"Tricky conjunction" of growth, inflation, dollar will greet Secy. Paulson

London Times: The sliding dollar will be our problem
By Gary Duncan

A 99.5 per cent pay cut and an in-tray full of trouble. You have to admire the guts and self- sacrifice of Henry Paulson, Goldman Sachs’s soon-to- depart chairman, in accepting President Bush’s enticing offer to become his new Treasury Secretary.

Mr Paulson’s spirit of service looks all the more impressive given that he will be easing himself into the Treasury Secretary’s chair just as the American economy’s problems in three key areas — growth, inflation and the dollar — are reaching the trickiest of conjunctions.

And the Goldman chief’s decision starts to look almost masochistic when one considers that most of the power to influence how these problems play out lies not with him, but with his new colleague Ben Bernanke, the Federal Reserve Chairman.

For Mr Bernanke, these are edgy times, too. Markets have worked themselves into a flap over fears both of rising inflation and of weaker growth. So the Fed is at a crunch point over its next move of interest rates. How it responds will also be crucial in determining the future path of a vulnerable dollar.

One big headache for Mr Paulson may well be that the clever but still newish Fed Chairman looks likely to prioritise bolstering his inflation-fighting credibility over preserving strong growth....

http://business.timesonline.co.uk/article/0,,8210-2211069,00.html