We are likely to have a currency crisis long before we have any risk of inflation. Various academics are saber-rattling in the Chinese media that they should be getting more out of their continued support of the dollar, and suggested such goodies as unrestricted purchases of US assets (no more Unocal turn-downs) and access to US advanced technology. I doubt that we will go along, and wonder how hard China will press the issue. If our imports from China have fallen dramatically (not at all impossible) they may feel they have little to lose in playing hardball (if they believe the dollar will tank in the end regardless, they have little to lose by calling our bluff).
I was just in Europe, and the small but very plugged in group I met with is very distrustful of the dollar, but isn't keen about any other paper currencies either. They think sentiment will switch to the Euro once we get further through the Eastern European mess (that falls in Austria's lap, which in turn falls in Germany's lap). They think the dollar goes to 2 or 2.5 to the euro in the next couple of years, but think the dollar will rise further before it turns.
The point is that too many non-US parties have their eyes on the exit as far as the dollar is concerned. Not a good sign.
I am not smart enough to know what the outcome of a dollar crisis would be, but I expect it to be ugly.
Comment thread: https://www.blogger.com/comment.g?blogID=3782644139927778760&postID=6616308780296695626&isPopup=true
Blog post spawning the comment thread: http://www.nakedcapitalism.com/2008/12/fed-ponders-issuing-debt-to-finance-its.html