Would the dollar lose value if the Fed lowers the interest rates? I thought gold could be the next bubble, and could buy some of that.
I read on calculatedrisk.org:
“As the economy slows, this will reduce the trade deficit and also lower the amount of foreign dollars willing to invest in the US – the start of a possible vicious cycle.” With less foreign investment, the Fed will have to raise interest rates, which would further depress housing prices and home equity withdrawals, lowering imports and the trade deficit, leading to less foreign investment and so on in a vicious cycle.
Wouldn’t this lead to higher long-term rates, which are required to induce foreign central banks to buy long-term treasuries, and also a global recession, as demand is reduced for foreign goods?