Ground Floor: For everyone who's placing bets on when the Fed will hike rates, the answer seems to be: only when inflation kicks in and more Americans are working again. In recent testimony to the US Senate, Federal Reserve chairman Mr Alan Greenspan said that the unemployment numbers could fall close to 4 per cent without being an inflation worry and that the Fed remains "patient".

US interest rates, he said, were appropriate for the condition of the domestic economy. As far as he was concerned, the positive strides in equity prices over the past 12 months was good news and reflective of a recovery.

That economy doesn't need to be reined in right now, and a hike in rates to shore up the dollar isn't on the cards at the moment. It's difficult to know when the US will get concerned about the value of the dollar.

Since they don't believe that its fall is hurting the economy, it continues to slide almost daily. Currency traders reckon being short dollars is a no-brainer right now, despite occasional rumours of possible European Central Bank intervention and regardless of the G7 statement, which condemned excess volatility.

There have been some dramatic daily falls interspersed with bouts of profit-taking, but the trend is still down.

Analysts are talking about targets of $1.35 against the euro, which will mean cheap shopping trips to New York are back on the cards. Over the past two years, the euro has appreciated by nearly 50 per cent against the dollar, which isn't helping potential US shoppers to trip in this direction. But it has made shopping in the US a lot more attractive to Europeans.

However, while the declining dollar is welcome from the point of view of US exporters, such a steep decline will eventually lead to headaches for policy-makers, given that the US needs to attract about $1.5 billion (€1.17 billion) a day to fund the current account deficit. Even the most dedicated shopper isn't going to spend that much on a US trip.

The third-quarter gap of last year was one of the largest on record at $135 billion and, sooner or later, something's got to give. So while, in the short term, the exporters are doing their best to capitalise on cheap prices, many are perturbed that profligate domestic government spending is sending the US heading towards another bout of economic misery.

They are almost united in concern (and derision) about George W. Bush's budget proposals. Dubya claims that he can cut spending, lower taxes and reduce the deficit by half, which is why many people snort that this is not a serious spending plan.

Of course it's not a serious plan. It's impossible. He has received some support from US Treasury Secretary John Snow, who said that even though the budget contains "unwelcome" deficits, the plan serves America's needs of security and economic recovery.

No matter what daft spending issues the US might come up with, they can use the catch-all category of "security" to deal with them.

The Fed chairman is, thankfully, somewhat less sanguine about the deficit than he is about general prospects for recovery.

He believes that overspending by more than half a billion dollars will put pressure on the US's ability to provide "even minimal" government services.

The only way that Greenspan can square that circle is by suggesting that there will have to be increases in taxes. And that those increases will be "debilitating".

So, although he is fairly relaxed about the country's economic performance over the past year and has pledged patience on the part of the Fed, he doesn't seem to endorse the Republican view that you can spend as much as you like on "security" and whatever else they deem necessary and still not raise taxes.

The administration knows that voters won't want an increase in taxes. Its entire governmental platform has been built on promises to reduce them. But if Dubya wants to keep men, women and aircraft buzzing around the Middle East, he's going to have to find the money from somewhere.

It's not coming from overseas investment. It's not coming from increased taxation. All that's left for him is to borrow. Once the government starts dipping still deeper into the borrowing trough, rates will start to move higher again.

The US government will borrow by issuing more bonds. Currently, 10-year US paper is yielding around 4 per cent. So far, bond traders haven't pushed those yields to the levels that would price significantly more bonds coming to the market.

Yet, when supply of paper exceeds demand, investors start insisting on more yield for their money.

It is, of course, both an ever-decreasing and ever-increasing circle. Get everything just right, and you can borrow at the levels that suit you while not nudging inflation into worrying territory. The dollar will stabilise and the necessary investment will flow back in to the economy. Mess it up and higher interest rates won't be enough to compensate for the inflationary pressures that will ensure investors don't, in fact, buy your bonds and put their money to work elsewhere.

Which means that the dollar continues to plunge like a stone, instead of flying like an eagle.

Although, maybe by that time, there'll be someone else occupying the Oval Office, and he can spend the first couple of years of his presidency blaming the mess on the previous incumbent - like they always do.