North Korea s Missile Tantrum

The tantrum will become what childhood psychologists call a functional behavior, since the child has learned that he can get parental attention out of it.

Unlike the taper tantrum and the devaluation of the renminbi, the Fed s rate hike announcement on December 16 certainly was no surprise. So one might argue that if the Fed s move does lead to volatility in international capital flows, the process must have already started.

Expectations of a rate hike have restricted flows to emerging markets ever since 2013, when the Fed triggered what came to be called the taper tantrum by announcing that it was likely to reduce its bond buying program. The resulting alarm roiled US financial markets and spilled over internationally.

One doesn t need a long memory to understand how even relatively modest policy shifts can trigger outsize market reactions. Consider, for example, the taper tantrum that roiled financial markets in the spring of 2013, after then Fed Chair Ben Bernanke said only that policymakers were thinking of gradually ending quantitative easing.

In dealing with North Korea, two fundamental issues must be addressed. First, although governments are justified in criticizing North Korea for its foolhardy, counterproductive, and self destructive behavior over many years, including numerous inhuman acts perpetrated against its own people and others, North Korea is not solely to blame for its missile tantrum.

In doing so, the Fed has become more involved in how markets function, the valuation of assets, and fluctuations in their prices. And the markets have come to depend much more on the Fed, expecting more frequent attention and support from it (and throwing a short tantrum when they feel disappointed, as was the case a year ago).

Last year, the Fed s mere announcement that it would gradually wind down its monthly purchases of long term financial assets triggered a taper tantrum in global financial markets and emerging markets. This year, tapering is priced in, but uncertainty about the timing and speed of the Fed s efforts to normalize policy interest rates is creating volatility.

NEW YORK The prospect that the US Federal Reserve will start exiting zero policy rates later this year has fueled growing fear of renewed volatility in emerging economies currency, bond, and stock markets. The concern is understandable When the Fed signaled in 2013 that the end of its quantitative easing (QE) policy was forthcoming, the resulting taper tantrum sent shock waves through many emerging countries financial markets and economies.

Their fears started with the flash crash of May 2010, when, in a matter of 30 minutes, major US stock indices fell by almost 10 , before recovering rapidly. Then came the taper tantrum in the spring of 2013, when US long term interest rates shot up by 100 basis points after then Fed Chairman Ben Bernanke hinted at an end to the Fed s monthly purchases of long term securities.

SEOUL Once again, the Korean peninsula is experiencing one of its periodic bouts of extremism, this time marked by the suicide on May 22 of former president, Roh Moo hyun, and North Korea s second test of a nuclear device. Roh s suicide is a disaster for his family and a national shame, while North Korean leader Kim Jong il s nuclear blast is something of a temper tantrum, but one which may have dire consequences for the two Koreas and the world.