November 19, 2004 - The trouble with Fed Chairman Greenspan is that he is part of the reality based community. What is worse he talks about it. Just a few hours after the House of Representatives passed the Senate Bill raising America’s credit limit by $800 Billion Greenspan warned Europe’s Central Bankers not to expect relief from the declining Dollar any time soon. Our current account deficit taken with unrelieved budget deficits meant that sooner or later foreign investors were going to be reluctant to finance our growing debt – and Greenspan thought it would happen sooner than later.

Outgoing Treasury Secretary John Snow is not part of the reality based community. Despite his departure for the second term his allegiance has been to the faith based community of the Bush Administration, a community that believes that the Bush Administration can create its own realities by simply wishing it so. Speaking in London the day before Congress raised the limit on the National credit card he ruled out any effort by Washington to help Europe’s Central Banks in their efforts to stem the Dollar’s free fall. He and the Bush Administration have faith that if we just make the Bush Tax Cuts permanent and continue to borrow the costs of our preventative wars, the economy will right itself and the Dollar will again surpass the Euro as the world’s bench mark currency.

The reality based community will be watching next weeks Treasury bill auction to see what effect the falling value of the Dollar is having on the cost of running the nation’s budget deficit. The reluctance of international investors to sign up to carry the US debt will show up in sharply higher interest rates to balance the effect on the lender’s rate of return of the Dollar’s decline. The Wall Street community is already questioning its faith. No sooner had Chairman Greenspan finished speaking than the market joined the Dollar in free fall to end the week. Sometimes all the faith in the world can’t overcome reality.

The rest of us who live in the real world of stagnant wages and rising costs are seeing the result of the Dollar’s decline. The price of imported goods is headed up in the American market place and in our Wal-Mart economy that means every thing that the consumer wants and needs. The days of Wal-Mart TV ads with a smiley face rolling back prices are on the way out.

The declining Dollar means incrementally higher prices for imported energy that we count on to run our cars, heat our homes and fuel the convoys running from Basra north to Taji and the gunships patrolling Fallujah. The faith based community is about to receive a visit from economic reality and it will learn the lesson that the rest of us learned long ago. Reality bites!