the dollar doldrums return

One of the ironic implications of the recent financial crisis was a flight to the (perceived as relatively strong) U.S. Dollar. With the crisis fading (or seeming to do so), the correction to that flight (can we call this a bubble?) is occurring and the decline of the dollar will get back to business.

The only way to fix the problem: more restrictive monetary policy, and especially, an end to our insane fiscal policies-- including, most notably, the bailouts. In a word, we have to get over our allergies to a recession, take our lumps, and then move on.

The above chart is from a recent editorial in the WSJ...

As it has so often in recent months, the market elation that greeted the Federal Reserve's epic monetary easing earlier this week has turned to worry. Stocks fell off again yesterday, but the big news of the week has been the slide in the dollar.

The nearby chart shows the greenback's story since September. From its dangerous summer lows, the buck soared at the height of the credit panic as investors looked for safety in a hurricane. But the dollar has fallen like Newton's apple in December, as Chairman Ben Bernanke and his comrades signaled that they are willing to cut interest rates to near-zero and print as much money as it takes to prevent a deflation.

We hope Mr. Bernanke considers this to be the warning it is. The Fed chief is saying what central bankers always say, which is that he'll remove all of the excess money he is now injecting into the economy when the deflation fear subsides. But currency markets are a running referendum on that promise, and the dollar's plunge is a sign that the world's investors don't believe Mr. Bernanke's promise.

And why should they? Across this decade, the Fed has proven that it is far better at adding liquidity than at removing it....

Meanwhile, the newly triumphant Democrats keep raising their "stimulus" spending target....