[20pipsaday]

"My thinking about how the USD would be defended is higher interest rates. In short, as high as is necessary. Given the choice between sending the domestic ecomomy into the ground or letting the USD sink, I think that the authorities would choose to defend the Dollar due to the broader implications. "

Politicians instincts are to save their own rear ends, not the good of the country.... for that reason I think the above statement will be just the opposite. The Fed may want to sacrifice the domestic for the dollar, but I dont think for a second politicians will see it the same way

as soon as the domestic runs into any trouble (housing, stocks, bonds etc etc) the public will expect action from their government. And because the gov/fed has always comes to the rescue in the past, not coming to the rescue would probably cause panic IMO

If you watch the yield curves on tnotes, you will notice that right now the market seems to be pricing in a coming recession.... a couple more rate hikes and we will be inverted.

Mr Greenspan seems "perplexed that the market is not listening to the fed and that long term yields are dropping as the fed is raising short term rates".

Kind of weird that he is making the assumption that the market is wrong and that the fed is right. Right now the market players seem to be calling the fed's bluff, pricing in these rate hikes as very temporary

so in a round about away, what I am saying is that buying USD because of the expected yield boost from fed rate hikes may not be the best plan of action, when the market is busy pricing in these rate hikes as not possible to maintain

hope my thoughts are making sense