The monetarist theory--now the dominant theory of monetary policy--is that one of the biggest, most economically important features of a recession is a flight to liquidity. In such a situation, the demand for tangible money--and, under US law, there is none more tangible than the dollar--will drastically jump, despite a limited supply. Nobody doubts the tangibility of the dollar when they are forced to pay taxes, and if they do, they might find themselves in a cell with a tangible lock and 6 by 6 tangible feet.
The correct thing to do, then, is to expand the money supply. This might happen by a seemingly alarming amount, especially given the highly leveraged nature of our economy. But otherwise a flight to liquidity will shut down the financial system, cause huge losses in "safe" bank accounts and funds, cause massive deflation as money becomes scarce, and cause a nasty depression--which is what happened from 1929 to 1932.
The money supply has expanded from about $800 billion to $2 trillion. Alarming? Maybe, but
1) we're not seeing inflation yet
2) most economists agree that the Fed contracting the money supply was a major cause of the 1929 Depression
3) the Fed is perfectly willing to stall the economy to prevent inflation, which is what they did in 1979 when a shameless monetarist finally was given power. See: http://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_Fe... . It's worth noting that Volcker is one of Obama's chief economic advisors: the guy in charge of economic recovery board.
4) the amount of paper cash has increased by a "mere" 120 billion or so. Most of the remaining cash is sitting in Federal Reserve bank accounts, not being used.
So I wouldn't dump greenbacks yet. If you're like most people few of your assets are in greenbacks anyway.
Finally, if I keep seeing articles like this, I'm buying puts on gold. You heard it here first, folks.
Also, I am single.
http://www.indexmundi.com/commodities/?commodity=wheat&m...
Don't base inflation on your local Safeway.
Core inflation and CPI are different beasts, not used by the Fed.
We are in for a period of deflation despite the central banks' best efforts. After the deflation, hyperinflation isn't out of the question if governments give up on credit money and just start spending freshly printed cash.
a keynesian will say that if you need to stimulate the economy, government spending will help get us out of crises.
the problem that arises with a collateralizing program, like the gold standard is that the monetary supply would be inherently confined by physical discoveries and captures of gold. If it is the Great Depression and you cannot find any more gold, you'd be pretty screwed.