"In a dramatic shift, the U.S. branches of foreign banks became net borrowers of dollars from their overseas affiliates for the first time in a decade, Federal Reserve data released last week showed."
http://www.reuters.com/article/2011/08/18/banks-europe-fed-idUSL5E7JI0Q20110818
The dollar carry trade is in full swing. The euro banks avoid currency conversion by borrowing/shorting dollars from their US branch. They go out and buy assets with the borrowed dollar. Potentially commodities and/or bonds.
If the US dollar reverses hard, a euro bank unwind will weigh heavy on the respective held assets. The USD ETF chart shows a monthly potential for a H&S that takes USD to zero. The banks have little confidence in continued use of the USD. That H&S is only a left shoulder and head, so a drop to $24, recoil to $35.50, then terminal drop to zero. This is a dooms-day scenario.
A more likely scenario is a rebound from $25.50 to $42.50 (50% retrace, potentially in progress), followed by a drop to $10.00 mid 2012 or $15.00 by late 2012. This could spell severe inflation of commodities, but a rampant 50% rebound from $25.50 to $42.50 would surely cause euro banks to unwind their carry trades (possibly in commodities, stocks, and other assets), potentially forming another 2008 asset-class downturn.
If you thought 2008-2009 was a bottom, the consequences of a US dollar collapse may introduce even greater volatility. This kind of move would fulfill a secondary 10 year lost decade starting at 2008 lows and lasting until 2018. Less of a dooms day scenario, but a horrible defeat to mid-term investors (baby boomers holding off retirement).
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