Large capital flows come about because developed countries fail to deal with structural problems

El-Erian of Pimco is explaining what goes unexplained by Bernanke et al.  They refuse to see developed countries printing money as a cause of developing market inflation.  Of course, money is fungible, so the real reason that inflation is happening is because investors in the US and Europe are taking their money to the developed world.  All this extra cash fuels inflation.  Via Pimco:
Understandably, Chairman Bernanke provides a US-centric view of global imbalances, including what should be done and by whom.

According to him, today’s large cross-border flows (which “are once again posing some notable challenges for international macroeconomic and financial stability”) reflect the multi-speed nature of the post crisis global recovery. They are consistent with the divergence in monetary policy among advanced and emerging economies (namely, “accommodative monetary policies” in the former and policy tightening in the latter, including today’s hike in reserve requirements by China). And the challenges can be addressed by emerging economies which “have a range of powerful—although admittedly imperfect—tools that they can use to manage their economies and prevent overheating.”

All this is true; but it’s not necessarily the whole story. To illustrate, consider a different perspective—that of most emerging economies.

From this perspective, large capital flows reflect primarily the unwillingness of advanced economies to deal forcefully with the trio of (i) structural issues that inhibit sustainable high growth and employment creation, (ii) post-bubble disorders, and (iii) a secular global re-alignment. Rather than contront these three realities, advanced economies are seen to just kick the can down the road through massive liquidity injections. In the meantime, others have to deal with the negative externalities of having so much liquidity sloshing around the system.

The large provision of liquidity by advanced countries is driving their economic activity and bolstering asset prices. Policy makers intend for this to trigger a sustainable handoff from public sector to private sector led growth.

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