The Fed is in a trap.
To cut interest rates much more could collapse the dollar, which because of the huge US trade imbalance --and all the consumer goods and raw materials that are imported--would lead to serious inflation.
Plus with the current rate cut, the US now has the third lowest interest rates in the world. Any further cut makes the dollar a very undesirable currency for foreigner investors.
Yet if the Fed doesn't cut interest rates even further, the stock market will continue to plunge, which again discourages foreign investors from pouring their money into the U.S., which in turn puts downward pressure on the dollar.
So soaring inflation may be next, as strapped companies in China, India and elsewhere start raising their prices for goods shipped to the US and paid for in dollars. Then the Fed will have to respond by raising interest rates again, in an effort to shore up the currency. And with that will come deeper recession and an even lower stock market.
Oh, did I forget to mention the Trillion dollar military debacle that has no end in sight, that is sucking money out of the country like a giant industrial vacuum cleaner?
[Excerpt of an article by Dave Lindorff, Information Clearing House]
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