It is unwise to forget that the Fed’s December decision to raise the overnight reference rate was the first such divergence in a globally coordinated central bank policy of easing.
It is also unwise to forget that the preceding 7 years of coordinated easing was managed at least in part to help support risk asset values.
It is therefore naive to expect stability in risk assets at the moment of divergence.
Libor spreads are ballooning from unprecedented low levels.
Currency pairs are unwinding at rapid rates.
Financial markets lack the liquidity required to accept larger episodes of risk aversion and deleveraging.
Complacency set in two years ago.
This time is different. This time everyone will learn that the patient has been sick all along, and despite announcements to the contrary, the global economy has been in ICU since 2008.