Emerging Market Troubles Still Misunderstood

Many still do not see the looming trouble in emerging markets, particularly in China, India, Brazil, Turkey, and many of the ancillary countries that surround the above.

Private sector loan growth over the last few years has been phenomenal and particularly so since 2OO8, as evidenced by the expansion in private credit to GDP ratios
Artificially suppressed interest rates, undervalued currencies, and/or hot money inflows have driven driven asset and credit bubbles
Changes in lending practices (e.g Brazil payroll loans) or state influence on lending policies (China, India) further blows the bubble, eventually leading to a wave of non performing loans when the cycle turns.
Real trends in credit quality are disguised by the velocity of credit growth, by asset price bubbles and by high rates of nominal GDP growth, all of which can turn in on themselves very rapidly, as happened in the US and UK in 2008, Russia in 2009 and, most spectacularly, Ireland in 2008.

This problem is made worse by dollar funding, borrowing in cheap US dollars to invest locally. This frequently becomes a crises once the dollar appreciates either due to a capital flow reversal on risk aversion or from higher interest rates in the US. This is why it is often a Fed tightening that triggers the end to this process.