The value of the dollar has been declining for six years - six years! And, during this time all we heard from the Bush administration was that the administration supported a 'strong dollar.' The Bush government then went off on its own, merry way.
We are just beginning to see the extent of the Bush legacy, and it is not pretty. On Thursday, the Wall Street Journal headline was: "Inflation, Spanning Globe, Is Set to Reach Decade High!"
In the United States alone, it is estimated that securitized debt rose at a compound annual rate of about 7% for the past sixteen or seventeen years. In addition, the estimated volume of derivatives placed rose at about a 12 % compound annual rate over the same time period. This produced bubbles in asset values, even though inflation rates as represented by the consumer price index did not show much increase.
The consumer price index includes rent or as estimate of rental value - it does not include asset prices. Bob Shiller has estimated that the United States has never seen, in the past 150 years or so, a spike in rising housing prices as we have seen in the past eight years! And, the bubble has spilled over into commodities, especially gold and oil.
The Bank of England did cut its key lending rate Thursday morning, but the European Central Bank did not move its rate. Inflation still is the major concern of the ECB, as it is for much of the rest of the world.
The United States is 'out-of-step' with the rest of the world because the Bush administration had to 'go-it-alone' in terms of economic policy, as well as foreign policy. Now, we are reaping the consequences of this go-it-alone attitude.
On Tuesday evening, Paul Volcker claimed that we were in a 'dollar crisis.' I believe that he is right and that we, and the next President, will be working to resolve this situation for several years into the future.