Renewed U.S. dollar weakness has evoked calls for Washington to implement a true strong dollar policy.  Larry Kudlow is calling for a supply-side cut of marginal corporate tax rates and for the Federal Reserve to hike rates 25 bps in support of our currency.  He knows “none of this is gonna happen.”  Others believe the focus should be trimming our massive federal deficit.  A move to fiscal and monetary restraint is surely needed to help stabilize the dollar.  Restraint is not going to happen.

Perhaps chairman Bernanke tossed a tiny bone to the currency markets yesterday evening.  Yet everyone in the world knows U.S. policymaker focus is on aggressive short-term stimulus with the objective of jump-starting rapid economic recovery.  Officials from both the Federal Reserve and Treasury have stated their view that a strong U.S. economy is the best prescription for a strong dollar.  Simple enough.  So, perhaps they’ll increasingly be compelled to tweak their comments in hope of influencing currency trading.  But don’t hold your breath waiting for a meaningful shift in strategy – say aggressively boosting rates or slashing spending – to protect the value of our currency.  Current policy is not the primary issue anyway.

Non-productive Credit expansion/inflation is the bane of currency stability.  The dollar’s fundamental problem these days lies with the underlying structure of much broader systemic issues.  Indeed, ultra-loose monetary policy, scary deficits, and ongoing dollar devaluation are all consequences of deep structural maladjustments to the services and consumption-oriented U.S. “bubble” economy.