August 8 should be an interesting day, because that's when the Fed meets to decide whether or not to continue raising interest rates. Most economic pundits say that we'll get a reprieve because there are clear signs that the economy is slowing. But it's a mixed bag, because inflation is clearly taking off (consumer inflation is now estimated at 5%), while the economy is clearly slowing down rather dramatically. Bill Gross of Pimco is saying that the Federal Reserve will not only stop raising rates, but it will also start lowering them in 2007.

But let's look at this from an international perspective on the Federal Reserve decision. The St. Louis Federal Reserve has basically come up with a report that the United States is bankrupt. The IMF has just stated that
they believe the U.S. dollar is currently 15-35% over valued. Rising interest rates attract money to a currency, but when that stops, watch out.

But there is also something else that is now unprecedented since Bretton Woods in 1944. The central bank of Italy has announced that it no longer trusts the U.S. dollar as a reserve currency. It's cut its dollar holdings down to 63% and buying British pounds instead. And it has not only sold off dollars it was holding but treasury bills as well. If this starts to send a message to other foreign banks, then the implications are profound indeed. Remember when people used to tell you that buying a treasury bill was a "Risk Free" investment. Well, that could begin to change.

I'm not going to suggest what to do, but if you have been reading my weekly email, Tharp's Thoughts, you may have some idea. You'll notice that very little of this seems to make the U.S. press.