateNominal GDP (Y/Y as %)Fed Funds rate (as %)Sources: Datastream, BEA, Natixis01002003004005006007008009001 00001002003004005006007008009001 000959799010305070911131517Chart 1B United States: S as such differences may arise as a result of the application and implementation of alternative accounting methods, tax rules or valuation models. The statements, assumptions and opinions contained in this document may be changed or may be withdrawn by Natixis at any time without notice. Prices and margins are indicative only and are subject to change at any time without notice depending on, inter alia, market conditions. Past performances and simulations of past performances are not a reliable indicator and therefore do not anticipate any future results. The information contained in this document may include results of analyses from a quantitative model, which represent potential future events that may or may not be realised, and is not a complete analysis of every material fact representing any product. Information may be changed or may be withdrawn by Natixis at any time without notice. More generally, no responsibility is accepted by Natixis, nor any of its holding companies, subsidiaries, associated undertakings or controlling persons, nor any of their respective directors, officers, partners, employees, agents, representatives or advisers as to or in relation to the characteristics of this information. The statements, assumptions and forecasts contained in this document reflect the judgment of its author(s), unless otherwise specified, and do not reflect the judgment of any other person or of Natixis. The information contained in this document should not be assumed to have been updated at any time subsequent to the date shown on the first page of this document and the delivery of this document does not constitute a representation by any person that such information will be updated at any time after the date of this document. Natixis shall not be liable for any financial loss or any decision taken on the basis of the information disclosed in this presentation and Natixis does not provide any advice, including in case of investment services. In any event, you should request for any internal and/or external advice that you consider necessary or desirable to obtain, including from any financial, legal, tax or accounting adviser, or any other specialist, in order to verify in particular that the transaction described in this document complies with your objectives and constra