Here’s Andy Xie spinning his inflation tale of woe. He thinks western stimulus is not creating demand or inflation in the west but stoking inflation in emerging markets, causing them to overheat. Take a look.
I have made a similar argument about emerging market asset bubbles in the 1990s.
For Greenspan, the Fed cannot stop bubbles; it can only ease the pain in the aftermath. Witness Greenspan’s comments in the Wall Street Journal from December 11, 2007.
As a result, the Fed has acted like a one-trick pony ever since. Greenspan pulled us from the jaws of recession in 1995 and again in 1998 by lowering interest rates and increasing the money supply. From the very beginning, the excess liquidity created by the U.S. Federal Reserve created an excess supply of money, which repeatedly found its way through hot money flows to a mis-allocation of investment capital and an asset bubble somewhere in the global economy. In my opinion, the global economy continued to grow above trend through to the new millennium because these hot money flows created bubbles only in less central parts of the global economy (Mexico in 1994-95, Thailand and southeast Asia in 1997, Russia and Brazil in 1998, and Argentina, Uruguay, and Brazil in 2001-03). But, this growth was unsustainable as the global imbalances mounted.
Emerging markets are certainly overheating – and that’s a world of difference to what’s happening in the States.