Thomas P.M. Barnett :: Weblog

Well, among the Fed's jobs is one that is inherently political as well as economic: To maintain the stability, productivity and growth of the United States economy, while minimizing the known risks of market failures (deflation, excessive inflation, too-sharp downturns, etc.)

The lesson of last week's China Syndrome Market (which melted down so severely it ended up affecting us...) is that the Fed's job is now inherently international in outlook. No longer can the Fed maintain the United States economy by paying attention only to the United States economy. That's been the case for a long time, but it was driven home very sharply to substantially smaller investors than have previously been aware of it. The corollary hasn't yet hit home-- that the Fed's actions affect not only United States markets, but markets around the world... and those markets (and their corresponding Fed-like guardians) are now large enough to be angered and fight back.

The Fed's job has become and will continue to become much more difficult than in times past. It now needs to deal defensively and offensively (in a strategic, if not a moral sense) with a group of second tier economies including, at a guess, the EU, China, Japan... and possibly, someday, India.