www.washingtonexaminer.com: Dollar could collapse - Bernanke may need Rosy Scenario's help to stem inflation - by Irwin M.Stelzer

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Dollar could collapse - Bernanke may need Rosy Scenario's help to stem inflation - by Irwin M.Stelzer

Now, just as the economy might be picking up, all of that cash has driven the inflation rate to almost 3%, “a sure sign of inflation … Enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation … are harbingers of inflation”,” according to Allan Meltzer, an economics professor at Carnegie Mellon University.And not just your garden-variety inflation, observers fear. Andy Xie, former chief economist at Morgan Stanley, writing in the Financial Times, expects inflation so severe that, along with some changes in China’s policies, it could produce a “collapse” of the dollar. Bernanke now has to decide whether the green shoots foretell a sustained recovery, and whether his policies and President Obama’s trillion-dollar deficits therefore threaten to trigger inflation. If the answers are “yes,” he then has to begin withdrawing cash from the system. That will displease his political masters, who do not want anything to interfere with a recovery on the eve of next year’s congressional elections.