> rising export dependency really does undermine the decoupling
> argument
I don't think it does. It's like saying that your relying on your car undermines the insurance argument -- the argument that you could insure it against accidents or theft.
Can you decouple your finances from your reliance on the car -- even if at the extreme an accident damaged it or it were stolen? Yes, you can. To a point. If you buy full car insurance *and* -- since car accidents and the balance sheet of your insurer are somewhat correlated -- by hedging your exposure to your insurer as well. By so doing, you can decouple -- i.e. push down your non-systemic risk to zero. At a premium, of course. Or, you may not want to eliminate all non-systemic risk. You may want to eliminate it only to the point where the peace of mind you gain balances the discomfort of paying the premia.
As Bernanke noted in his 2005 speech (see Krugman's 1/18 NYT article) and Greenwald and Stiglitz have been arguing for a while, the very point of accumulating reserves (which are huge now) is to insure those countries against the effects of foreign fund swings on their balance of payments, which sway those economies every which way. In other words, the existence of those reserves (largely absent in the 1970s) is in and by itself an effort to decouple.
A big problem is, obviously, that the bulk of those reserves got parked in USD-denominated assets. That shifted global demand to the U.S. and inflated the credit markets. When the melting of the USD and the decline of the U.S. economy wasn't in the outlook, that didn't seem so foolish. That said, the composition of those reserves has been changing steadily. Part of the decline of the USD has resulted from those funds having been switched gradually away from the USD. Timing matters. Dumping large chunks of USD assets too quickly can only make a big splash, which will hurt the value of the USD assets remaining in their portfolios. So, if they can, they prefer a gradual process -- unless the USD plunges and everybody gets panicky. But even in that case you can safely anticipate the Fed hiking the rates to some extent to contain the bleeding, even if the U.S. economy screeches to a halt. If the rates go up and USD assets (e.g. real state, stocks) fall, that can only help those countries that have plenty of cash to shop around. And the income from those investment will stabilize their economies. That is decoupling.
Again, decoupling doesn't mean that you stop depending on trade. It's only that the ups and downs of trade won't hurt you -- except to the extent those ups and downs hurt all assets in the globe at once. The U.S. is the largest economy ever. It is a big chunk of "the system." In that sense, exposure to systemic risk is necessarily exposure to the U.S. There's no way around that. So, if the premise is that decoupling requires the BRICs shedding all risk (including systemic risk), then the argument is silly. It's impossible. Decoupling is refuted by assumption. Decoupling in that sense would require the BRICs to insure by building a portfolio of contingent claims against all other possible universes. Who would make those markets?
At this stage, we cannot yet tell whether the BRICs are insured against the non-systemic risk, decoupled or not. It's still early for that. The fact is that sterilizing capital inflows will become costlier every time the rates drop. And the BRICs will be pushed to accelerate their shedding their exposure. How? By judiciously switching their exposure to their domestic economies or to areas of one another's economies. Roach is right in pointing out the difficulties of China and India in absorbing the redundant supply. So, it won't be painless. But I can't imagine it being as painful as the late 1970s to late 1980s. I don't see that coming this time around.
Chavez, Lula, Kirchner, Castro, Morales, Ortega, and Correa are starting up a South American bank. Already, Chavez, Lula, and Correa abandoned the IMF de facto. Venezuela has been divesting USD assets from their reserves. Brazil just found lots of oil in their sea platform that, if the price doesn't drop too much, will buy Lula (and the Brazilian federal government) some political autonomy from Sao Paulo and Wall Street. Chavez has been trying hard to diversify Venezuela's commercial ties. These are moves in that direction. Very modest, given their means. I wish there were more to show. Then there's a lot of uncertainty in the process. With a window of opportunity that narrows by the day. Anyway, I don't want to get too pessimistic here.
We'll see where all this winds up.