I said that an downturn would force the Fed to push interest rates down, and that this would hose the dollar, leading to a falling dollar, and from there import driven inflation, as the cheap crap we buy from Chins becomes more expensive. Well, Richard X. Bove, a respected analast for Punk Ziegel & Co.has just written the same thing.

He’s saying that cutting interest rates to help salvage mortgage lenders will not save them because, “Lower interest rates will send the dollar into a tailspin and wreak havoc in the job market.”

Nice catch 22, but it gets worse, Chinese inflation is surging, it just hit 6.5%, the highest rate in 11 years.

This means that their central bank is going to have to boost interest rates, which will strengthen the Yuan.

Of note, food was a primary component, 18.2% year over year (Pork 49, cooking oil 34.6 %, eggs 23.6 %, fresh vegetables 22.5 %), and this will lead to civil unrest, probably to coincide with the Olympics, unless they reign this in aggressively.

This is going to get ugly.