Trouble in emerging markets has provided the rationale for
at least part of the recent correction in the stock market. Emerging markets,
such as, Brazil, Russia, India,
Turkey, Thailand and China, are suffering largely
because of the withdrawal of US dollar investments from them and this confirms
the effects of monetary policy as described by the ABCT, the Austrian business
cycle theory. Here is a chart showing the performance of emerging market stocks
relative to the rest of the world:
To refresh your memory, the ABCT states that inflationary
monetary policies such as those of the Fed for the past five years will cause
an unsustainable boom as new money pours into the economy and stimulates demand
for consumer goods and for investment. Usually we think of the ABCT in terms of
a single nation, but the EM problems demonstrate that it has international
implications, especially in a world of increasing trade integration and a
currency that other countries use for trade and their banks for reserves.
