Off to the beach

I will be away from the office for a few days. 

I will be talking about the design of the IMF’s proposed reserve augmentation line – a proposal intended to help emerging economies with solid but not perfect policies manage volatile markets without necessarily holding huge stockpiles of reserves.  Or perhaps to help those countries that have yet to accumulate their huge stockpile of reserves manage market volatility.

I also intended to discuss the huge wave of capital that flooded most emerging economies in the first part of February – and the craziness of a world where emerging economies (at least some) borrow funds at 12 to 13% only to lend the money back to the US at 5%.  

One of my points (RGE subscription required for the link; sorry) was going to be that emerging economies should not base their policies on the expectation that if they just resist appreciation for long enough, investors will suddenly lose interest in the emerging world.   China has tried that policy for some time now – even holding Chinese rates well below US and European rates to discourage inflows -- without much success.  

But I rather suspect that recent turmoil will give emerging economies new hope that private investors won’t be quite so willing to send money their way – and make them even more reluctant to count on steady inflows of private capital from abroad to finance higher levels of investment than can be supported from their own savings.    One of the ironies of today's world is that two of the biggest current account deficits – those of the US and the UK – are financed in large part by the (net) flow of official capital.

Finally, please take note of RGE's new comments policy.  I want to thank all those who have commented here in the past -- the tone on this blog has consistently been civil even in the absence of these kinds of controls. That is a tribute to all of the participants.  I sincerely hope that this policy doesn't impede future discussion.