Emerging economies are "swimming in cash"

Peter Engardio, writing in BusinessWeek a few days ago, asks an interesting question: Do the governments of some Emerging Market - particularly Middle Eastern and Asian nations - actually have too many American dollars floating around in their treasuries?

He points out that "Between the central banks, commercial banks, and investment funds such as Singapore's Temasek Holdings, Asian governments have $2.6 trillion in foreign assets available for investment, according to research firm Global Insight. The Gulf States have hundreds of billions in foreign banks and equities. Russia and Brazil boast hefty reserves and trade surpluses."

But this doesn't necessarily mean that these governments can sit back and party like it's 1999:

A lot depends on how countries are managing their economies while stockpiling dollars.The big winners appear to be in Asia, where corporations have kept debt in check and banks have largely shunned the risky mortgage-backed paper from the U.S. Despite ill-timed investments in the likes of Morgan Stanley (MS) and Merrill Lynch (MER), government investment funds such as China Investment Corp. and Singapore's Temasek can still buy stakes in U.S. companies at bargain rates once the smoke clears.

Also from the article:

Beijing's problem recently has been too much foreign cash, which has led to stock speculation and overinvestment. But if a U.S. slowdown hits China's exporters, the nearly $2 trillion in foreign assets Beijing controls leaves plenty of leeway to expand credit. Council on Foreign Relations geoeconomist Brad W. Setser estimates foreign assets in Chinese institutions swelled by $700 billion just this year. "This gives them enormous freedom to stimulate the economy," Setser says.

For more, see this post from Brad Setser's blog at CFR, as well as this recent article by AP discussing Emerging Markets' perceptions of the root causes of the global financial crisis. (Hint: They aren't blaming themselves.)