When is the dollar most pressured on the forex markets? When the market fears inflation. Last summer’s leap in commodity prices, led by oil, fanned fears that the world would become awash in petrodollars. At the same time, reserve diversification to avoid currency losses was a predominant theme. Remarkably, that spike in inflation came amid the worst credit crunch of this (or probably any) generation.

The credit crunch became immeasurable worse in September after the demise of Lehman Brothers and the government seizure of AIG. Inflation fears evaporated and oil prices fell from $147 to 30 and EUR/USD, the object of reserve diversification, fell from 1.60 to 1.23. Despite no measurable uptick in foreign demand in the aftermath of the collapsed credit bubble (aside from Chinese stockpiling), the market caught the same inflation fever that it suffered from last fall, this time with a new catalyst, quantitative ease.

Quantitative ease, “printing money” as critics like to call it, is the next road to perdition for the global economy. The trouble with this argument is that as fast as the Fed (and the BOE and the ECB) print money, the banks charged with putting the money to work in the real economy wheel it right back in the front door of the Fed and stick it back in the vault.

Inflation remains a potential problem down the road if the central banks stay too loose too long. It will not be a problem if only a small fraction trickles out of the central banks down Main St.

If you are a dollar bear, the inflation story looks to be years away from bearing fruit. Best find another rational (like runaway government spending) to make the fundamental case for the position as commodity markets tell us the latest commodities boomlet has turned to bust.