The global economy could be in the early stages of anothercrisis. Once again, the US Federal Reserve is in the eye of the storm.

As the Fed attempts to exit fromso-called quantitative easing (QE) – its unprecedented policy of massivepurchases of long-term assets – many high-flying emerging economies suddenlyfind themselves in a vise. Currency and stock markets in India and Indonesiaare plunging, with collateral damage evident in Brazil, South Africa, andTurkey.

The Fed insists thatit is blameless – the same absurd position that it took in the aftermath of theGreat Crisis of 2008-2009, when it maintained that its excessive monetaryaccommodation had nothing to do with the property and credit bubbles thatnearly pushed the world into the abyss. It remains steeped in denial: Were itnot for the interest-rate suppression that QE has imposed on developedcountries since 2009, the search for yield would not have flooded emergingeconomies with short-term “hot” money.

As in the mid-2000’s,there is plenty of blame to go around this time as well. The Fed is hardlyalone in embracing unconventional monetary easing. Moreover, the aforementioneddeveloping economies all have one thing in common: large current-accountdeficits.

According to theInternational Monetary Fund, India’s external deficit, for example, is likely to average 5% ofGDP in 2012-2013, compared to 2.8% in 2008-2011. Similarly, Indonesia’scurrent-account deficit, at 3% of GDP in 2012-2013, represents an even sharperdeterioration from surpluses that averaged 0.7% of GDP in 2008-2011. Comparablepatterns are evident in Brazil, South Africa, and Turkey.

A largecurrent-account deficit is a classic symptom of a pre-crisis economy livingbeyond its means – in effect, investing more than it is saving. The only way tosustain economic growth in the face of such an imbalance is to borrow surplussavings from abroad.

That is where QE cameinto play. It provided a surplus of yield-seeking capital from investors indeveloped countries, thereby allowing emerging economies to remain onhigh-growth trajectories. IMF research puts emerging markets’ cumulativecapital inflows at close to $4 trillion since the onset of QE in 2009. Enticedby the siren song of a shortcut to rapid economic growth, these inflows lulledemerging-market countries into believing that their imbalances were sustainable,enabling them to avoid the discipline needed to put their economies on morestable and viable paths.

This is an endemicfeature of the modern global economy. Rather than owning up to the economicslowdown that current-account deficits signal – accepting a little less growthtoday for more sustainable growth in the future – politicians and policymakersopt for risky growth gambits that ultimately backfire.

That has been thecase in developing Asia, not just in India and Indonesia today, but also in the1990’s, when sharply widening current-account deficits were a harbinger of thewrenching financial crisis of 1997-1998. But it has been equally true of thedeveloped world.

America’s gapingcurrent-account deficit of the mid-2000’s was, in fact, a glaring warning ofthe distortions created by a shift to asset-dependent saving at a time whendangerous bubbles were forming in asset and credit markets. Europe’ssovereign-debt crisis is an outgrowth of sharp disparities between theperipheral economies with outsize current-account deficits – especially Greece,Portugal, and Spain – and core countries like Germany, with large surpluses.

Central bankers havedone everything in their power to finesse these problems. Under the leadership of Ben Bernanke andhis predecessor, Alan Greenspan, the Fed condoned asset and credit bubbles, treating themas new sources of economic growth. Bernanke has gone even further, arguing thatthe growth windfall from QE would be more than sufficient to compensate for anydestabilizing hot-money flows in and out of emerging economies. Yet the absenceof any such growth windfall in a still-sluggish US economy has unmasked QE aslittle more than a yield-seeking liquidity foil.

The QE exit strategy,if the Fed ever summons the courage to pull it off, would do little more thanredirect surplus liquidity from higher-yielding developing markets back to homemarkets. At present, with the Fed hinting at the first phase of the exit – theso-called QE taper – financial markets are already responding to expectationsof reduced money creation and eventual increases in interest rates in thedeveloped world.

Never mind the Fed’spromises that any such moves will be glacial – that it is unlikely to triggerany meaningful increases in policy rates until 2014 or 2015. As the more than 1.1 percentage-point increase in 10-year Treasury yieldsover the past year indicates, markets have an uncanny knack for discountingglacial events in a short period of time.

Courtesy of thatdiscounting mechanism, the risk-adjusted yield arbitrage has now started tomove against emerging-market securities. Not surprisingly, those economies withcurrent-account deficits are feeling the heat first. Suddenly, theirsaving-investment imbalances are harder to fund in a post-QE regime, an outcomethat has taken a wrenching toll on currencies in India, Indonesia, Brazil, andTurkey.

As a result, thesecountries have been left ensnared in policy traps: Orthodox defense strategiesfor plunging currencies usually entail higher interest rates – an unpalatableoption for emerging economies that are also experiencing downward pressure oneconomic growth.

Where this stops,nobody knows. That was the case in Asia in the late 1990’s, as well as in theUS in 2009. But, with more than a dozen major crises hitting the world economysince the early 1980’s, there is no mistaking the message: imbalances are notsustainable, regardless of how hard central banks try to duck the consequences.

Developing economiesare now feeling the full force of the Fed’s moment of reckoning. They areguilty of failing to face up to their own rebalancing during the heady days ofthe QE sugar high. And the Fed is just as guilty, if not more so, fororchestrating this failed policy experiment in the first place.