The US dollar fell sharply this week, as evidenced by gold’s reaching prices not seen since the days of Bush senior. Even as oil retreated in price from the $70 per barrel level reached in the days following Hurricane Katrina, and gasoline was finally found in parts of the US for less than $3 gallon, gold seemed to find its own momentum.

What happened to the dollar to cause it suddenly to buy so much less gold? The short answer is a lack of confidence in its issuer, our own US government. Of course, our dollar isn’t helped any by the oil shock our economy is experiencing, nor by the prospect of increasing budget deficits that will follow federal efforts to rebuild after Hurricane Katrina.

The real shock of Katrina was not so much its foreseeable destruction, but rather the impotency of the US response to a genuine emergency on American soil. The “Economist” of London made a cover story of “The Shaming of America,” leading the article with the following:

“Even America’s many enemies around the world tend to accord it respect. It might be arrogant, overbearing, and insensitive – but, by God, it can get things done.”

“Since Hurricane Katrina, the world’s view of America has changed. The disaster has exposed some shocking truths about the place: the bitterness of its sharp racial divide, the abandonment of the dispossessed, the weakness of critical infrastructure. But the most astonishing and most shaming revelation has been of its government’s failure to bring succor to its people at their time of greatest need.”

You could easily argue the Economist’s so-called "shocking truths" about our country, but there’s no denying their basic point, that the US failed to get it done in New Orleans. Images from that disaster do not inspire confidence.

For instance, was there not one soldier or FEMA official with a satellite phone and the ability to report up the chain of command the fact that thousands of people were stranded without resources, not in some inaccessible submerged area of the city, but on high ground, in the heart of downtown New Orleans at the Convention Center? Obviously not, and on Wednesday after the storm struck that fact was broadcast to the world’s TV viewers. The next day FEMA’s director Chertoff was interviewed on radio and embarrassed all of America by displaying total ignorance of that situation, calling such reports “rumors and anecdotal stories.”

It may be a stretch to link gold’s rise to our failure to use Chinook helicopters to drop a few pallets of food and water in downtown New Orleans in a timely fashion, but we should remember, always, that a confidence game is afoot, i.e., the dollar’s value depends entirely on the world’s confidence in us.

Politically and militarily, we find it easy to ignore the world’s opinions of us. But as issuers of the dollar, we shouldn’t be surprised if what was once the undisputed reserve currency of the world isn’t immune to those opinions