Our readers know that we have criticized our Fed chairman for being behind the curve in lowering rates too late and by too little to avoid a recession.

But most things are relative and, in this respect, Ben Bernanke looks like he is ahead of the curve, at least in terms of the competition — other central banks.

As currency values are relative, this could bode well for the dollar. If so, it may be time to cover some short dollar positions.

The Wall Street Journal headline this week led with the view that, by standing on principle, Bank of England Governor Mervyn King had played "a dangerous game."

The Journal went on to quote Willem Buiter of the London School of Economics, a former bank monetary policy member, saying that the BoE had "deepened the crisis" because of Mr. King's "strong moralistic streak."

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The WSJ also reported an extract from the House of Commons parliamentary committee investigating home lender Northern Rock which criticized Mr. King, saying that the bank should have "adopted a more proactive response" to the loss of confidence in money markets.

As our readers will know, I have been warning of recession since early 2007 and have been calling for lower rates to offset it since the early summer of 2007. So, I agree with all three of the above statements and, as they are Englishmen, I say, "Hear, hear!"

The Financial Times also featured the shocking change of attitude of the new IMF chief, a dramatic U-turn in support of the recent White House stimulus package. Again, I say: "Late, but hear, hear all the same."

In my opinion, poor Ben Bernanke was handed a poisoned chalice by the outgoing Fed Chairman, Alan "It wasn't me" Greenspan. It contained the making of a severe economic and financial crisis, one made up of stealth inflation, a discredited dollar, an economic downturn, and a looming credit crunch and solvency debacle. What a handoff!

Since then, Greenspan has done nothing but shoot off his mouth around the world, offering overtly self-serving opinions that have made his unfortunate successor's task far more difficult.

This should be contrasted with the impeccable behavior of his predecessor, former Fed Chairman Paul Volcker, who has said barely a word in public!

So how is poor Ben Bernanke coping with the poisoned chalice he was handed?

Well, despite the sometimes vicious criticism he has suffered, in my humble opinion Bernanke has done well, considering the massive, often countervailing forces he has had to face.

As I have explained many times, Bernanke has had to balance the forces of stealth inflation (running at, I believe, 9 percent, verses an official "cooked" CPI of 3 percent) and a weak dollar. Both of these call for higher interest rates.

On the other hand, it has been clear for months that our economy has been in contraction for a long time and that the subprime crisis was likely to morph into both a credit crunch and a solvency crisis, all of which cry out for lower rates.

In addition, we must always remember that, although Ben Bernanke is the Fed chairman, he has to persuade a committee to back him — the Federal Open Market Committee (FOMC).

That is easier said than done, particularly as many of them are tempted to believe those "cooked" government statistics and the words of our president and Treasury secretary who, until very recently, were telling us that our economy was sound and healthy!

Although there are valid arguments that rampant inflation does more long-term damage to an economy that does a recession, I feel that politicians are generally more sensitive to recession.

Furthermore, if a recession, compounded by a credit crunch and a solvency crisis, was allowed to run unchecked, it could morph into something worse — much worse.

That is why I (even as an anti-inflation hawk) was among the first to call, in the summer of 2007, for an urgent and major cut in Fed rates.

It led me to be criticized. There was criticism, too, of Ben Bernanke for being too slow and timid in lowering rates.

[Editor's Note: Why the Fed Interest Rate Cuts Won`t Work]

However, it now appears that a growing number of others in the world are coming around to the view that recession is our most serious threat and that "something has to be done to boost the U.S. economy, in particular."

Our readers may also remember that I have always disputed what came to be known as global economic "decoupling" from the U.S.

In other words, I believe that the American economy is still so large that it continues to dominate other world economies to the extent that an economic downturn in America is likely to cause most other economies (which are "coupled" to it) at least to slow down, if not contract.

The last few days of stock and currency market trading have appeared to indicate that this view is now increasingly widely held. If true, it could have a most important impact on the international value of our U.S. dollar!

In the past, even the very recent past, any central bank that lowered its interest rates could expect selling pressure on its currency as international investors sought higher current returns in the currencies of other growth economies.

But if a slowdown in our American economy is now seen to threaten a world wide economic slowdown, then the smart money may well flow to the currency that is perceived to be the likely one first out of recession.

In other words, the economy whose central bank was the first to lower rates! International currency investors may be shifting to look more at total return than current return.

Enter Ben Bernanke. Despite much criticism, he is leading the world towards lower interest rates. But, our dollar did not experience the massive selling pressure that many had forecast!

What has changed?

Well, the rest of world is now beginning to realize that other economies may be facing a downturn and are also in need of remedial action. Therefore, money may flow to the currency of the first patient to receive it and thereby be the first economy to recover — our very own American economy, no less.

What a turn of events that will be!

So, although timid, slow and behind the recession curve, our Fed chairman now appears to be ahead of the competitive, lower interest rate curve. Being early out of recession will count heavily in the international currency markets.

In other words, the general international currency market strategy of only last week could this week be stood on its head as the world realizes the inherent weakness in the economic "decoupling" argument, made popular by Wall Street cheerleaders desperate to maintain investor faith in the overseas earnings of U.S. companies.

So, with the economic "decoupling" theory apparently discredited, I believe that our FOMC will become emboldened on January 30th and may lower rates by 50 basis points, possibly even more if they get really brave!

We certainly live in a fast-moving and volatile world.

But, at long last, I now see the first signs of a possible future turnaround in the international price of our dollar and that is good for all Americans.

Editor's note:
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