The rock is a faltering housing market that needs lower interest rates and massive injections of liquidity.
The hard place is the US dollar (and the bonds/notes that back the dollar) which is being rejected by more and more international players.
Don’t forget that America is dependent on the kindness of foreigners to buy $2 billion of her debt EVERY DAY. Our fair country also needs the current holders (China, Japan, asia) of almost $2 trillion in US notes/bonds to CONTINUE HOLDING THEM.
Lowering interest rates and pumping money into the housing market will cause more international players to reject US denominated debt.
The only way to entice international buyers to buy and hold US denominated debt is to raise interest rates.
The Fed’s choice as I see it: sacrifice the US dollar and America’s place in the global economy or sacrifice the debt-ridden US citizens and the housing bubble that is currently sustaining them.
I’m guessing that the bunglers-in-charge will manage to do both – ie, sacrifice the dollar AND the US citizens.
