The Federal Reserve cut interest rates again on Wednesday in an attempt to stimulate the domestic economy. While the combined impact of another rate cut and the impending arrival of stimulus checks in taxpayers' bank accounts may bode well for American retailers, the rate cut may also exacerbate the global food crisis.

That same day, Soledad Requena was one of 1,000 women banging pots and pans outside Peru's Congress, protesting soaring food prices. If the government can't increase subsidies on products like rice, bread and meat, she asked, "Where will we go to eat?"

How does cutting short term interest rates effect international food prices?

Recall that America has been running huge budget deficits the past five years, which largely is financed by the sale of U.S. Treasury Bonds, the government's primary debt financing instrument. Because of these deficits, and the current trade imbalance (importing more than we export), countries who sell us more goods than they buy have a lot of extra dollars lying around.

In the past, the central banks in those countries — including most of Asia and oil producers like Saudi Arabia — have taken their extra dollars and purchased more U.S. Treasury Bonds. They have done this for two reasons: for one, Treasury Bonds have long been considered one of the safest investments in the world, dependably holding their value over long periods of time. Second, by providing us with more cash now, Americans can continue buying their products — a shopping binge which has fueled tremendous growth in economies the world over.

But this cycle simply can't last forever. Lending us money so that we can purchase more good from abroad, then taking the profits from those sales and lending them back to us by buying more of our Treasury Bonds, is akin to having a store meet its sales projections by continually raising the limit on your credit card every time you max it out. Yes, this allows some countries to continue exporting and allows us to continue shopping — for a long time, in fact. It seems like a win-win, but sooner or later our bills must be paid.

When that happens, spending slows — which is the situation we find ourselves in today. Because our economy is propelled by consumer spending, the Fed feels obligated to lower the federal-fund interest rate — the rate banks charge each other for overnight loans — to keep the dollars flowing and the cash registers ringing.

Lower interest rates help spenders at home by making dollars easier to come by. This reduces borrower's mortgage and credit-card payments and making the purchase of new cars, refrigerators, stereos, home improvements, etc., more affordable. But increasing the supply of dollars reduces the value of each bill, which makes Treasury Bonds and other dollar-denominated investment products less enticing to international investors.

With fewer investors interested in buying dollar-denominated investments, the demand for dollars goes down. As supply goes up and demand goes down, the value of the dollar slides. This slide can become self-perpetuating: as the value of the dollar slips, already-low-paying bonds become even less attractive because potential buyers expect that the dollars they will be paid back in the future will be worth less than the dollars they lend us today. So even fewer buyers queue up to purchase our debt.

Here is where food prices come in. As Nathan Childs, a spokesman for the U.S. Department of Agriculture, put it:

Most rice in global markets is traded in dollars. So when the dollar declines, as a foreign currency is converted to dollars, it raises [rice's] dollar value. So some of the increase in global rice prices is due to the fact it was traded in dollars.

But, as the title of this post says — a quote lifted from a devastating piece by Spengler in Asia Times — this global food crisis is a monetary phenomenon. With the dollar having lost nearly half its value against the Euro in the past five years, central banks and investors are looking for more lucrative places to store their extra cash. We've seen a significant run up in the value of commodities like copper, silver, and oil the past year, driven in part by increased demand for raw materials in developing economies, but also driven by investors looking for better returns than what Treasury Bonds pay.

Now speculators have turned their attention to another type of commodity: food. Speculators aren't dumb — they recognize that increasing demand for grains for both food and biofuel is likely to continue for many years. Parking one's money in corn or rice futures is a rational financial decision when the value of the previously preferred investment, Treasury Bonds, is likely to slide.

As Jose Graziano of the United Nations' food program in Latin America states, "This is not a conspiracy theory.... The lack of confidence in the (U.S.) dollar has led investment funds to look for higher returns in commodities.... The crisis is a speculative attack and it will last."

How do we get out of this mess? Of course, increasing grain supply would help meet the increasing demand from developing nations, but increasing supply will take time. Keeping interest rates high and thereby strengthening the dollar would do a tremendous amount of good for global commodity markets. Yes, such a rate increase would hurt the American economy in the short term by hurting those already burdened by excessive debt. But people with dollars in their wallets — and that includes Americans who have been financially prudent — would see a massive increase in global spending power. And, more importantly, the world's poor would see grain prices fall back close to previous levels.

In the end, it may come down to a decision over what's more important: providing financial relief to domestic borrowers who have unwisely taken on too much debt, or making it easier for women like Peru's Soledad Requena to feed their families.