The dollar’s weakness just a temporary market blip? Are you joking?

The United States provided the trigger for an extraordinary credit crunch in August, thanks to the troubles in its subprime mortgage market. Merrill Lynch has just announced $8.4 billion of write-offs, and Citigroup is leading a (probably doomed) effort to put together a $75 billion bail-out fund for the snazziest, most incomprehensible and unpriceable securities. American house prices are falling nationwide, the first time such a national drop has taken place. The economy has slowed, by a full percentage point in the past year. To meet the payments on its international current account, the country has been borrowing the equivalent of more than 6% of GDP each year. The Federal Reserve has begun to cut interest rates, and is widely expected to cut them further. In such circumstances, wouldn’t you expect the dollar to be falling?

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