This week it was revealed that the euro and the yen have supplanted the dollar as the currency of choice at foreign central banks.
This is a major development, but one that has been a long time coming.
According to Barclays Capital, over the last three months, banks put 63 percent of their new cash into euros and yen, and just 37 percent into dollars. A decade ago, the dollar's share of new cash in central banks was two-thirds.
The once mighty dollar has fallen considerably as the currency choice.
The IMF says that dollars currently account for about 62 percent of the total currency reserve at central banks -- the lowest on record.
The printing of trillions of dollars by the Federal Reserve – the very definition of inflation – has sparked concerns that the value of the dollar is eroding. That has sparked a worldwide flight to other currencies.
Investors and central banks are also snubbing dollars because near-zero interest rates are keeping the currency too weak.
Those investors and central banks are getting paid back by a currency that is worth 10 percent less in the past three months alone. In a decade, it's down nearly one-third.
The only thing that will stem the tide is for the Fed to raise interest rates – considerably. Some economists think that rates may have to spike to the high single digits to make the dollar attractive once again.
That would kill any economic recovery by halting investment and growth. Stocks would nosedive and housing would be further crippled.
The massive amounts of excess liquidity floating around world markets would also have to be mopped up by the Fed – a considerable task.
According to Peter Schiff, president of Euro Pacific Capital, Ben Bernanke's other choice is equally stark.
"Bernanke's other choice is to keep rates at zero, print even more money and sell more debt, but we'll see triple-digit inflation that could collapse the economy as we know it."
It's hard to decide which is the lesser of two evils. Either choice seems like a Faustian bargain.
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