America’s current monetary management is a bright spot in global economic affairs.

Struggling with a horrendous legacy of errors that led to the 2008 financial crisis and the Great Recession, followed by a long period of subsequent extraordinary credit creation, the U.S. Federal Reserve (the Fed) is still trying to “normalize” its support to economic growth, employment and price stability.

That is a work in progress made particularly difficult by a fiscal policy with budget deficits of 7% of GDP, a runaway public debt of $34 trillion (and counting), and a net foreign debt of $18.2 trillion presently growing at a quarterly rate of $15.5 billion.

Acting against those fiscal constraints, and a core consumer price inflation stabilizing around 4%, the Fed has managed to give the economy some breathing space for a moderate and orderly slowdown toward a 1.0% to 1.5% growth range in the course of this year.

That decision reflects an obvious pause in the restoration of price stability – defined as an inflation rate of about 2%. A much more heroic assumption underlying that policy is that the economy can be stabilized without a growth recession and rising unemployment.

Both assumptions are implausible for a simple reason: Bringing inflation down implies a weakening demand to balance supply shortages in product and service markets.

The Fed has opened a special window

Cynics would say that this is an election year, and that the Fed’s policy is part of such a uniquely American political business cycle.

But be that as it may, the Fed has made it possible for European and Asian economies to sell into growing American markets while maintaining competitive exchange rates and avoiding depressive interest rate hikes.

The E.U. needs that help to protect employment, social cohesion and political stability, because the trading bloc now has no monetary or fiscal space for any meaningful economic stimulus to revive its weakening domestic demand.

Germany is an exception. With a low budget deficit of 0.9% of GDP and a public debt of 64.8% of GDP, Berlin could raise government spending to exit recession and broaden the markets for exports of its struggling euro area trade partners. But Germany won’t do that; it will ride out the cyclical downturn with exports to the U.S., the rest of the E.U. and the growing East Asia.

In the first eleven months of this year, German exports to the U.S. increased 10.3% to $146 billion, raising its trade surplus with the U.S. 15% to $75.4 billion.

Germany’s trade surplus with the U.S. accounts for 54% of Washington’s trade deficit with the European trade bloc. No wonder Germans fear Trump’s return to the White House.

But Germans don’t seem to care about the fact that they are making money on the back of their captive euro area markets. In the first eleven months of this year, Berlin’s surplus with the rest of the monetary union is running at an annual rate of €122.8 billion, or 12% more than the surplus recorded for 2022 as a whole.

The world has wise and cool heads

German exports to Asia are also doing well, although the trade balance is negative because of large imports of raw materials and products generated by German firms operating in Asia.

The East Asian growth is led by China and ASEAN, the ten countries of Southeast Asia. That huge free trade area is expected to remain on a 5% growth path in the months ahead. Negotiations are currently under way to expand and upgrade the existing free trade agreement to include trade in intermediate goods, e-commerce and digital trade.

All that adds up to an encouraging medium-term outlook for global commerce and finance.

Note, however, that the story would have been very different had the Fed decided yesterday to change its policy of supporting economic growth while leaning against accelerating inflation.

Fortunately, the Fed has provided a temporary framework where key world economies can step in and contribute the missing pieces of an international economic policy coordination.

The U.S. has to lead the way by cutting its excessive budget deficits to slow – and reverse – the growth of its unsustainable public debt. Failing to do that, America would be set on a path of accelerating inflation, intractable recession, declining dollar and a world’s major financial crisis.

But if Washington decided to initiate a constructive trade adjustment process, the E.U. and a China-led Asia would have to accelerate economic growth and open their markets to stimulate world’s trade and investment flows.

Wishful thinking? Perhaps. Remember though that the world has wise and cool heads to strengthen America’s comeback, stop the European hate epidemic, encourage the Arab-Israeli peace and leave East Asia alone in its epochal quest for amity and economic development.