The last few weeks have seen a recovery in the US stock market, and the price of gold stubborn adhering to a 27-year high price level.

There is a distinct disconnect going on. Stuart A Schweitzer, a global strategist at JP Morgan, summed up the recent post-rate-cut semi-euphoria on Wall Street,

“We weathered the storm. We had the best of both worlds – relief on the inflation front without wrecking the economy. That’s why the markets came back. It was quite an achievement.”

With talk like that, we may soon see Ben Bernanke and Henry Paulson standing in front of a “Mission Accomplished” banner. But gold prices above $700 signal a world-wide dissatisfaction with the dollar and the way it is being kicked around in Washington.

Stephen Roach, chairman of Morgan Stanley Asia, agrees. We are indebted to Casey Research, who cited this squib by Mr. Roach from a recent New York Times Op-ed column:

"Moreover, the more the Fed under Ben Bernanke follows the easy-money Alan Greenspan script, the greater the risk to the dollar."

"Why worry about a weaker dollar? The United States imported $2.2 trillion of goods and services in 2006. A sharp drop in the dollar makes those items considerably more expensive - the functional equivalent of a tax hike on consumers. It could also stoke fears of inflation - driving up long-term interest rates and putting more pressure on financial markets and the economy, exacerbating recession risks. Optimists may draw comfort from the vision of an export-led renewal arising from a more competitive dollar. Yet history is clear: no nation has ever devalued its way into prosperity."

"So far, the dollar's weakness has not been a big deal. That may now be about to change. Relative to the rest of the world, the United States looks painfully subprime. So does its currency."