India, Indonesia, Turkey, Brazil: Governments across the emerging world have been battling to contain the risks of a full-blown financial crisis as the hot money that poured in as a result of QE drains back out again. To some extent, it is not Bernanke’s job to worry about that and it will be left to the IMF to clear up the mess with loans if the worst does happen. As the events of 2008 and 2009 showed so clearly, the inevitable consequence of globalization is that causation flows every which way through the world economy.
An isolated ripple or two in countries with specific, well-known challenges, such as India, might be containable (though devastating at home); a more widespread downturn among emerging economies would be likely to hit the US itself, potentially forcing the Fed to reverse course.
Bernanke’s successor is expected to be announced in the next couple of months. The frontrunner was once Larry Summers, the Ivy League professor who was a cheerleader for financial deregulation and had won US President Barack Obama’s support with his staunch defense of the president’s economic stimulus policies. However Summer’s withdrew from consideration for the post on Sunday.
For Bernanke, who built his reputation on studying the policy pitfalls that marked the runup to the Great Depression and the “lost decade” in Japan, it would be a neat swansong to announce the beginning of the end for QE, which he was instrumental in dragging out of the textbooks and into the real world.