You mentioned the carry trade and i think that is what really caught the FED off guard.
I think the carry trade got everyone off guard. I noticed the stock market drops and back-traced it. The sub-prime meltdown is limited(for now) and wouldn’t cause that kind of perturbation.
Regarding destroying the dollar, that scares me to death and I don’t think it will work. If the dollar craters, then US Treasuries are less appealing and fall in value sending interest rates up higher.
It is the only way I can see out of it, that is do-able. If they crater the dollar, they can increase M0 and increase interest rates. The deficit gets funded by printed money and doesn’t have to be funded with Treasuries. It does mean that those with cash assets in the US get screwed. It also does bring in Treasury purchasers because of the higher yield (long time holders vs short time).
I can tell you one thing I wouldn’t want to be Bernanke right now.
Agreed.. What is also going on, and what I feel is really moving things.. is much more complicated than the general media is covering..
