Loanable dillemma.

Greenspan warns dollar to fall victim to current account deficit - Telegraph
Keep Fingers Crossed For a Hard Money Fed - Yahoo! News
Deficit spending - Wikipedia, the free encyclopedia

This situation now:
1. The credit crunch means that the supply of loanable funds has decreased quickly, and the price of debt has increased.
2. The high price of gold and the low international value of the dollar indicates some inflation pressure.

As of today, the Federal Reserve has to choose between increasing the supply of loanable funds (1) or decreasing the supply of loanable funds to fight inflation (2).

How we got here:
1. The .com bust led the Fed to lower interest rates.
2. The war in Iraq was funded largely through debt, which raises interest rates.
3. Refer to 1, the Fed had to spend more money to overcome the upward pressure on interest rates caused by the war.
4. The future returns which the market expected to see from the war in the form of lower oil prices has not materialized, and the deficit budget continues.
5. And Oh yeah, the sub-prime mortgage lenders didn't pay attention to who they were lending money to, so the foreclosures are creating a distraction from forward moving activities.

Note: None of this is intended as an argument against the war, These are comments on the consequences of deficit spending, not foreign policy.