Despite constant news about the weakening of the Dollar against the Euro, the American currency still is strong compared to the currency of many of its trading partners in Latin America and Asia. The Brazilian Real is a case in point.

Although the dollar has fallen about 20% compared to the Real since 2002, this decline was almost entirely due to recovery from a collapse of the Real after the election of Luiz Inacio Lula da Silva, a leftist union leader of the Worker’s Party, as president of this large and important country.

As an self-proclaimed “old friend” of leftist dictators Castro of Cuba and Chaves of Venezuela, the election of President “Lula” sent chills through the international financial markets.

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In financial circles, discussion about the economy often is between people who believe that the federal reserve bank has power to control interest rates and inflation.

Arguments revolve around how fast the Fed should raise rates so as to hold down inflation without choking off business recovery.

For many, it is comforting to assume that the Fed actually determines interest rates and inflation and that the only question is how it should use this power. This reassures the nation that the government is in control.

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Over the last generation (since 1983), every two or three years the United States has had a fiscal deficit greater than in 2004, relative to the Gross Domestic Product.

Two of these larger deficits occurred in 1991 and 1992, during the Clinton Administration. Steve Verdon, on Deinonychus antirrhopus, presents several charts illustrating this point, along with links to sites that expand further on the matter.

The 2004 fiscal deficit, although high, occurred at a time when the trade deficit was even higher — a true record level relative to the GDP — and therefore there was an ample supply of fixed-income-oriented investment funds available to absorb the fiscal deficit, thereby keeping inflation under control and interest rates down.