“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” U.S. Treasury Secretary Geithner recently told reporters.

Indeed, it seems to be a pre-requisite to apply for the position of U.S. Treasury Secretary to be able to utter these words. In the meantime, the greenback seems to be falling further and further; the ‘strong dollar commitment’ appears to have become a farce. Just what, then, would be a strong dollar policy?

Bloomberg Radio asked me last week what I would like to hear from Federal Reserve (Fed) Chairman Bernanke to support the dollar. I responded he had done enough talk, and that I would like to see some action. Indeed, as Bernanke spoke at the Economic Club in New York on Monday, the dollar rallied for a few seconds when his speech was released; in it, Bernanke said, “our commitment to our dual objectives [price stability and full employment] … will help ensure that the dollar is strong…” The reason the dollar rallied was because initial media reports suggested the Fed will ensure the dollar is strong, whereas all Bernanke had said is that the Fed is committed to its dual mandate and, as a result, the dollar should be strong.

Let’s look at the action, then. The Fed has been buying hundreds of billions worth of government bonds and mortgage-backed securities (MBS) by printing dollars—not currency in circulation, but virtual dollars by entering a few keystrokes on the Fed’s computers; in Fed talk, we talk about an expanded Fed balance sheet, as the size of the Fed’s balance sheet represent the dollars that have been “printed.” Generally speaking, when you increase the supply of something—be that gadgets or dollars—the value of any one gadget—or dollar—should fall assuming constant demand. Our interpretation—Fed actions do not support a strong dollar.

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Axel Merk, Manager of the Merk Hard, Asian and Absolute Return Currency Funds, www.merkfunds.com, wrote the book on Sustainable Wealth. Merk is President & CIO of Merk Investments, LLC, an expert on hard money, macro trends and international investing. He is considered an authority on currencies. This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice. Foreside Fund Services, LLC, distributor.