A recent meeting we had with Michael Spencer PhD, Chief Economist for Deutsche Bank in Asia, outlined a number of extremely useful insights into how Asia views some of the current international issues around Central Bank activity, as well as some of the long-term economic trends at play in the Asian region, and their importance for the New Zealand and Australian economies. We will look more closely at some of the key issues that came out of this discussion.In the short term, the key policy issue is the management of capital inflows into small, open, emerging market financial systems. Policy independence in an environment of prolonged zero rate policy in the US is a desired result from Central Banks, and they are increasingly looking at capital controls to achieve this. One area of concern is that high capital inflows from the US into emerging markets could lead to emerg fiat currency ing market asset bubbles.Contributors to such an outcome as mentioned above would include: excess global liquidity, a weak US dollar, and an ineffective monetary policy tightening response from Central Banks in emerging markets. A significant value to watch is inflation pressure in emerging Asian economies.Likewise, we appreciate these risks, although we note that despite large inflows of capital into emerging markets, these are coming off a relatively low base, and many worldwide fund managers still hold only moderate weightings to the emerging world. It is important to note that such a scenario is simply a risk to be aware of, rather than our expectation.In the current market, there is a conflict between most central banks, who are tightening (raising interest rates), and the Fed, who are loosening (keeping interest rates at very accommodative levels, virtually zero).