More Background for the Coming Economic Hangover

From the New York Times via Lew Rockwell's site. A year ago the Times would have relegated this type of story to the kooks and crackpots let alone run it in their paper.

Paying the Price for the Fed’s Success
By JAMES GRANT

....So Americans proceeded to borrow. Over the past decade, household indebtedness, expressed as a percentage of the value of household assets, has shot up into record territory. Watching house prices levitate, people did what they could have been expected to do. They borrowed heavily against the accretion in value they had already seen as well as the gains they hopefully anticipated.....

Last week, as the Fed delivered its emergency cut of three-quarters of 1 percent, dropping the funds rate to 3.5 percent, the cost of living was rising on the order of 4 percent a year. Yet inflation was almost an afterthought in the press release in which the Federal Open Market Committee, the central bank’s policy-making arm, explained its surprise intervention: “The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.”...

To lubricate the machinery of lending and borrowing, Mr. Bernanke is likely to make dollars increasingly plentiful. The trouble is that, while the Fed is America’s central bank, the dollar is the world’s currency. It lines the vaults of central banks of America’s creditors, especially the up-and-coming states of Asia and the oil-soaked principalities of the Middle East...

Such institutions hold dollars by choice, and not a few of them chafe at the greenback’s steady loss of purchasing power. For some, Tuesday’s hasty rate cut might be the last straw....Read it All