The editors of the Wall Street Journal have an interesing editorial in which they lay the blame for the turmoil in the “emerging market” countries firmly at the feet of the Federal Reserve:
The turmoil in world markets may push back the date the Federal Reserve raises interest rates, but it’s a reminder that the results of that adjustment are hard to predict. One consequence even in anticipation of the Fed’s move is that investors in emerging markets risk getting caught in a rip tide of liquidity heading back to the U.S.
Emerging markets are often subject to cyclical capital flows. The Fed exacerbated this beginning in late 2010 with its second and third rounds of quantitative easing, in which it bought more than $2 trillion in U.S. Treasurys and mortgage-backed securities.
In the editorial they connect the dots between the Fed’s policy of quantitative easing, the carry trade, the large stocks of foreign reserves that developed in these “emerging market” countries, the huge capital outflows that have taken place in those countries most recently, and massive distortions in the market for commodities.
I guess the short version would be “what goes up must come down”.
While I’m sure Fed policies have played a role, laying the blame for Chinese bubbles upon the Fed seems a bit much. Not everything that happens in the world is due to the actions of the US.
Again, does this mean that they are willing to support a sound money policy, or are they only in favor of certain people being able to create money?
Interestingly, they require the Fed in order to keep the Ponzi scheme afloat.