“It will be helpful if Geithner can show us some arithmetic.” That’s a quote from Chinese economist Yu Yongding, poking fun at Geithner’s mission to assure the Chinese that their investments in the U.S. are safe. The U.S. dollar is now starting to lose value, which affects China in two ways: one, it reduces the value of all the bonds and U.S. securities that the Chinese government owns; and two, it raises the price of Chinese exports from the standpoint of the U.S. consumer.

There is no mopping up of all the trillions of dollars that the Fed has injected into the world economy. There is no way to prevent the increase in interest rates without also funding the gargantuan deficit of the U.S. government. These are the symptoms of an incipient hyper-inflation: interest rates shoot up as the currency value dives down.

Gold has started to creep up as the dollar has gone down. There will be another panic, and it will be worldwide. The panic will result in an extreme rout of the dollar. Imagine the dollar losing half of its current value, and you will start to understand the kind of panic that will ensue.