November 15, 2004

The almost continuous decline in the value of the dollar since the middle of 2002 has catapulted the foreign exchange value of the dollar to the forefront of financial discussions and editorials. The recent increase in the price of gold and the decline in the foreign exchange value of the dollar have been interpreted as evidence that inflationary pressures are raising. While logically consistent, the argument makes an implicit assumption regarding the organization of the monetary system. The analysis presumes that the Fed is no longer operating under the price rule. In the past we have criticized the Maestro for abandoning the price rule. However, we have no evidence that he is doing so at this time.

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