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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Keith Feral who wrote (171074)	9/21/2005 4:44:42 PM
From: KyrosL	Read Replies (1) \| Respond to of 281500

The Fed is trying to make sure that the dollar remains the world's reserve currency, in spite of the huge budget and trade deficits we have been running and the quagmire in Iraq. Keeping the dollar as the reserve currency under these terrible conditions is a super high stakes confidence game, and raising interest rates is a very important part of the bidding. Shortly after Katrina and the talk about hundreds of billions needed for rebuilding (with the government picking up most of the tab), Greenspan had lunch with Bush. I suspect he told him that he can't stop raising rates, unless Bush paid the tab by raising taxes or cutting spending. Subsequently the administration made some vague noises about cutting some spending to pay for Katrina, but nothing specific. It was obvious that there was no serious thought about actually cutting anything. The Fed responded by not only raising rates, but also by signaling it will continue to raise. This was a signal to the Chinese and the Japanese and Europeans that their dollars are safe, and please buy some more (they need to be buying some 800 billion a year to keep us afloat).