The American Spectator

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Despite all that evidence, the administration has been sending signals from day one that it actually prefers a weaker dollar, beginning when then-Treasury Secretary Paul O'Neill noted that a "strong dollar" meant little in policy terms. O'Neill's successor at Treasury, John Snow, continued with the message by asking at a G-8 meeting in France, "What's wrong with a weak dollar?" Now, though, even French President Nicolas Sarkozy is warning that a weak dollar is a threat to world economic stability -- and even supermodels are sounding the alarm.

Unless the dollar's decline is stopped by strong words and concrete actions, and soon, the American economy is in serious danger of sliding into the sort of stagflation -- stagnation plus inflation -- that rocked the nation throughout most of the 1970s.

Again, to repeat, it is absolutely possible to promote a stronger dollar and to let interest rates fall at almost the exact same time -- if dollar stability, rather than a specific target for inflation through manipulated interest rates, is the goal. Increase the value of the dollar, and investors will come running back to dollar-denominated assets...and interest rates can fall, thus expanding the economy. A strong, stable dollar is consistent with low, not high interest rates.

With obvious evidence at hand that dollar weakness is roiling world markets, the Bush administration and the Federal Reserve still may have time to ward off disaster. But that time is fading fast, and an economic Katrina could await if officials don't come to the dollar's rescue.

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