It isn't about "one computer talking to another", it's about where sensitive information is stored. It has never been legal to store classified US intelligence on computers outside of the control of the US government. That's an extreme example, but the handling of many types of information is prescribed by laws in different jurisdictions. Does that mean that US computers cannot "talk" to another other computers? No. Does that make the internet invalid? No.

Decentralization of the cloud is a good thing for so many reasons. I think you're deliberately confusing it with your PII issues and not grasping the larger picture.