THE DOLLAR: No Longer A Safe Haven

During past global crises, nervous investors around the world followed a simple course of action: they bought dollars, the classic safe-haven currency. Not this time. As tensions increased in the gulf, the U.S. currency finished trading in New York last week at a 42-year low of 1.55 German marks to the dollar.

The unloading of the dollar reflects the precarious condition of the U.S. economy, which may be in a recession. The government provided further evidence of trouble last week when it reported that the Consumer Price Index rose a steep 0.4% in July. The surge, which came before the gulf crisis drove up oil prices, indicated that the U.S. could be headed for its worst round of economic stagflation — the painful combination of falling growth and rising inflation — since the 1970s.