The last thing India wants is an Asian currency area led by China. As Prof. Robert Mundell argues, China is not likely to make the yuan convertible until 2015 or so. The Chinese financial system is too fragile and the yuan too vulnerable to massive currency outflows in the event of a political setback inside China for Beijing to take any such grandiose steps for the foreseeable future.

Nonetheless, if America continues to monetize debt at a trillion-dollar annual rate, and the United States continues to withdraw from international leadership, Asia will have no choice but to make its own arrangements. The Obama administration, in my view, will fail to reflate the burst consumer bubble. Attempting to do so by gunning the federal deficit up to 12% of GDP and ballooning the Fed balance sheet is one of the stupidest things the United States ever has done.

The flood of American liquidity threatens to create asset bubbles throughout Asia. China will have to let the yuan appreciate, which means fewer exports to the United States, and the rest of Asia will have to follow. The consequence of American monetary policy will be to compel the Asians to take local measures to stabilize their currencies without regard to Washington, and to expand the local market for their products in order to reduce economic dependency on the U.S.