The delayed Fed taper, as experienced abroad

Emerging markets: on fire: Brazil yields down 40bps, real nearly 3% up Rupee 2.5% stronger. Zloty 1.5%, rand 2% etc

That is from Pawel Morski.  I’ve read many pro-delay-the-taper posts, and agreed with the (domestic) analysis in most of them, but I haven’t seen anyone address the um…shall we call it a trade-off?…here.

The optimistic reading is that those are sustainable gains based on higher U.S. growth, and thus higher demand for developing country exports, but it’s very hard to get the numbers to add up, or anything close, for that kind of explanation.  More likely the pricking of those bubbles has been delayed.  Is that good or bad?  (What happened to caring most about the poor?)  To even raise such a question means we probably should be agnostic about what is going on, and that is hardly the most popular attitude in the economics blogosphere when it comes to monetary policy.

Comments

Maybe the explanation is partly higher US growth expectations and partly expectations of a weaker dollar, since a lot of the EM sell-off has been based on current account deficit fears.

umm Business Standard headline:
Rupee weakens marginally due to tapering concerns.
which is it? maybe you could link to something besides twitter.

Maybe the Fed took the public outburst against the Syrian bomb attack meant most Americans are tired of our government caring more about other countries than own. Hearing that we have to modify our Fed policy so Brazil or India don't have a bubble is not going to get a lot sympathy here in the States. I

I don't know that it's either good or bad. EM asset prices rose as investors went searching for yield as central bank asset purchases depressed yield in the US and Europe. Is that a bit of a bubble? Sure, but it's far from catastrophic. Most of these countries aren't likely to default.

What will likely happen is that EM investors will start kicking the tires and looking under the hood more. Macro fundamentals will start to matter more and EM spreads will widen and these countries will face increased fiscal pressure. Hopefully, that will lead most of these countries to addressing much-needed structural adjustments. And that's how capital markets are supposed to work.

I love when something happens leaving economists scratching their heads. Seldom do we see such...honesty.

I've been won over to the 'delay taper for now' crowd, but I remain uneasy and suspicious of this kind of free lunch. Too easy. I know this is the MM camp, but the feeling I get reminds me of what happens every time I am forced to listen to some Keynesian just-so story or other.

Tyler, I would very much like to hear your thoughts on what the um…shall we call it a trade-off?… is here, because lots of candidates have been put forth, but none convincingly.

I believe that Bernanke is proving he is a lot more committed to the Helicopter Drop than anyone expected.

... we probably should be agnostic about what is going on, and that is hardly the most popular attitude in the economics blogosphere.

I think the general statement is even better.

Is it "agnostic" to call them "those bubbles"? That sound definitive, even if I'm not sure what exactly you're calling bubbles.

"Those bubbles" were put forward as one possible explanation, and the point is to be agnostic about what explanation is true.

Not how I read it, but it wouldn't be my first comprehension fail.

Carlin: You can talk all you want about pricking those bubbles, just not the other way around.

Tied foreign aid financed by money.

These countries have their own regulators and central banks. Since when did the fed become the world central bank and to top it off the world bubble popper? Let India or Indonesia raise interest rates further.

+1 Aren't the problems posed by QE for foreign countries a joint function of QE PLUS the response of local central banks? If so, then any problems in India aren't an issue for the Fed but a question as to why India (or Brazil, etc.) won't raise interest rates even when US QE poses risks for their economies that aren't as relevant for the US.

Yeah, and it's not like this is the first time anyone has mentioned this. The exact same point was raised last time TC brought this up.

But he keeps bringing it up and never addresses this point.

So, in a nutshell, your monetary policy views are :

1) It's all quite complicated and anyone who doesn't recognize this is fooling themselves.
2) Scott Sumner, who thinks nothing of 1, is awesome.

I think that Boehner is responsible....if we have a "we won't pay our bills crisis" like we had before, this will inflict damage, the Fed will have to react, and it's better than not having begun taper that to have started in those circumstance. We know the consequences would be ...um.

Blame Boehner

"if we have a “we won’t pay our bills crisis” like we had before, this will inflict damage, the Fed will have to react"

Why? When did the fed become the fourth branch of government?

I'm not sure why you're so convinced that these developing economies are bubbles. Maybe your Great Reset applies to the U.S., Japan, and Western Europe primarily.

Shouldn't an obvious bubble be an obvious short? Or are speculators trying to lose money?

Or has TC joined the ranks of economists who think they are wiser than the market?

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