forget deflation .. inflation set to soar .., page-64

Heremes,

The US dollar is definitely going down, because the US authorities want it to go down. They are blasting money supply into the banks and the general economy - have been doing so for a year.

It hasn't worked in 2008, because the credit crunch has been the worst the world has ever seen. However, the response of one central bank (and one, alone) has been something which the world has never seen before, either. You cannot do this, and escape consequences:-






Bernanke and Paulson are doing their damnedest to make the USD go down. Other countries are trying hard, too, but who else has done what they have done? Nobody.

Currency traders are traditionally a dull and slovenly lot (their reputation otherwise is media crap). Eventually, they will get the idea that the US wants/needs the dollar to devalue massively and that official policy has become the same.

You should read Bernanke's Helicopter speech. It contains everything you need to know. The last few paragraphs are instructive. For example:-

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.

Never discount the pig-headedness, lack of common sense and commitment to dogma of a lifetime academic. Bernanke will create inflation. He will destroy the entire country to do it, if necessary, because he sincerely believes that the country will be destroyed without inflation.