The Fed Might Have Painted Itself into a Corner
By Daniel at 13 June, 2009, 8:18 pm
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http://www.lewrockwell.com/shostak/shostak10.html
Excerpt:
“A major concern for Fed policy makers is a visible weakening in the US dollar against major currencies. If the Fed were to allow the dollar to fall further, the US central bank runs the risk that major holders of US-dollar assets will divest to nondollar assets. This could push long-term rates and mortgage rates higher, thereby igniting another crisis. If, in order to defend the dollar, the Fed were to start taking some of the newly pumped money from the economy, i.e., to curb the money supply rate of growth, this will hurt various old and new bubble activities and set in motion an economic bust. Even if the Fed were to decide to tighten its stance just slightly, given the current strengthening in the growth momentum of economic activity, this could visibly weaken the growth momentum of monetary liquidity, thus posing a threat to the stock market. It seems that the Fed might have painted itself into a corner.”
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