There are two ways that the dollar can be devalued: through monetary policy or through fiscal policy. Many people, including me, expected the Federal Reserve (which is in charge of monetary policy) to announce on September 21 that they would inject 100s of billions of new dollars into the economy via a third round of "quantitative easing" (QE3). Ultimately, injecting vast quantities of new dollars into the economy will reduce the value of each dollar. Surprisingly, the Fed is hesitating to do QE3.
According to this CNBC article, "Bernanke is not the mad inflationista [the Republicans] seem to think he is." Apparently, pausing at the edge before you toss the dollar into the abyss can get you some positive press. Perhaps he is not a mad inflationista, and maybe the Fed actually understands that destroying the dollar will not help the economy. This CNBC article, "Economy in Congress’s Hands As Fed Runs Out of Bullets", posits that the Fed has done all it reasonably can, and "it’s Congress that is on the hot seat now". Hmm. Maybe. Or maybe Ben Bernanke desperately wants to pull a Krugman and flood the planet with dollars, but he just can't get the other members of the FOMC to go along. In any case, the hesitancy of the Fed to obliterate the dollar using monetary policy brings us to fiscal policy.
Fiscal policy is another story all together -- there is no reluctance to wreck the dollar there. The federal debt is now around $14 trillion, which is roughly the same size as the entire U.S. economy. But various estimates put the federal government's off-the-balance-sheet obligations, such as Social Security, Medicare, Fannie Mae, Freddie Mac, etc, at around $100 trillion -- that's 100 thousand billion dollars. The government is going to have to find those dollars somewhere, and will probably have to print them. As Alan Greenspan so eloquently put it in this article, "The United States can pay any debt it has because we can always print money to do that". Printing $100 trillion will make each dollar worth relatively less, and this will ultimately devalue and destroy the U.S. dollar.
So, even though I am puzzled by the Fed's sudden lack of reckless abandon in pausing before they destroy the U.S. dollar using monetary policy, we sadly can have every confidence that the U.S. congress will follow through and eliminate the value of the dollar using fiscal policy.