When The Federal Reserve comes in and interferes with this process, as it is doing now, the excess liquidity supplied in order to tamper with rates has to go somewhere. Where does it go? Right into the things that those very same poor people you're trying to "help" need to buy in order to survive - food and energy.
Why? Because these are global commodities and yet they're priced in our currency.
There is no escaping the trap folks, except to admit to the truth and force the insoluble debt into the open, defaulting it and destroying those institutions that foolishly granted credit without any evidence that the people it was given to could pay.
This is the same mistake - identical in point of fact - that was made in the 1930s. By attempting to prevent people from being "hurt" by unemployment and economic contraction the government stretched what should have been a nasty 18 month depression into a decade-long economic disaster!
Yes, the dollar rallied and Treasuries bounced higher after the news that S&P had issued a negative outlook on the U.S. debt picture. Some argued that happened because eventual austerity would slow growth, which is deflationary and in turn good for bonds.
The dollar did what?
Uh, that would be "collapse", not "rally."
And in point of fact the dollar is now sitting within spitting distance of its all-time low. There is no floor beneath that level on a technical basis. While an "underthrow" excursion might well be tolerated, should there be any meaningful and sustained break below about 71.5 on the /DX you're not going to have to worry about what comes next - you're going to be treated to it immediately with $150/bbl+ oil, gas north of $5 and literal privation and hunger in the streets of America...
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