Hyperinflation on the way?

We already know that the Fed is contributing to inflation by lowering interest rates again in an effort to artificially expand credit in the market. And we know about the recently signed tax "rebate" deal. Beware of government when both parties agree to something. It usually involves spending money with no purpose.

But these superficial measures, while they will likely have a detrimental effect on the economy and inflation, are not the elephant in the room. The question is whether or not more countries will stop using the U.S. dollar and T-Bills as a safe haven for money. Now that the Euro has been established for a decade, there are indication that more countries are moving to Euro as a safe haven. But here is the prisoner's dilemma. Those countries with enormous U.S. currency reserves cannot sell them without setting off a panic that will wipe out there value before they are even sold.

The best that any of these countries can do is gradually shift their reserves to the Euro, the Pound of something else. But with Japan and China and other mercantilist nations, they apparently have no choice but to continue buying T-Bills as a store of value with the extra dollars their central banks retain in order to keep their currency value artificially low to encourage export and discourage imports. The question is what happens when the U.S. ceases to be their largest market? So long as we are their biggest trading partner, mercantilist policy dictates that they keep their currency pegged to the dollar. What happens though when Europe's buying power exceeds the U.S. as it likely will in the near future?

Will they start pegging their currency to the Euro, or is there enough momentum in enough markets to keep them from switching from the dollar any time soon. Keep in mind that the dollar is now the de facto currency in many nations and even the official currency in nations like Ecuador.

So in short, I don't know the answer. The factors are there to make hyperinflation happen, but it appears that there is still too much vested interest in the rest of the world to keep the dollar propped up. It may only take a minor event to convince the rest of the world to abandon the dollar. When that happens, our market is going to be flooded with dollars and that will be when hyperinflation occurs. In the short term, however, we can almost certainly expect inflation to get much worse.