The world is presently engaged in a potentially lethal round of competitive devaluations. The G7 countries are resisting joining the rush to competitive devaluation, but they are hanging on only by the skin of their teeth. The European Monetary Union (EMU) depends on the G7’s ability to hang on, with one G7 member, Japan, the "victim" with a rising currency.

Unless the U.S. can rescue its banking system — and then rein in the massive money creation that was necessary to save the banking system — it will develop runaway inflation and a dollar devaluation to end all devaluations. It is possible that instead of being too big to fail, some U.S. banks are too big and laden with toxic paper to save. The U.S. could get runaway inflation and a crippled banking system at the same time.

Incoming Treasury Secretary Timothy Geithner stated strongly that he believes a strong dollar is in the U.S.’s best interest — the mantra of former Treasury secretary Robert Rubin from the Clinton Administration. During the first 100 days of the Obama Administration, we have no reason to believe the U.S. will abandon the strong dollar "policy." But later it may have no choice. And how far away is "later"? It’s probably not beyond the current calendar year.