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This morning, in congressional testimony reminiscent of that of Ben Bernanke's sanguine testimony at the very start of the US sub-prime mortgage market crisis in March 2007, Ms. Yellen assures us that the global economy does not pose a meaningful threat to the US economic recovery. She does so in seeming disregard of a currency crisis that has now engulfed a number of major emerging market economies as well as of clear signs of slowing in China, the world's second largest economy. She also does so by seemingly overlooking both Europe's move towards Japanese-style deflation and growing signs of European political fragmentation ahead of the May 2014 European parliamentary elections.

Over the past year, the currencies of Brazil, India, Indonesia, South Africa and Turkey (the so called Fragile Five) have depreciated by between 10 and 20%. They have done so as a reversal of emerging market capital inflows in response to higher US long-term interest rates has exposed underlying weaknesses in these countries' domestic and external economic fundamentals. Ms. Yellen's assertion that she plans to continue with the Fed's tapering policies is likely to further weaken these currencies as it could result in further capital repatriation in response to higher US interest rates. An additional factor likely to weaken the Fragile Five's currencies is the fact that each of these countries is due to have an important parliamentary or presidential election within the next six months that will heighten policy uncertainty.