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The only factor that could mitigate, or even prevent, an outright recession in the US
is a very sharp further fall in the dollar.

The world economy can now look forward to confronting four ugly and partly interrelated shocks at the same time:
a US economy heading for the rocks, a rise in global inflation, a collapse in the dollar’s exchange rate and a credit market crisis.
Wolfgang Munchau, FT November 11 2007

After the housing crisis and the credit crisis, now comes the US consumer confidence crisis. It is time to admit that the US economy is headed for a serious economic downturn – much bigger than suggested by the central bankers’ euphemism when they talk about “downside risks to growth”

I was a pessimist on the severity of the credit crisis from the outset, but events turned out even worse. I would now expect the time horizon of this financial crisis to be measured in years rather than in weeks or months. My own guess is that we are about 10 per cent through this, in terms of timing, less than 10 per cent in terms of costs to the financial sector, and much less in terms of the macroeconomic impact.

One of the most important adjustment mechanisms is the dollar’s exchange rate.

The only factor that could mitigate, or even prevent, an outright recession in the US is a very sharp further fall in the dollar.

The big question is not whether the economic downturn or the rise in inflation currently poses the bigger threat. The really troubling question is whether both can happen at the same time.

Unless there is a steep fall in oil and food prices soon, there is a strong possibility of stagflation in the US next year. In such a situation, there are no easy policy choices. Monetary policy will probably not be able to support the economy in the way it did in past recessions.

Full text

Let dollar fall or risk global disorder
Is it possible to reduce the US deficit substantially without exchange-rate changes?
The answer is that it would be possible, but catastrophic for all participants, because it would demand a deep US recession
Martin Wolf, Financial Times, May 9 2006

Interesting times ahead for all
Rolf Englund, Letters to the Editor, Financial Times, November 6, 2000