One of the less-noticed aspects of the global credit crisis of which I've been writing recently, has been the way in which state-society relations are being quietly but profoundly altered. And though this might seem something arcane and peculiar to the United States (US), the shift is likely to have global implications.

In its determination to prevent a repeat of the Great Crash of 1929, the US Federal Reserve has pulled out all the stops. It is making cheap cash available to US banks by the truckload, it is taking dubious assets off their books to keep them solvent, and it has used up something like half its reserves to try and keep money flowing through their accounts. Then last week, it managed the buyout of Bear Sterns by J.P. Morgan, fronting some of the money needed to do the deal.

In so doing, the Fed moved into uncharted waters. The Federal Reserve system was created to help manage the US banking system. But many financial firms, like Bear Sterns, operated outside the regulated banking system and so lay beyond the Fed's reach.

The Fed probably had no choice but to begin operating in an area of the economy for which it has no real mandate. The explosion of complex securities in the 1990s shifted trillions of dollars outside the formal system. However, close linkages between these markets and the formal system threatened to bring the whole edifice toppling down.

Scions calling for bailout

Ironically, it was the unregulated freedom of these shadowy markets that attracted so many players in the first place: precisely because the government couldn't reach them, they could celebrate the wonders of free-market capitalism as they raked in huge profits in dubious activities. But now that things have suddenly turned sour, who do you suppose is calling for bailouts? The scions of the unfettered market are now lining up at the government trough and calling for action. And they want it now.

Ben Bernanke's Fed has been willing to oblige. In the process, the US state has taken a hand in the economy that would seem to rival that of a socialist country. Socialism for the rich, you could call it, or just capitalist socialism: from each according to his ability, to each according to his place on Wall Street.

In fairness to the ideologues of the free market - who trumpeted the virtues of the deregulation that began in the Reagan years and continued to this day - they remain among the staunchest critics of the bailout of the billionaires. They stick to their claims that in a free market, excesses lead to price corrections, and that people will crowd back into the market when prices come back down. Their advice to Mr Bernanke has been to just let the banks fail, with the victors picking over the spoils.

Especially because it's an election year, Bernanke won't do that. Whether because he sees his responsibility as being to keep the financial sector solvent, or whether in fact the claims of even esteemed critics that the Federal Reserve has become a servant to Wall Street are true, Bernanke feels he must rescue the oligarchs.

Decline in geopolitical influence

Global investors might not agree. The fear is that plummeting interest rates and the determination to save bad investments is so damaging the Fed's reputation that foreigners are pulling their money out of the US. The dollar may plunge and lose its role as the principal reserve currency in the US economy. With that will likely come a decline in US geopolitical influence.

For countries like ours, so tied into the US economy, it is indeed a worrying time.