The real lesson of the Euro's ill health

The new's cycle is filled with stories of describing the symptoms of the Euro's ills.
Who bails out the "bailer outers?"

Europe stumbles toward 1931

Ireland denies seeking a bailout

and this uncertainty is not without effect.  As we witnessed during the Greek crisis the dolloar is experiencing a bit of a rally on rumors of the Euro's ill health.  Money seeks the place where it will be treated best and in a time of uncertainty regarding the Euro the dollar looks like a safer bet.  What we need to keep in mind is that "safer" is a relative term and not an absolute.

The problem, as I see it, is that those of the political establishment who believe that deficiets, effectively, do not matter, take this development as evidence of the right-ness of their claims.  If we are in so much risk of rapid inflation, they ask, why is the value of the dollar increasing?

Many of the world's investors are treating the dollar like the least bad currency bet.  Like the young woman who marries the least-bad young man in her small town, the marriage can fall apart rather suddenly once circumstances change.  The dollar is increasing in value not because it is healthy but because the Euro is more sick.

Buoyed by the midguided belief that defecits do not matter, policy leaders are likely to carry forward mis-guided policies even farther.  The problem is that sooner or later our abuse of the dollar will need to be addressed.  The more damage done to the currency in the meantime will result in a larger mess to pick up when the Day of Recking finally arrives. 

The Dollar might experience a bit of a rally but do not mistake it for a recovery.  The price of commodites might decrease but that is not necessarily a new trend.