The Eco-Philosopher

Lumo weighs in on the Fed.

As it happens, I share some of his concerns about being too quick to cut interest rates, but I'm more interested in some of his logic:

I want to say one more thing: a strategic, political observation. Friends of the U.S. are much more likely to hold the U.S. dollars while the U.S. enemies have a much higher probability to bet against the U.S. currency. By weakening the currency, the Fed effectively helps the enemies of the U.S. financially while it punishes its friends. It is a very bad evolution for the American (and not only American) strategic interests.

I wonder how likely that is. Sure, some people always bet on the home team, but I have my doubts that that plays a big role in the thinking of of the BOC or Saudi Arabia. Clearly, they both have an interest in a strong dollar, but does it go beyond political and economic calculation? I have my doubts. And that goes double for the trading desks at Goldman-Sachs et al.


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