HAPPENINGS IN THE TWO GLOBAL MARKETS that do not conform to Adam Smith's model frequently roil free-market economies such as America's. The foreign exchange market is dominated by central banks that manipulate the value of national currencies for reasons unrelated to what we think of as natural economic forces. And the oil market is heavily influenced by a producer cartel determined to keep prices well above those that would prevail in a competitive market.

So when the Korean central bank announced that it had lost interest (no pun intended) in acquiring more dollar assets to add to the $200 billion it already holds, and the OPEC oil cartel drove prices above $50 per barrel by suggesting that it would cut output, shivers ran up the spines of investors. Share prices and the dollar both lost 1.5 percent of their value in a single day.

Panicked investors foresaw a run on the U.S. currency. That would force the Federal Reserve Board's monetary policy committee to abandon its policy of "measured" interest rate increases in favor of much more rapid increases. The so-called house-price bubble that has kept consumer confidence at high levels would be pricked, consumers rattled, the economy slowed, profit growth curtailed, and share prices driven down.

Worse still, the oil cartel plans to reduce output despite rising demand due to a cold snap in the United States and China's insatiable appetite for oil--and shrinking supplies due to a decline in Russian oil production as Vladimir Putin's old KGB pals take control of the industry.

The resulting higher prices would, in the words of the new annual report of the President's Council of Economic Advisers, constitute "a headwind for the economy because they raise the cost of production, thus weakening the supply side of the economy, and absorb income that could have been used for other purchases, thus weakening the demand side of the economy."

Worse still, prices of commodities other than oil are soaring, in part because of China's massive purchases. Last week, Anglo-Australia's Rio Tinto raised the price of the iron ore it sells to Nippon Steel by a staggering 72 percent, and others in this highly concentrated industry quickly followed suit. Many investors fear this commodity-price surge will add to inflationary pressure created by high oil prices just as the U.S. economy slows, reintroducing America to the stagflation last seen when voters ejected Jimmy Carter from the White House.

It is not unreasonable to ask, in the face of this plausible and unsettling scenario, just how the president's economists can conclude that the U.S. economy will grow this year at an annual rate of 3.5 percent, "faster than its historical average," driven by consumer spending, investment growth, and stronger exports.

The answer, in part, is that the Asian central banks have watched their Korean colleague dip its toe in the water of "let's get out of dollar assets," and get scalded in the process. So they have rushed out statements saying that they have no intention of unloading dollars. Even the Bank of Korea looked at what it had wrought and was displeased.