Why QE2 Will Not Hammer the Dollar

I am bullish on the US dollar over the near term.
I know that the QE2 is being waved as a major bearish factor for the US dollar. But, so far, little new money has been created by any of the easing done by the Fed. Because of the structure of the fractional reserve system in the US, little new money is going to be created by the Fed over the coming half and perhaps even over the coming year.
Money is created by the Fed creating reserves, which it has done in an insane manner, and then the banks must use those reserves to lend money. Creating new money requires both of these actions.
Right now, there is no expansion of bank credit so there is not any expansion of the supply of US dollars.
On the other hand, there is a sharp increase in the demand for dollars due to a flight to quality. This flight is being caused by the worries over the Korean situation and the fiscal crisis in Europe.
This increase in demand for the dollar comes in the context of an overvalued euro. My analysis suggests that the euro is about 30% over valued. Currencies can stay over valued for a long time but, eventually, value will out.

In addition, bearish news for a currency that is over valued tends to have an out sized effect but bullish news tends to be muted.
So my approach is to focus on the bullish side of the dollar over the coming weeks.

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