Dollar's Dip Shows Greenspan in Denial

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Just about everyone is worrying about the tanking dollar and the enormous U.S. trade deficit. So it's high time for Alan Greenspan, the nation's central banker, to step in and tell us how we might deal with the wilting greenback.

Instead, the Fed chairman has made a speech that will go down as the one of most flagrant pieces of self-serving tripe in financial history.

The markets slumped after taking in the speech, because investors thought they detected real alarm and concern about America's deficits in Greenspan's comments. But a close reading of the text betrays something far more serious that will steadily eat away at investors' confidence in this country and its currency. The problem starts with easy credit and Greenspan's refusal to acknowledge its many side effects.

The speech, given last Friday at the European Banking Congress in Frankfurt, clearly shows that Greenspan is refusing to deal with the root cause of the dollar's slide because his policies are the main reason for its decline. Now it very much appears that Greenspan will pull up short of doing what's necessary to fix the current account deficit, because it would mean admitting that he's created the mess that led to the blowout trade deficit.

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Since Greenspan almost never admits he's wrong, the Fed -- under him or one of his acolytes (he's likely to retire in early 2006) -- almost certainly isn't going to change course. This makes it increasingly likely that America will be laid low by the mother of all currency crises before long. It's incredible to think that in a governmental system known for its checks and balances, the pride of one man could cause the fall of the world's largest economy. But that's what we're looking at here, going by the central banker's Friday speech.

Greenspan couldn't wait much longer to give this speech, with the dollar having fallen to all-time lows against the euro -- the European currency climbed to $1.31 Tuesday -- and with the current account deficit at a record 5.7% of GDP in the second quarter (the most recent number available).