Conflicts often arise over access to commodities such as oil, food, shipping lanes, and physical territory. But the commodity that underpins the rising tension between the United States and Russia today is perhaps the most valuable commodity of all: price stability. President Putin accuses the United States of undermining the post-World War II system by playing Russian roulette with the U.S. dollar. As a creditor to the United States, he objects to quantitative easing with its inflationary intentions. He says the U.S. dollar can either be the glue that holds the post-war financial architecture together, or it can be a weapon that limits access and enhances pain through sanctions. But it can't be both. Putin describes America's approach as a "universal diktat" of selfish unilateralism that deserves every possible response, from new monetary institutions to confrontations involving fighter jets.
Russia detects that there are many other countries that are also increasingly uneasy about America's seeming "abuse" of power. This shows in efforts to change the voting balance in the United Nations at the Security Council, and between the IMF and World Bank. It shows in the desire to create new alternative institutions like the BRICS bank. It shows in growing willingness to pursue more transactions in currencies other than U.S. dollars.
This is in part because emerging markets now realize how much pain the United States can impose on them. Not only must they suffer from deflation created by a debt gorge in which they feel (rightly or wrongly) they were not willing participants. They have also been asked to revalue their currencies, thereby bearing even more pain. Meanwhile, the U.S. Congress has shown no signs of action on the U.S. debt challenge, leaving the rest of the world at risk.
But the most neglected aspect of the argument is that the United States has begun to take unacceptable risks with price stability. The historic efforts to reflate the U.S. economy and those of other industrialized nations is perceived as a bald-faced effort to use inflation as a means of defaulting on debt America owes to foreigners, namely Russia, China, and other smaller economies. America is too sophisticated to announce it is not honoring its debts. Other governments see inflation as a clever and sneaky way for the United States to pay back less. The Federal Reserve may well say that this is ridiculous because there is absolutely no sign of any inflation. "We should be so lucky!" they would retort. But the emerging market nations understand the...