US Federal Reserve Has Told Asia, Latin America, Africa And Eastern Europe To Drop Dead

Emerging Market Rout Is Too Big For The Fed To Ignore -- Ambrose Evans-Pritchard, The Telegraph

The US Federal Reserve has told Asia, Latin America, Africa and Eastern Europe to drop dead.

This has the makings of a grave policy error: a repeat of the dramatic events in the autumn of 1998 at best; a full-blown debacle and a slide into a second leg of the Long Slump at worst.

Emerging markets are now big enough to drag down the global economy. As Indonesia, India, Ukraine, Brazil, Turkey, Venezuela, South Africa, Russia, Thailand and Kazakhstan try to shore up their currencies, the effect is ricocheting back into the advanced world in higher borrowing costs. Even China felt compelled to sell $20bn of US Treasuries in July.

"They are running down reserves by selling US and European bonds, leading to a self-reinforcing feedback loop," said Simon Derrick from BNY Mellon.

We are told that emerging markets are more resilient than in past crises because they have $9 trillion of reserves. But any use of that treasure to defend the exchange rate entails monetary tightening, and therefore inflicts a contractionary shock on countries already in trouble.

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My Comment: These economic shocks are beginning to have an impact .... even the Chinese are worried (and threatening).