And I think it is a valid point, though I can see the holes in it. We are so far below what would be condsidered to be a neutral rate that to take it high enough to make a difference would be hard for the conomy to swallow. The other way of looking at it is that, of course, currency markets work on a comparison basis. It doesn't matter where your currency is at it matters where it is at in relation to other currencies. In this light the dollar is currently alone in suffering the pains of the "solvency" crisis to the degree it is. So while it has dropped and it's economy has suffered other currencies are either operating in a high gear or other central banks have been in a position to place themselves more strongly with anti inflation policy. Point being for the dollar to catch up and appreciate much in relation to other currencies it will require more than a small adjustment.

Now the big hole in this is that we are working under the assumption of the old punch bowl theory. Just when the party gets going the Fed takes the punch bowl away, it tightens to monetray policy, slows demand, and cools the economy. But as you allude to the markets have already done this by tightening lending standards and having a dry up of capital via the downgrading of assets. While the Fed says 2% the markets act like the Fed is saying 8%. So the argument that since dollar demoninated commodities are strangling the economy because of the inflation they are experiencing, and that increasing the value of the dollar will only help the economy by cooling inflation does hold some water, since credit markets are so tight anyway, increasing the rate wont make that much difference. Still what the Fed is trying to do is minimize that tightening of the credit markets, we can only speculate how much a tightening of Fed policy will have on causing the economy to not only slow down but grind to a complete halt. It may be best to say the economy had absorbed the increase in commodity prices, and that the goal shouldn't be to try to drop them back, but simply stabalize them near the level they are at.

We must also be wary of popping the commodities bubble. So much wealth has gone down the toilet over the last few years that some funds have become dagerously exposed to the commodities markets. Popping the commodities bubble may only make the "solvency", (this is about more than subprime now), crisis that much worse.

Now here is an off the wall idea. I have over the past couple years here complained often about the currency markets and the need top stabalize the functioning of the gloabl economy by having a new Bretton Woods. I have also readily admitted how unrealistic that is. But there is a commonly used tool that accomplishes much the same. Pegging currencies. This is a tool used mainly by developing economies to increase faith in the stability of their currencies while they grow. But what if major economies also adopted the tool? I imagine there would be great resistance from a national pride standpoint, but I do think it's an interesting thought which deserves some level of consideration.