There are two main forces tugging at the dollar. The first one is deflation which is caused by de-leveraging and credit destruction along with debt repayment and / or default. This force causes a reduction in the supply of money and credit relative to stuff for sale (i.e. deflation). This is a monster force because there are 50 trillion dollars worth of credit running around in the economy (to say nothing of a $quadrillion in derivatives which in many ways act like a form of debt given that they are promises to pay if some conditions are met - in other words, conditional debt). The second more visible force and the one everyone is focused on is the ever increasing national debt which is funded by Bernanke’s printing press. Bernanke fears deflation above all else because deflation was part and parcel of The Great Depression and Bernanke has sworn an oath that deflation will not happen again on his watch.
What he really means is that he will bail out his insolvent banking pals to whatever degree he is able and he doesn't care if it results in hyperinflation even though the net impact to the people would be much worse for the general population than a deflationary crash. Today Bernanke only cares about the banks but if he causes hyperinflation then he better worry about getting hanged in the streets by the starving masses whose savings have all been inflated away.
In any case, this is a huge battle. Credit has been going away at a rapid pace and Bernanke has been printing and stimulating in order to keep up. So far the results are a mixed bag. Bernanke's main target to prop up with QE was housing but housing continues to slide downward and rising interest rates are only going to make that condition worse. At the same time, some inflationary signs are being seen as evidenced by rising food and energy prices. “Super” gasoline is nearly $4 a gallon in oil-rich Texas
As you can see from the USDX chart at left, the dollar now has to make a choice. It either has to find support here and then bounce big time or it will break down and it could lead to significant more downside. Many are calling for the start of hyperinflation.
Of course, the US Dollar Index cannot go to zero because it is a scam measurement. It measures the dollar not against something of fixed value like gold but rather against a basket of other fiat currencies which mainly consist of the Euro and the Yen. If you look at the crap going down in Euroland - Greek 2 year yields topping 20%, etc. - then it's pretty damning for the dollar to be retesting the lows of 2008 relative to the piece of crap Euro. The other major currency - the Yen - is controlled by a government which is in debt 200+% of GDP and whose country is still struggling after a major tsunami and nuclear power plant disaster. Again, for the Euro and the Yen to compare so strongly against the dollar during a time when those currencies are under such stress really tells you how hated the dollar is - perhaps unfairly so given the state of the competition.
Nobody can say whether people will just give up on the dollar or begin to treat it like it was a safe haven (at least relative to other POS fiat currencies). What will be most telling would be if the dollar takes a big bounce while at the same time gold and silver hold their own or even continue to rise. That would tell me that a significant number of people have given up on all fiat currencies and are now running for the shelter of real money, constitutional money. It would be a signal that people no longer care what currency traders think of the funny money. It would tell me that confidence is being lost in all the scam ridden governments of the fiat money controlled world. Should this become the case, expect major changes ahead. If people lose confidence in the funny money con game then the game is over, period.
