The Weak Link: The world ignores emerging markets at its peril.

• Author: Lachman, Desmond

It is said that those who cannot remember the past are condemned to repeat it. If ever that statement had applicability, it has to be in relation to current U.S. economic policymaking in seeming total disregard of the fallout of those policies for the emerging market economies.

By not remembering the recurring emerging market boom-bust cycles, U.S. policymakers seem to be setting us up for the next major emerging market bust. If that were to occur, it could very well derail the U.S. economic recovery. This would seem to be particularly the case considering how important the emerging market economies have become and how very heavily indebted they are to the global financial system.

One instance of U.S. policymakers' seeming indifference to the emerging market economies is a recent statement by Federal Reserve Chairman Jerome Powell that the emerging market economies should have little difficulty in handling the Fed's normalization of interest rate policy. Never mind that all too many past episodes of Federal Reserve tightening--such as those in the early 1980s, the late 1990s, and in the mid-2000s--have been singularly unhappy ones for those economies as capital flows reversed.

A more serious indication of indifference to the emerging markets are President Trump's undisciplined budget policy and his America First trade policy. By engaging in a large tax cut and public spending increases at this late stage in the U.S. economic cycle, the Trump Administration seems to be disregarding how seriously the emerging market economies might be affected by higher U.S. interest rates and a stronger dollar that are all too likely to flow from those policies.

By engaging in a trade war with China, imposing steel tariffs on Brazil, and taking a tough line on NAFTA, the Trump Administration seems to be unconcerned about the economic fallout from those policies for systemically important emerging market economies such as Brazil, China, and Mexico.

Judging by U.S. policymakers' seeming indifference to the emerging markets, one might be forgiven for thinking that those economies constituted a small part of the global economy. Yet, according to the International Monetary Fund, the emerging market economies now account for well over half of the world economy. At the same time, their governments and their corporations are hugely indebted to the global financial system as they have never been before. This is underlined by overall debt-to-GDP ratios for those...