Federal rescue plans are all the rage in Washington right now, for what seems to be everything but the dollar.

RACHEL BECK

FEDERAL rescue plans are all the rage in Washington right now, for what seems to be everything but the dollar. The US currency is not going to get a bailout, even though its steep decline is feeding inflation and straining the economy.

Federal Reserve chairman Ben Bernanke and other officials have assured us that the government is on the case of the plunging dollar.

Talk is cheap - they will not likely do anything about it. That is because the Bush administration, since taking office nearly eight years ago, has not supported any US-led intervention in foreign exchange markets despite the greenback's steep decline. That action would involve buying the ailing currency to boost its value.

"It would take a rare set of circumstances to get the US right now to intervene," said David Gilmore, a managing partner in Foreign Exchange Analytics in Essex, Connecticut.

With that in mind, we have to look at what Bernanke told Congress on Wednesday with some scepticism. While noting that intervention is rarely done, he said that temporary action on currencies isn't out of the question.

"Market intervention is a policy that's been undertaken a few times . . . but there may be conditions where markets are disorderly, where some temporary action might be justified," he said during a hearing before the House Financial Services Committee.

That kind of rhetoric has been the only tool that Bernanke and Treasury Secretary Henry Paulson have used to bolster the dollar in recent months. In early June, they also floated the idea that intervention was a possibility, giving the dollar a brief run higher.

Bernanke's words on Wednesday gave a little jolt to the battered greenback, which had slumped the day before to a new low against the euro. At one point on Tuesday, a euro bought $1.6038, the most since the inception of the 15-nation currency.

While the dollar has been falling for some five years, continuing grim US financial news has spurred a considerable slide in recent months. Not only has the US economy taken a beating in the past year, but conditions seem to be getting worse as the housing market remains in a serious slump, credit conditions are tight and inflation is soaring.

To combat declining economic growth, the Fed has cut its overnight borrowing rate seven times since September to the ultra-low level of 2%. But that has done little to improve conditions, and has only exaggerated the dollar's weakness as investors have moved their funds - and thereby sold their dollars - into countries offering higher interest rates.

Intervention talk from Bernanke and others may just be a way to buy some time, and hope the dollar reverses course on its own, a result of market forces rather than central bank intervention.

Currency experts say that could happen should the eurozone's economies begin to break down as the US outlook starts looking up.

Some of what has propelled the euro to new heights against the dollar has been the idea that Europe is in better financial health than the United States. The European Central Bank, which sets interest rates for the 15-nation eurozone, has adjusted its own rate once since last summer, making no cuts and then raising rates last month in an attempt to curb inflation.

But new data shows increasing economic weakness in parts of Europe. Stock markets there have declined sharply since May in tandem with those in the US. Investor sentiment in Switzerland and in Germany - Europe's biggest economy - has slumped, while there is evidence of weakening business conditions.

Should things worsen abroad, it could indicate that the US is ahead of Europe in this downward business cycle. "The fundamentals could soon shift in favour of the dollar over the euro," said Marc Chandler of Brown Brothers Harriman.

For now, though, the dollar is on its own, without any federal aid to prop it up. It's a lonely place to be.