In testimony before Congress this week, Helicopter Ben finally acknowledged publicly what most of us have assumed all along – that the Fed will continue to ease no matter what. As an unstudied idea it sounds do-able, especially with the alleged “experts” who interpret Fed policy on the evening news still working so hard to persuade us that more easy credit is somehow going to reverse a debt deflation. We didn’t monitor the hearings, but we’d be surpised if the Fed chairman’s schpiel did not turn fast and loose during those presumably brief intervals when Ron Paul may have left the room.

With or without Rep. Paul present, you can bet Mr. Bernanke did not include in his presentation a chart like the one shown above. It is a vivid picture of a dollar in mortal agony as it once again plumbs new all-time lows. Since 2002, when the greenback’s bear market began, it has fallen nearly 40 percent. What’s worse, and a fact never even pondered by the pundits, is that the currencies against which the dollar has been losing ground are intrinsically worthless themselves. Keep that in mind the next time you hear some commentator talking about a “strong” euro, or a rampaging yen, for they are strong only in comparison to a U.S. currency so frail that it appears barely able any longer to muster a death rattle.  

Damn-the-Torpedoes

That frailty is what makes the Fed’s damn-the-torpedoes course so dangerous to pursue.  And you don’t have to be an economist to see that danger in the chart, either. How much more pounding does the dollar look like it can take?  And how much of an economic stimulus does the Fed think it can create if its chosen method implies the further destabilization of the global currency system. Unfortunately, the one thing the Fed cannot do right now is appear to do nothing. Seen in that light, a 25-basis-point cut per month over the next several months could simply be a stall tactic, one designed to be ineffectual and harmless while we wait for our tax rebates to arrive in May. If so, it is probably more accurate to say fiscal and monetary policy are being guided now by prayer rather than by politics or, least of all, economics.