One of the concerns regarding the dollar, even though it is serving as a safety currency now is the expansion of the money supply.
See this quote from F William Engdahl.
“By the first week of December, that expansion of the monetary base had jumped to a staggering 76% rate in just 3 months. It has gone from $836 billion in December 2007 when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76% year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76% expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300%.”
Amazingly according to Engdahl, the Fed itself is holding $2 Trillion in junk paper. Also, banks are themselves not sending out money as new loans as much as investing in Treasury paper. This is one of the reasons why the banks are not divulging how they are spending the TARP funds, in addition to the fact that if they did this, the public would understand how bad a loss the government would take. He says further…
“That means once banks begin finally to lend again, perhaps in a year or so, that will flood the US economy with liquidity in the midst of a deflationary depression. At that point or perhaps well before, the dollar will collapse as foreign holders of US Treasury bonds and other assets run. That will not be pleasant as the result would be a sharp appreciation in the Euro and a crippling effect on exports in Germany and elsewhere should the nations of the EU and other non-dollar countries such as Russia, OPEC members and, above all, China not have arranged a new zone of stabilization apart from the dollar.”
This is a highly educational article and is very much recommended.
Reference
http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Hyperinflation/hyperinflation.html
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