Congenital optimists see the dollar's fall as part of a necessary rebalancing of the world economy. Without a change in exchange rates, the US current account deficit is on an explosive path. It could widen from its current 5-6 per cent of US gross domestic product to 8 per cent in 2008 and 12 per cent in 2010.

In reality, deficits of this magnitude are not something that foreigners would willingly finance, especially in so far as they reflected chronic budget deficits rather than high levels of private investment. At some point foreign investors would pull the plug, and the dollar and the US economy would come crashing down. A smooth and moderate decline in the dollar that narrows the US current account now is thus preferable to a sudden and potentially catastrophic fall later.