Does China’s devaluation reduce the odds of the Fed raising rates? Some people assume that is the case. However, the Fed is in a box and unless they raise rates, the next crisis in pensions will wipe out far more than most people anticipate. True, everyone from the IMF to most other countries are begging the Fed not to raise rates for there are some $9 trillion dollar shorts out there. It is also true that cash is rushing into the short-term government paper (flight to quality) and raising rates will escalate the federal budget which also comes due right on the ECM turning point as the debt ceiling expires October 1.
This entire problem illustrates that this is not merely a dollar and Sovereign Debt Crisis; this is also a RESERVE CURRENCY crisis. The IMF and other nations are pressuring the Fed not to raise rates because of external economic conditions. The Fed is caught in a real crisis where domestic policy objectives are being influenced by international policy of other nations — the INTERCONNECTIVITY. This is starting to peel back the layers of the global economy that are like an onion with everything connected. This is further illustrating that domestic politics are really hopeless for they promise the moon but deliver absolutely nothin
