Dave at Trade with Dave recently posed an interesting question: Is A Stronger Dollar Stealth QE? The question might seem wonky, but it's actually a nuts-and-bolts topic in the context of a larger question: why is the U.S. economy now the shining beacon of growth (albeit modest) in a world rolling over into recession?

As I understand Dave's thinking, the dynamic works something like this: in QE (quantitative easing), the Fed creates money out of thin air and pushes it into the financial system, with the hope that some of that inflow of cash will trickle down into the real economy.

A stronger dollar encourage foreign capital to flow into the U.S., as it makes more sense to shift money into appreciating dollars (that are gaining purchasing power) than leave it in currencies that are depreciating (losing purchasing power compared to the dollar).

This inflow of new money into U.S. bank accounts, bonds, stocks and real estate is more or less the equivalent of the Fed's QE operations, minus the money-creation step.

So in terms of fresh money flowing into the U.S. financial sector, capital inflows driven by the stronger dollar are generating the same effect as the Fed's QE.

Does this matter? At a minimum, it gives the Fed a PR victory, as the Fed has the freedom to end QE without upsetting the apple cart too severely. It also gives the Fed the freedom to keep interest rates low without all the bond-buying of QE, because overseas buyers are snapping up bonds and other dollar-denominated assets.

Some observers think the money-printing baton has simply been passed to the European Central Bank, China's central bank and the Bank of Japan, and all that new money is finding it's way into the U.S. financial system. In effect, the Fed gets the PR victory of ending its own money-printing operation because other central banks are doing the heavy lifting and the U.S. is benefiting from all their money creation.

It's not easy to track capital flows, and so it may not be possible to provide a definitive answer to this inquiry. But it does seem that the relative strength of the U.S. economy vis a vis other major economies and the emerging markets is supporting U.S. assets (broadly speaking--this week's stock market freefall notwithstanding) via capital flows from weaker economies and currencies.

Whether this trend will hold or reverse is unknown, but it does suggest that there are advantages to being the cleanest shirt in the dirty laundry (insert your metaphor of choice).