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Hark, the inflationary beast has awoken

This weekend I saw so many signs of a potential US dollar apocalypse. My favorite caramelized nuts in Soho NYC have been raised by 50%. FedEx announced it would be raising prices after the holidays, largely because the dollar is losing value and oil is hovering at $90. The Fed made $9 trillion in loans to private corporates and foreign governments, a disclosure this week that let the world know how much printing we’ve been up to.

But the biggest sign of a potential inflationary spiral coming was Ben Bernanke on 60 minutes.  He stood by the recent Quantitative Easing decision by the Fed, to begin a bond buying program to the tune of $600 billion. He talked about how stimulating the economy and keeping interest rates low would encourage consumers to spend more and therefore encourage businesses to create jobs.  He didn’t talk about how the Fed is waking the inflationary beast in the long term. He played down fears of inflation, aying he was “100% confident” in the Fed’s ability to control it. But just how is the Fed going to mop up all the money once it’s time to raise interest rates. They didn’t exactly act promptly in the mid 2000s, when the housing bubble grew under their noses, due to low interest rates and bogus mortgages.

Scenario: High Inflation -

Just remember – the last time Bernanke was on 60 minutes was in spring 2009, near the bottom of the crisis, to defend saving AIG but let Lehman go under, decisions made within 24 hours of each other.  If I was a large holder of US treasuries, i.e. the Chinese, I would be reconsidering any new purchases of US treasuries, and start getting out of US dollars, because the Fed obviously has no clue. Meanwhile, just take note of all the things you are starting to go up in price. Right now, the dollar’s gasping strength only comes from pathetic items like continuing housing deflation and Euro Zone falling apart.

Inflation's been tame, but the beast is waking -

What would an inflationary spiral look like? HiddenLevers details the macro-economic impact of this and over two dozen other big-picture scenarios, and can help you understand how your investments would be affected in such a scenario. (subscription required)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.