Monetary easing in the US had a direct impact on monetary policy in emerging markets. It works by weakening the US dollar which puts upward pressure on EMEs’ currencies. These nations’ central banks try to maintain a peg (implicit or explicit) to the dollar to defend their exports’ competitiveness. To do so the central banks must buy dollars and sell (“print”) their domestic currency. That ends up boosting foreign reserves and increasing the monetary base, creating an extremely easy domestic monetary policy.
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Of course EMEs’ growth prior to to the financial crisis was not sustainable either because it was driven by the credit bubbles in the US and the EU.
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This of course does not bode well for global growth in the coming years.
Good stuff Zurbo. That -.994 % “yield” on zero coupon Treasuries sure confirms that we gold holders are as stupid as the “barbarous relic” crowd claims we are.
Foreign investors who are forced to make transactions in the US Dollar must be getting more PISSED by the day. As the biggest and most “honest” player in currencies continues the paniced, massive screwing it is doling out around the globe, the US is going from respected to despised very quickly. Hopefully history will accurately record that the great enablers Alan Greenspan and Ben Bernanke were instrumental in guiding the world into chaos.
@forwill
Everyone should be grateful that Ben is holding up the US and world economy by printing money and compensating for the money that is destroyed by debt deflation.
Compare the US situation with the European situation where the ECB is standing by idle while all the money is leaving countries like Spain.
And if that printing leaves countries like China with no yield, so be it. Nobody is forcing them to buy treasuries. It is a consequence of their own choice to manipulate the exchange rates to support their exports.
@Tweetie
It’s a big feedback loop Tweetie. Ben flooding the world with cheap funny money has temporarily stabilized the availability of credit. I’ll give you that. While the lack of liquidity to refinance debt would have certainly caused a cascade of defaults, the root cause of the crisis was an unsustainable level of leveraged debt that was made available by easy credit policy in the first place. If you agree that unserviceable debt is the root problem, then I’d argue that we are worse off now than we have ever been. The private sector doesn’t have the ability to grow us out of the situation because the non- productive public sector debt is STILL growing at an alarming rate. The game ends when the majority of private sector workers can no longer afford basic necessities because of currency devaluation, taxes and/or price inflation and can’t demand higher wages due to high unemployment.
People keep yammering about Greece leaving the EU and that Spain is too big to bail out. The IMF states that more time is needed(http://finance.yahoo.com/news/imf-calls-action-euro-zone-011054290.html) but as time passes, the amount of money needed to avoid “growth killing” austerity measures is spiraling upward.
This seems backwards to me. Why isn’t anyone talking about Germany leaving the EU? After all, THEY are the primary creditor nation! If social unrest is inevitable as the riots in Greece and Spain demonstrate, why doesn’t Germany just take its ball and go home?
How many times in human history does the “intellectual class” have to lead us into world wars with their failed experiments in central banking and central government?
@forwill
I happen to enjoy much of what George Soros has written on the subject, much more focused around Germany’s need to lead or leave: http://www.georgesoros.com/articles-essays/entry/the_tragedy_of_the_european_union/ (one example)