Mound City

It appears that the recent worries about the falling dollar may be assuaged a bit thanks to our European allies. The European Union in fact. The Financial Times published a story today indicating that European politicians are attempting to verbally help the dollar/Euro exchange. The dollar has been steadily falling against the Euro, and indications that China may be seeking to move away from the dollar also raised fears for the dollar.

The European's move is certainly not philanthropic, "This coincided with the first indications that the strength of the euro, which has risen from $1.224 on October 13 to a peak of $1.296 on Monday, is starting to hurt the eurozone," but it will be beneficial to the dollar. More good news comes in the end of the article which reports on the Bank of Japan buying dollars, "in a smoothing operation."

Brad DeLong spent a little time looking at the situation with the dollar; possible implications of a falling dollar and possible fixes. I hope he is heartened by the news.

The world market is worried about an unstable dollar, much of which is driven by recent economic policies of the Bush administration. Certainly through cooperation any major problems can be avoided, but with a clear policy of ignoring the effects of enormous and growing deficits, the administration may not find much good will left.