America's Inflation Slayer: the Dollar Crisis? "We're in it."

Paul Volker tells us what no one is willing to say, least of all at the Fed: there is a run on the dollar. The editors of the Wall Street Journal agree: "Mr. Volcker, a former Fed chief, has a well-earned reputation for straight talk, but there is always strong institutional pressure not to second-guess one's successors at a place like the Federal Reserve. This makes his speech to the Economic Club of New York all the more remarkable for the sharp questions he raised about inflation, Fed independence and moral hazard."

In that speech, Mr. Volker, who defeated double digit inflation in the U.S. during his chairmanship from 1979 to 1987, was asked whether he was still predicting a dollar crisis. He responded, "You don't have to predict it. We're in it."

The Journal's editors put this in context: "On the dollar, Mr. Volcker's blunt talk of crisis is a welcome tonic to the devaluationist consensus that now dominates Washington. The world has been staging a run on the greenback, with damaging results if it continues. Mr. Volcker noted that when "concerns about recession are rife," the central bank will be tempted to "subordinate the fundamental need to maintain a reliable currency" to the impulse to shore up a flagging economy. The danger is that you lose both battles, as the U.S. did in the 1970s, and wind up with stagflation."

Having paid such a price to kill the dragon of inflation that debilitated the U.S. economy in the 1970s, it would be tragic to resurrect that monster today.