Simit Patel

Paulson Plan: The Death of the Dollar & Free Markets

hi steve,

it is a battle of inflation vs deflation, right now the deflationary forces are certainly at work, though by any real measure -- MZM, M3, even M1 -- the US money supply is increasing, and it is increasing rapidly. at the same time, the US twin deficits are increasing. it is only a matter of time before asia, particularly china, realizes that the US will not be able to pay back those debts, and the US will no longer be able to raise capital via debt issuance. as this becomes more apparent we will see the fed monetize that debt and a hyperinflationary scenario will likely ensue.

we have seen this scenario before. the inflationary depression of argentina in 2001 is a precedent.

the EU credit crisis is interesting and of course a short EURUSD opportunity, which as an active trader I took advantage of and shorted EURUSD at 3720. this is a short-term trend, though, the long-term fundamentals remain unchanged and dollar weakness and inflation are pretty much baked in. USDJPY's decline is evidence of this, as is gold's relative price stability.