Canmo, you ask a good question and I think you suggested an answer. I don't disagree with your observation.
It has been hard enough for me to get my mind entirely around these issues framed in the domestic context. Of course the international ramifications of our monetary policy, becuase we are the world's reserve currency, the world's largest economy, is very important. For good discussion of these issues, look at papers by Bob Mundell, who focuses on international monetary interactions and capital flows...he is now advising China.
I have tried here to make my comments about monetary policy and money in this thread as clear and simple as possible, in order to communicate understandable principles and point out general misunderstandings....it is true as you say that all these issues play out in a more complicted international system. I don't use the international complex system in my discussion becuase it would quickly become imponderable and destroy my goal of simplicity in discussion.
But, since we have come this far together, let me add a couple of points. The world financial system is of one piece now, so that many assumptions of old economics (20th Century), that consider a domestic system as a closed system, now no longer operate. We are now operating in a whole world system. U.S. deflationary monetary policy during the late 1990's collapsed the Asian monetary systems that were tied to the dollar. Our Fed was managing our large economy with no consideration how our domestic monetary decisions would effect smaller less mature and diverse economies that had pegged thier monetary policy to ours. The Fed, under Greenspan, then advised that it is simply not thier problem, and that these countries should let their currencies float and not tie to the dollar...so we saw the Argentina peso collapse, the Thai Bot, the Indonesian Ruppee, the Russian Ruble, all collapse (China suffered deflation during this period but stayed with thier peg)...we saw a generation of energy and strategic mineral investment and production capacity go into mothball, still limmiting our productive and distributive capacity today...all ramifications of our domestic monetary policy spreading like the Chilean earthquake energy impulse of Tsunami into Asia...only our effect was much more serious.
Now we proceeding with a profound monetary policy adjustment to a credit collapse without the ability to predict the full effect throughout the world. After all, we were not able to predict that a small number of mortgage defaults largely confined to four U.S. states would collapse the value of all asset backed securities and so render the solvency of the whole world's banking system in question. It may be the nature of highly complex systems that they constantly border on disequilibrium and are so inherently unpredictable and vulnerable to outsized reactions to small failures. There is article about this topic in the present edition of Foreign Affairs, by Nial Ferguson that I recommend you take a look at.
It is not clear how our current monetary policies will work out, and it is even less clear but more worrisome how our fiscal policies will work out but it is clear to me that there will be world wide effects...as we are now all of one system of capital, production and markets.
It has been hard enough for me to get my mind entirely around these issues framed in the domestic context. Of course the international ramifications of our monetary policy, becuase we are the world's reserve currency, the world's largest economy, is very important. For good discussion of these issues, look at papers by Bob Mundell, who focuses on international monetary interactions and capital flows...he is now advising China.
I have tried here to make my comments about monetary policy and money in this thread as clear and simple as possible, in order to communicate understandable principles and point out general misunderstandings....it is true as you say that all these issues play out in a more complicted international system. I don't use the international complex system in my discussion becuase it would quickly become imponderable and destroy my goal of simplicity in discussion.
But, since we have come this far together, let me add a couple of points. The world financial system is of one piece now, so that many assumptions of old economics (20th Century), that consider a domestic system as a closed system, now no longer operate. We are now operating in a whole world system. U.S. deflationary monetary policy during the late 1990's collapsed the Asian monetary systems that were tied to the dollar. Our Fed was managing our large economy with no consideration how our domestic monetary decisions would effect smaller less mature and diverse economies that had pegged thier monetary policy to ours. The Fed, under Greenspan, then advised that it is simply not thier problem, and that these countries should let their currencies float and not tie to the dollar...so we saw the Argentina peso collapse, the Thai Bot, the Indonesian Ruppee, the Russian Ruble, all collapse (China suffered deflation during this period but stayed with thier peg)...we saw a generation of energy and strategic mineral investment and production capacity go into mothball, still limmiting our productive and distributive capacity today...all ramifications of our domestic monetary policy spreading like the Chilean earthquake energy impulse of Tsunami into Asia...only our effect was much more serious.
Now we proceeding with a profound monetary policy adjustment to a credit collapse without the ability to predict the full effect throughout the world. After all, we were not able to predict that a small number of mortgage defaults largely confined to four U.S. states would collapse the value of all asset backed securities and so render the solvency of the whole world's banking system in question. It may be the nature of highly complex systems that they constantly border on disequilibrium and are so inherently unpredictable and vulnerable to outsized reactions to small failures. There is article about this topic in the present edition of Foreign Affairs, by Nial Ferguson that I recommend you take a look at.
It is not clear how our current monetary policies will work out, and it is even less clear but more worrisome how our fiscal policies will work out but it is clear to me that there will be world wide effects...as we are now all of one system of capital, production and markets.
. From one side - money excess in bank vaults, which is clearly indication of coming deflation(at list it was a case for 30's GD and 90's Japan. From other side - big question about oil prices to drop - because long-term investment demand, lack of oil infrastructure investment, etc.. But, oil prices affect all the industry, if it doesn't drop, the overall price decrease won't happen(or won't be sharp as in 30's) - which means no deflation. But, these 2 things can't coexist.. If you don't have money to pay, prices drop(or goods producer goes BK), but if prices don't drop (for those who stil have a money to pay), that means what? probably social unrest - in big - since many doesn't have money to pay and prices are still high(because of oil). Than what? Gov. guys know exactly what to do - they on one hand invest in oil(privately), other hand - extending unemployment - giving some money(from that excess $$ in vaults) to those who can't pay, and collecting 'oil tax' from everybody else who still cry but can pay(and, of course, finding some 'tarp' trick after to hide the debts somewhere in FED books)... Which is very easy solution for politicans, comparing one where they don't extend unemeployment . The only problem with that - it changes a country face at all in a couple of years - I personally hope it won't happen.