I have suggested here that the natural proclivity of democratic government is to engage in a cycle of deficits, debts and debasement. If this observation is correct, then the policy question becomes how do you credibly commit to curtailing this cycle. If you don't, then the future of the economy in question will be called into question. Irresponsible fiscal policy leads to irresponsible monetary policy, which can destroy and economy.
We cannot blame President Obama exclusively for this cycle of deficits, debts, debasement, it existed long before he assumed power and was pursued by both "conservative" and "liberal" politicians, but the policies which he has supported since coming to power, have done nothing to credibly commit to curtailing this cycle. Instead, they have sort of represented the loving embrace of the cycle.
There is an old joke that you don't have to run absolutely fast when escaping the death claws of a predator (bear or lion you pick), you just have to be faster than the guy with you. Something similar goes on with respect to international currencies under a world fiat currency system. But the world markets do take into account the demands of debt monetarization that appear looming in a national economy when spending is out of control, and discretion (rather than rules) governs monetary policy.
The WSJ published today a very smart op-ed by Scott Beaulier and Skip Mounts on how the Obama administration better do something to credibly commit to FED independence to reassure international investors.
It is unclear to me that such FED independence can actually be guaranteed. Instead, the problem might not be in the relationship between the Fed and Treasury, but with the Federal Reserve System. In addition to monetary theory reasons for the denationalization of money, there might be fiscal policy reasons. I argued this in Why Perestroika Failed --- denationalization of money through a free banking system combined with fiscal decentralization, along with many other significant steps to both credibly signal and credibly commit to the destatization of the economy. At that time, there was a sort of consensus that the Soviet Union had indeed had too much state influence on economic life, so the question was how do you get the state out of economic life so that a market economy can take root and flourish and bring general prosperity to the Russian people. I should point out that Russia did not credibly commit to the destatization of the economy, and instead have suffered a post-communist era of crony capitalism, not market capitalism.
The problem today in our context is that the consensus seems to be the oppositive --- rather than destatization, instead an increased role for the state is welcomed. In that intellectual context, words on papers are "cheap talk" --- so while I am very sympathetic to Scott and Skip's plea for Obama to reaffirm FED independence, I fear that absent the denationalization of money combined with a a radical fiscal decentralization, the governmental proclivity to run deficits, accumulate of public debt, and the debase the currency to monetize the public debt will go uninterupted until the economic consequences will be the destruction of the world economy (see I agree with Bryan Caplan that the Europeanization of the world economy is not the answer!).
Still, since the current consensus is so far from where it needs to be for us to reverse the nonsense coming out of Washington (and many elite economists), Scott and Skip are fighting the good fight to bring back common-sense in monetary and fiscal policy. Hopefully, the fact that they placed this in the WSJ means that it will be read by serious readers and can start to pull public opinion back to a more economically sensible position than the current policy consensus.