When Foreign Banks Need Dollars . . .

Please note the bold sections of these Bloomberg excerpts:

April, 1. 2011 (Bloomberg) -- U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Many foreign banks own large pools of dollar assets -- bonds, securities and loans -- funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.

‘Playing With Fire’
“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding -- bingo, you have a liquidity crisis.”

The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world.

This article craftily hints at -- but does not fully explain -- a very dirty secret.

Amid all the inflation hype and hysteria about money being printed out of thin air leading to imminent hyperinflation, as I've said many times in these pages there is a shortage of actual dollars with which to back up all the dollar credits in the system.

Yes, there is ample liquidity for the time being, and that liquidity is merrily providing the lube for market participants to exercise their animal spirits. But at some point, there will be a squeeze.

When the squeeze happens, there will be a run on real dollars that will ignite a short covering rally in the dollar that will destroy the best laid plans of the Fed and the global fractional-reserve banking syndicate.

You will not want to be playing the asset and commodity game when that happens.

The Fed is hoping and praying that you believe in inflation. But unless you and millions of others all around the globe feel the need to spend more and more money on trophy homes, plane tickets, clothes, fine dining, and iPads in the face of rising food and gas prices, it ain't gonna happen.