Even before the Republican attack, our central bank was rapidly losing influence in the world, relative to other players.
Can that really be so? What other players? If it is, how can we explain the rest of the world's reaction to QE2, which is a fairly small plan by the Fed to lower medium-run interest rates in the face of massive unemployment and a large output gap? In other words, it's standard AD-boosting monetary policy, except on medium-run interest rates rather than short-run interest rates. If the Fed's influence is in "rapid" decline, why should Germany, Japan, China, Brazil, and other leading states care what Fed policy is? The Republicans who are suspicious of the Fed are worried that it has too much influence, not too little. Same with Democrats who think the Fed exists solely to benefit Goldman Sachs.
Since the subprime crisis hit, and even before, we've been hearing about how much power and influence the U.S. has lost over the past decade. And yet whenever the U.S. central bank bats an eyelid the rest of the world goes ballistic. We clearly need to think more seriously about the role of the U.S. in the international system.