The history of the U.S. dollar is a long and interesting one. Since the 1800s, the dollar has gradually become an international currency sought after by the international reserves of central banks and governments.

Sparked by a formal agreement after WWII known as the Bretton Woods System, the U.S. dollar was placed on a pedestal by the international financial system. As time progressed into the sixties and seventies, this system imploded due to the fiscal growth of other countries and an increase in deficits in the US. However, the dollar continued to reign supreme with "reserve-currency status" amongst a group of underperforming currencies worldwide.

In the mid 90's, the Federal Reserve Bank was forced to intervene in the currency markets and strengthen the dollar because of its troubling weakness at the time. In recent years, the strength of the U.S. dollar has given ground to other currencies like the Euro and Yen, but still serves as a key barometer of our nation's economic and financial health.

The dollar typically gains strength on negative economic news, as investors tend to avoid assets that depend on economic growth and seek the safe haven in the greenback. With the disappointing U.S. consumer data presented last week, this trend surprisingly did not occur. With the Federal Reserve Bank pumping more money into our struggling economy, the dollar has become so soft, that investors appear to be losing the faith they once had in this financial security blanket.

The Strong Dollar Policy

As you may be aware, a weak dollar causes higher prices for imported goods, drives Treasury rates higher, makes your vacations in Europe cost much more, and negatively affects mortgage rates. The "Strong Dollar Policy" was formulated in 1995 to serve as a beacon of positive hope for investors. It was used as a calming agent for investors who were rattled by the sell-off occurring the previous year and the concurrent all time lows of the greenback. In essence, it behooved the Treasury Department officials to look the public in the eye and recite the mantra that the U.S supports a strong dollar for the purpose of instilling confidence in its currency and to show our national pride.

The U.S. government often tries to have its cake and eat it too when it comes to its "Strong Dollar Policy." A weaker dollar has certain advantages like stimulating economic growth, exports, and foreign investments in our country. Therefore, this current flood of stimulus money being injected into our present day economy serves to help us only in the short run, and may cost us greatly in the longer term.

A present day cost of a weaker dollar compared to the euro is that we are in essence, hampering the economic rebuilding process in foreign countries that rely on selling us products. In order to "act as if" we are team players and to create the image that we are globally focused on other's economic well being, our officials continue to publicly announce that they are focused on maintaining a strong dollar, but our actions don't appear to match our words.

As you can see, the U.S. wants to stimulate growth and dampen the dollar down, but at the same time create a positive selfless and powerful image within their global economic community by expressing confidence in the strength of the greenback. They would never want to admit that they accept dollar weakness as they try to maintain the responsibility of having the world's primary reserve currency before the Euro surpasses it.

Refusing To Give Up The Glory Days

To further explain the psychological underpinnings that drive the U.S. Treasury to routinely reassure us that we have a "strong dollar policy," I must use a story about my father. My father just turned 67 years old this week and he has been an avid tennis player for most of his life. In fact, tennis has been the one outlet he used throughout his life to channel out his stress, anxiety, and to build up his confidence and self worth. He always looked for challenges and even today plays against opponents half his age. He has maintained his consistency as a player, but his speed and strength have surely diminished over time. Whether he wins or loses, age has caught up with him, and his recovery time from a match with one of his younger opponents takes him about four to five days. In fact, he's currently in bed at home with a heating pad on his back from a hard fought win last night.

My mother and I have suggested that he play doubles with some players his own age to reduce the wear and tear on his body. We want him to be able to play this game forever. However, because his identity is so closely tied to playing singles and due to the high he gets from challenging himself, he absolutely refuses to play in doubles matches. To him, it is a sign of giving up, and accepting his age and any weaknesses associated with growing older. I admire my father for his tenacity, but hope he doesn't really hurt himself to the point where he can no longer play at all.

Fear of A Fall From Grace

Upon analysis of the actions of the U.S. administration relating to its handling of the strength of the dollar, it suggests that we are a dynasty that is afraid of being replaced and that we are afraid of showing the rest of the world our Achilles' heel, which is our flawed economic system.

The U.S., just like my father, wants to reflect upon the glory days and hide its weaknesses and internal injuries so that it can continue to go about its business as usual. Our government wants to instill confidence in the public by sticking to a "Strong Dollar Policy," so that they don't fear for the worse as they water us with freshly minted money. It is trying to maintain its pride and place at the monetary dinner table despite suffering from some serious problems that still remain under the radar. It may be that maintaining the image of strength and control over the dollars demise serves to buy us some time to get things under control.

It is my hope that this strategy doesn't backfire for us, as it may one day for my father's tennis career. My father maintains his stubborn pattern of behavior and he is not hurting anyone else, so he can play singles as long as he wants.

For us, if our government maintains its stubborn stance and ignores the fact that we are a global economic community, we lose more than just a tennis match. Hopefully, foreign investors and governments won't one day turn their back on us for having ignored their pleas to really follow through with our promise to strengthen the dollar. One should never promise what they can't deliver!

Dr. Alden Cass, author of Bullish Thinking: The Advisor's Guide to Surviving and Thriving on Wall Street and The Bullish Thinking Guide for Managers, specializes in conducting therapy, performance coaching and phone coaching with senior executives, including high-profile CEOs, traders, financial advisors, doctors, lawyers, athletes, musicians and bankers, helping them to achieve their career and personal goals. He is a licensed clinical psychologist and an expert in helping individuals to actualize their fullest potential within high-pressure and high-stress environments.

He conducted a groundbreaking behavioral healthcare study on retail stockbrokers, which indicated that 23% of the group measured met criteria for major depression. He writes a column for Registered Rep magazine, in which he shares skills to improve financial advisors' performance edge throughout volatile markets. He has created the Bullish Thinking Workshop, Subtle Sales Workshop and The Psychology of the White Collar Criminal Workshop for use in the financial, compliance, healthcare and legal realms.

His company works directly with brokerage houses and hedge funds to assess and improve employee productivity. His keynote lectures and workshops also focus on team building and team effectiveness. His research has been presented at both national and international conferences (A.P.A., ICPP). Cass has also conducted workshops with the Security Industry Association, The Silver and Zinc Institutes, the Money Management Institute (MMI), Investment Management Consultants Association (IMCA) and the London Bullion Market Association.

He has appeared in the following media: The Today Show, Fox News Live, New York Magazine, Business Week, CNN, CNBC, The Financial Times, The Big Idea with Donnie Deutsch, The New York Post, The Daily News, London Financial Weekly, The Washington Post, NY Newsday, On Wall Street Magazine, BBC Radio, Reuter's Business Newswire, The New York Times and The Boston Globe.

You can learn more about Dr. Cass at his websites www.competitive-streak.com and www.innervisionspsychological.com.

You can email questions to Dr. Cass at alden.cass@thestreet.com and he will endeavor to answer them in future columns.

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