I think it’s a big misconception that the falling dollar is somehow the Fed’s fault. First of all, the dollar has weakened, but this doesn’t make it cheap. A different point of view is that it was extremely overvalued not long ago, because of all the capital inflows chasing the new economy supposedly built here. I remember talking to a friend at UBS in 1999, and she was very nervous back then about the dollar being “obscenely overvalued”, as everybody from Europe, Asia and the Middle East was busy piling into it.

Now we see the same thing in reverse. On top of that, we’ve had rather large budget and trade deficits lately. That’s not really the Fed’s fault, either. The administration is mostly to blame for the budget deficit, and the overvalued dollar itself (and China’s policies, to some extent) for the trade deficit.

If you think interest rates are to blame for the dollar’s fall, think again. Fed fund rates are now just a tad lower than ECB euro rates, and were actually quite a bit higher in 2006 and 2007. It’s not higher euro rates that caused the dollar drop, it’s fundamentals. The dollar was way overdue for a correction, and like all “bubbles”, the only question about the dollar unwind was its timing. My friend was way early in 1999, Buffet was kind of early as well (in 2003, I think), but it finally happened. Don’t blame the Fed for it.