Fed chief Ben Bernanke has been busy fending off critics lately, emphasizing that the latest quantitative easing (QE3) will not derail the economic progress of emerging countries.
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Charges are that the move is destabilizing capital flows to emerging economies. Bernanke counters, saying that there is no evidence that accommodative policies in developed countries impose net costs on emerging economies.
The International Monetary Fund’s (IMF) Christine Lagarde is the source of the accusations. She told audiences at the recent IMF meeting in Tokyo that such easing is likely to cause volatile flows that drive overheating, asset-price bubbles, and the buildup of financial imbalances.
She described the world today as being in a global economic malaise. Bernanke said that differences in expected returns rather than monetary policies are the primary force behind capital flows to emerging economies.
He says the rebound of emerging markets during the financial crisis provided even greater encouragement to these flows.
He further pointed to the slowdown in exports to the US as a driver of economic slowdown in the emerging markets sector.
Brazilian Finance Minister Guido Mantega accused developed countries of instituting selfish monetary policies leading to currency wars that will only compound economic difficulties
for countries around the globe.
Bernanke said that easing financial conditions boost public confidence that should promote faster job creation and more rapid economic growth over the coming quarters.