The economy blog resurfaces this week at the centre of the maelstrom - New York - where the drumbeat for monetary policy tightening grows louder and louder. Many economists are challenging central bankers to make good on their threats to launch a monetary strike on inflation, even though they concede it would likely plunge the global economy into a prolonged recession. Paul Schulte at Lehman Brothers prefaced a report on the dangers of inflation to Asia with a quote from the former German finance minister Karl Schiller, who in the 1960s quipped that, "Price stability might not be everything, but without price stability, everything is nothing." The US economist Nouriel Roubini argues that high inflation in emerging markets will likely lead to a breakdown of the so-called Bretton Woods 2 regime, in which countries such as the UAE and China have kept their currencies pegged to the dollar, recycling their surplus dollar earnings by buying US debt, essentially financing the US current account deficit. Given this climate, Abu Dhabi's own Department of Planning and Economy has not surprisingly called for a reconsideration of the GCC's own currency pegs, so as to give the region a monetary policy to tighten. The DPE's musings on this subject will undoubtedly revive the flood of hot money into dirhams and into the stock market, where foreigners have been buying billions worth in recent weeks. Speculation in this vein has prompted Barclays Bank to unveil a new investment, the Asian and Gulf Revaluation ETN (NYSE: PGD), which TheStreet.com recommends for investors who think the Roubini scenario likely. Market movements, however, argue to the contrary. While foreigners have been net buyers of Gulf stocks, they have been heavy net sellers of East Asian stocks amid fears that inflation there will derail export-led growth. The exodus of liquidity out of Asia has hit capital availability, forcing the withdrawal of $35 billion (Dh128bn) in capital-raising issues so far this year, according to Thomson Reuters. Conversely, the biggest dollar earners East Asian and Gulf central banks and sovereign wealth funds have been ploughing their money back into US debt. Brad Setser at the Council on Foreign Relations estimates that they have bought $283.5 billion in US government-backed securities so far this year, part of what he calls a quiet bailout of the US financial system by its biggest lenders. A growing number of commentators link the financial turmoil with something this blog has been writing about since April - the transfer of wealth and with it power from the West, primarily the US, to what the author Parag Khanna calls the second world - not only China and India, but Russia, the Middle East and Africa, areas rich in resources and young, energetic people. Many commentators see this as part of an inevitable demise of the Anglo-American way and a blow to democracy. This is an unnecessarily pessimistic view on the passing of the dominance of a predominantly white and Christian superpower. The UAE's decision to cancel Iraq's debt and appoint an envoy is an example of forward thinking diplomatic policymaking by one of the world's newly rising powers. The Government has taken a belated step towards providing Iraq the wherewithal to stand on its own without US support and at the same time buttressed Arab interests. Needless to say, improved security in Iraq is a double-edged sword for the Gulf, in that it emboldens some here in the US who say the country can now afford to reduce its military presence in the region, an inevitability that troubles some who fear Iran's long-term ambitions. More disturbing to global stability is the building food-price crisis. In the West, this is often conflated with record prices for gasoline and what ING Baring has dubbed "The Third Oil Shock". But the most destabilising impact of energy is not how it will curtail America's summer holidays, but how it will push millions of people in the developing world back below the poverty line. Food prices may already be heading down in absolute terms, but the fact that they remain historically high presents the world with a big problem. This is a catalyst for an already troubling rise of dogma around the world in response to globalisation's outcome - increasing inequity and stagnating real incomes among the middle class. Recent news that some countries are curtailing food exports stands to only push prices higher and heighten the likelihood of political interventions. This gives rise to fear among strategists of "known unknowns" such as a military strike against Iran, or a terrorist attack. Prognosticators point to growing evidence that outgoing US President Bush is preparing such a strike against Tehran as his parting gift to world peace. Buckle-up, folks, it's going to be a rough ride from here until January.