Two weeks ago, in an attempt to engineer the country's way out of the current debt crisis, the Fed announced a low (almost zero) interest rate policy for the next two years. This did not stablize the stock market. Worse, it had the effect of announcing a weak dollar policy, which pre-empts the monetary policies of foreign trade partners. This is an unprecedented move away from the free trade and capital market principles that have kept the economic engine of this country robust.
The debt problem in America is not the result of expensive money but cheap money leading to over-consumption. Therefore, keeping interest rates artificially low discounts the cost of consumption and exacerbates the debt problem in the long run. Over the last 2 decades, U.S. households and governments at all levels have financed their over-consumption by selling debt obligations to such countries as China, Brazil, Russia, Germany, and Japan.
Whether we realize it or not, U.S. consumers have been paid by Chinese and German workers to keep their jobs in the factory. When the U.S. deflates its currency by keeping interest rates low for an extended period of time, regardless of future economic conditions, this implied deal is broken.
It's anybody's guess where all this will lead. Rumblings from sovereigns about moving away from the U.S. dollar as a reserve currency to a basket suggests that the outcome is not likely to be pretty for us.