[William Cloud Hicklin]

The US dollar first started to fall in value under Nixon in the early 1970's when he decoupled it from gold and allowed it to 'float' on the international market. While it is true the dollar had up to that point been hugely overvalued (360 yen and 4 Deutschmarks), that decision coupled with other factors were a significant part of the reason for the massive inflation of the later 70s.

The dollar's fall in 1984-85 had few adverse consequences as it was an organic response to ordinary balance-of-payments issues. The plunge this year, on the other hand, stems as much as anything from seeking a natural level vis-a-vis the artificially *undervalued* Chinese currency- complicated of course by spiking oil prices, and very low interest rates which make US securities unattractive to investors. Sarbanes-Oxley hasn't helped in that latter regard. So whether severe inflation results- we'll have to wait and see.

It is however interesting that so far the housing/subprime mess has caused little damage to the broader economy because the ~2% of GDP lost there has been mostly balanced by a 1.5%/GDP increase in exports- a result of the lower dollar.