Controlling Volatility After QE2

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The emerging markets are worried about the measures they will take following Ben Bernanke's decision to go in for the second round of Quantitative easing QE2 worth $600 billion. Are they over-reacting ? The first to react was China followed by South Korea which advocated capital controls to check the buoyancy in the emerging markets. South Korea where the G20 meeting is scheduled next week is perhaps going to see another round of emanated discussion on the US Stimulus with Brazil, Thailand and a host of other nations following up the criticism levelled by China and apprehending the release of $600 billion of new money into the markets.


What  China and other emerging nations need to understand is that Quantitative Easing is not Monetary easing. Whereas in the latter new money is printed, in the former money is merely borrowed and recirculated in the revenue stream to pep up the markets. In this case Bernanke borrowed $ 277 billion from the US Treasury and the remaining from the big  Wall Street banks to purchase the treasury bonds by which he hopes to pep up the US bond and stock markets.  There  is nothing wrong with that as US is only trying to ensure that the markets don't go into a tailspin after the first round of stimulus has ended. This is definately not a competative devaluation, nor is the US printing Dollars as the Chinese are apprehending.What is the only reason of worry is the effect it will have on the currency and commodity markets.


Will the added liquidity cause volatility in those markets ?


Reference:
The myth and mistake of Quantitative easing by Brian Wesbury & Robert Stein/Sept 28

http://www.forbes.com/2010/09/27/federal-reserve-economy-quantitative-easing-opinions-columnists-wesbury-stein.html