Dollar losing global muscle

Kansas City Star: Since the beginning of the year, the U.S. dollar has been slipping steadily against other currencies and has given up much of the strength it gained in 2005. Is the Bush administration concerned about this? The financial markets think the answer is no, and that's a problem.
If you want to get technical, the administration's policy -- in the words of Treasury Secretary John Snow -- is that "a strong dollar is in our nation's interest" and that currency values should be set by markets.
But the financial markets, reading between the lines, are convinced the White House wants the dollar to drop even more. After all, the White House has been badgering the Chinese, along with other trading partners, to let their currencies rise to make American exports cheaper in those markets.
By seeming to go along with the fading dollar, the administration is playing a dangerous game. Foreign capital has played a big role in keeping U.S. interest rates low.
Free fall interest
If the dollar's slide becomes an uncontrollable free fall, interest rates will skyrocket -- otherwise the Treasury couldn't sell bonds to finance the federal deficit.
A weak currency also contributes to domestic inflation because a falling dollar makes imports more expensive. If inflation gains a foothold in the economy, the Federal Reserve would have to raise interest rates much higher.
Rising interest rates could slow growth and threaten many more jobs than have been lost due to foreign competition.
Currently, the economy is humming along well. The unemployment rate is low -- only 4.7 percent -- and growth has been solid for three years. Yet no matter how well the economy is doing today, a future with a debased currency is an extremely gloomy prospect.