The big question though is will their creditors pull the plug on...

The big question though is will their creditors pull the plug on the dollar thereby collapsing the US economy very rapidly???

I don't think they will anytime soon as they need US consumption to drive their exports, but that said I also don't think they will sit on the sidelines and watch the value of their dollar and treasury holdings keep declining the way they are.

These are very interesting times indeed....What a choice China faces, pull the rug out of the dollar or keep buying US treasuries???

As for interest rates, I will be very surprised if they increase rates in 2010 because this will surely increase the interest payable on their debt. I think Bernanke is intent on trying to print the US out of this. Once the liquidity gates are open they are very hard to close in fact they will never close as it would be too painful.

It may already be too late to increase rates. A declining US dollar is a symptom of Quantative Easing - Printing money - debasing your currency = Hyperinflation.

History says it all, no matter what the economic circumstances are if you increase the money supply - inflate the money supply - you end up debasing your currency which basically means that Hyperinflation follows. Look at gold, oil and other commodities. Look how the US dollar has depreciated against them. They are all priced in US dollars so when they say Oil or Gold has increased in price, what they are really saying is that the US dollar has declined in value against these resources, i.e the REAL ECONOMY.

The US is caught in a debt trap and they cannot escape it unless they just own up and default - which will never happen as they are the reserve currency.

They could increase taxes to astronomical levels - highly unlikely as there would be another Civil War.

Historic times ahead.

Good luck to all...