The dollar's dive to record lows against the German mark is weighing heavily on U.S. financial markets but doesn't seem to be upsetting too many people in the White House.
Indeed, some in the administration view a cheaper dollar as a ticket to accelerated exports and, hence, growth in the anemic U.S. economy.The little growth in the gross national product of late has stemmed largely from exports, the argument goes, so why not demonstrate benign neglect and let the dollar slide even further?
But its breathless decline to below 1.40 marks is a symptom not only of the persistent interest-rate gap between low-rate America and high-rate Germany but of dwindling confidence overseas that the United States is serious about reducing its deficit.
President Bush's vague "across the board" tax-cut plan, unveiled in broad strokes at the Republican convention, did little to bolster confidence. On the contrary, the markets viewed the promise of an ill-defined tax cut as blowing smoke in mirrors.
Whether a depreciating dollar will help the president's re-election prospects is doubtful, because the effect on growth would not be strongly felt until next year. Under any circumstance, a diving currency is risky for the United States, especially in a political season when markets tend to be hypersensitive.
Over the long term, a plunging currency risks ushering in higher inflation as Americans have to pay higher and higher prices for imports. For now, that danger is limited: Consumer prices have shown little upward trend and energy prices have remained in an amiable range around $20 a barrel.
In the shorter term - if the perception grows that the government and Federal Reserve are unwilling to put real muscle into reversing, or at least braking, the decline of the nation's currency - foreigners may dump dollar-denominated securities.
To stanch a run out of U.S. assets, short-term interest rates would have to be ratcheted up (so foreigners would receive a decent return on their investments).
Lest we forget, the stock-market "crash" of October 1987 had a lot to do with dollar troubles - a perception that the Group of Five leading industrial nations, specifically the United States and West Germany, could not get their act together in coordinating policy on interest rates and deficit reduction.
If the president declines to be more specific about a tax cut and if he declines to make a deliberate effort to defend the currency, chances are the dollar will be hammered further.
Former Federal Reserve chairman Paul Volcker perhaps put it best in a recent book, "Changing Fortunes": "A decline in the value of any currency, especially when repeated, is typically a signal that something is wrong."
Any thought that a softer dollar will make U.S. goods more competitive abroad and Bush more competitive at the polls is probably misplaced.
(Warren Getler is associate editor of Foreign Affairs.)