Bernanke: Don’t blame easy money for capital swings

U.S. Federal Reserve Chairman Ben Bernanke defended easy money policies in advanced economies against the charge they are overheating emerging markets, saying factors such as exchange rate rigidity are also to blame.

Speaking ahead of an economic summit in Paris that will include many critics of the Fed’s aggressive bond buying program, Bernanke acknowledged that strong capital flows from advanced economies to emerging markets may be having negative spillover effects.

“Capital flows are once again posing some notable challenges for international macroeconomic and financial stability,” he said in remarks prepared for delivery to a Banque de France event in Paris before meetings of the finance ministers and central bankers of the Group of 20 leading economies.

However, he said that although policy-makers in the emerging markets clearly face challenges, such concerns should be weighed against stronger emerging market growth and steps emerging economies themselves can take.

Central bankers and finance ministers of economies that make up 85 percent of the world’s economy are trying to smooth imbalances of trade and investment to ensure steadier economic growth and prevent shocks like the recent crisis.

The United States is under fire not only for ultra accommodative monetary policy, but for a gaping budget deficit that raises concern that if left unchecked, it could some day lead to default.

Bernanke’s own unorthodox $600 billion bond buying initiative launched in November has stirred harsh criticism from countries around the world, and he has used international venues to defend it before.

U.S. quantitative easing measures have been attacked for driving down the value of the dollar, hurting emerging economy exports and inflating asset bubbles, and the Fed chairman can expect to hear about it from his counterparts at the summit.