GUATEMALA CITY -- There is a great deal of misunderstanding about why the dollar is in a slump. But it's no mystery. Recently, German Chancellor Gerhard Schroeder was quoted as blaming America's infamous twin deficits for the fall of the dollar. And many financial talking heads murmured with relief when U.S. President George W. Bush stated that his administration was committed to a "strong dollar" policy.
As it turns out, financial markets are unlikely to move in any fundamental direction or change fundamental values on the basis of statements made by one politician or another. Nor is it of much consequence to the value of the dollar if America's budget deficit or its trade deficit narrows in the near future.
It is understandable that politicos and media-sponsored financial analysts can be so wrong. Much of the blame for the confusion in the discussion of the dollar's condition is the fault of mainstream economists.