For now, the real problem with the dollar is not so much that the Fed is too loose, but much more that the euro is way too tight. Just as with foreign policy, Old Europe has the monetary story wrong. The creation of new euros is way too stingy; it is in fact still deflationary.

Consequently, Eurozone economic growth has averaged a recessionary 1 percent in recent years, whereas the U.S. recovery rate has been 3.5 percent. America lowered tax rates, but the Europeans refused to do so. Top-heavy social spending and excessive regulating of business and labor markets also suppress Eurozone growth. In comparison with the U.S., not only does Europe not work, not produce, and not invest -- with terrible productivity to boot -- their monetary policy is scorched-earth deflationary. Old Europe has dug itself into a deflationary hole.

However, a number of Fed officials have made matters worse by talking the dollar down. This is dumb. They believe the large U.S. current-account deficit requires a cheaper dollar. This is also dumb. Trade deficits no more sink exchange rates than budget deficits drive up interest rates. Both currency values and interest-rate levels are determined by monetary policy -- not the so-called twin deficits.

Because the U.S. economy is growing much faster than its biggest export customers, we are buying more from them than they purchase from us. Rapid growth in China and India over the next decade will correct our trade imbalance. In the meantime America?s low-tax, high-profit economy is attracting private-capital inflows from all around the world. Lately, foreign inflows have come in around $600 billion, about the same as our $570 billion current-account deficit. There is no financing problem.

That said, it would be foolish if the U.S. Fed started targeting a fixed dollar-euro cross-rate. If the Europeans are stupid enough to crash their economy with overly tight money, that?s their business. But the U.S. must not make the same tight-money mistake and wreck this prosperous recovery.

Instead, domestic price stability should be the Fed?s strategic goal. As long as the U.S. central bank ties its policy to a domestic price rule -- guided by financial- and commodity-market indicators -- as Greenspan seems to be doing, then the U.S. will continue along a path of non-inflationary prosperity.

Fortunately, in his final cycle as Fed chairman, the maestro remains at the top of his game.