As the world burns

The dollar is hitting record lows. Gold and silver are hot commodities always a bad sign for the reigning paper currency. There are rumors of possible bank failures (following a run on one British bank). If the Federal Reserve tries to solve the liquidity crisis by lowering interest rates, that just worsens inflation and exacerbates the dollar s problems.

If the Fed raises rates to prop up the dollar, that forces the banks and hedge funds to confront their mountains of worthless paper and leads ultimately to defaults, bank runs, and bank failures. Clearly the Fed fears the latter scenario more than the former, so by lowering interest rates this month it effectively pulled the plug on the dollar. The Saudis are now preparing to de-link their economy from the US currency, while China is quietly selling off dollar-denominated assets.

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