The World's Central Banker

I've written about this in terms of lender of last resort, but Edward Hugh says the Fed's importance goes well beyond that:

If the global economy has been growing reasonably well over the last six months it is because what Nouriel Roubini once called a “wall of liquidity” is seeping out of the United States, where solvent domestic demand for credit is flat and will remain flat due to the private indebtedness problem (remember US “over consumption” (the high proportion of GDP which has been consumption driven) has only been the mirror image of Chinese “over investment” and we that live in a world which badly needs to rebalance).

This “wall of liquidity” has been force feeding strong growth in a number of key emerging markets, and this growth has been generating strong demand for exports from a number of developed economies, and most particularly from Germany. Thus the German boom is no mystery, and has been intimately tied to the implementation of QE2 in the US. Note, in the chart below, how the German manufacturing PMI was slowing in the summer of 2010, how it surged in the autumn (QE2) and how it is now swooning again. There is no mystery to these “soft spots”, all you need to ask yourself is where the demand is coming from. ...

Maybe it seems peculiar to be arguing that policy in the Federal Reserve should be partially conditioned by policy failures in countries like Italy, Spain and Greece, but such is the nature of the inter-connected world we live in.

This is Kindleberger's Decession Politics.