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Originally Posted by Big John
The problem is a simple one for those confused about why it should mean a hike. These days a HUGE percentage of goods are made outside of the USA, most in the Far East. The 'normal' currency for payment of these goods is the dollar. With the dollar worth a lot less for prolonged periods, manufacturers in the Far East must raise prices to compensate as their own bills are for the most part paid in local currency.
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Dunno whether it's realistic or not (never had the time to dig in deep and check)... but China was being asked to devalue their currency to make it easier for the US, but, least so far, they have refused. Suppose China is also thinking of the other markets they trade with and the effects on them.
At the same time, the US is borrowing between $2-$4 billion/day from the Central Bank of China which seems to be around 20+% of US international borrowings. It really does not take a braincell to see that this is unsustainable - especially when there has not been a trading surplus since the 60's.
It is absolutely vital there is some fiscal policy in place or else the whole economy will end up suffering badly. Sadly, right at this moment - there appears to be little prospect of that happening.