The Down, Down Dollar

Anyone who has crossed the border into Canada recently, not to mention Europe,
doesn't need an elaboration of this post's title.

Today's Wall Street Journal gives background and lays blame -- in the process seemingly going against Wall Street's own fervent desires.

To understand the dollar's current woes, you have to look elsewhere -- to monetary policy and economic management. The supply of dollars in the world is ultimately controlled by a single source, the Federal Reserve. With its aggressive easing in September, and again in late October, the Fed has signaled to the world that it cares more about creating dollars in the hope of limiting U.S. credit problems than it does about the dollar's value. Investors can see this, and so they are dumping dollars and looking for other assets to hold. This includes commodities such as gold, which is now at $835 an ounce. The nearby chart from economist Michael Darda gives a sense of how far the dollar has fallen this year.

The world can also hear the silence from U.S. economic officials, whom they have come to believe are content with the dollar's decline. Treasury Secretary Hank Paulson mouths the ritual lines about a strong dollar, even as he keeps pressuring China to revalue the yuan. Fed Chairman Ben Bernanke yesterday told Congress that inflation remains a risk, which shows that he at least has noted this week's dollar rout. But his previous actions have left him and the Fed with a growing credibility problem that is perilous for any central banker.

I am not an adept in the dismal science, and would appreciate any "takes" by those better tutored than I.

Robert P. Imbelli, a long-time Commonweal contributor, is a priest of the Archdiocese of New York. A book of essays in his honor, The Center Is Jesus Christ Himself, edited by Andrew Meszaros, was published this year by The Catholic University of America Press.

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