NEW YORK (CNN/Money) - Does the U.S. strong dollar policy wear no clothes?

Treasury Secretary John Snow had a busy weekend, making the rounds of the morning talk shows to pitch how his boss's tax plan will lead a "soggy" U.S. economy back onto dry ground. But it was his remarks on the greenback that had traders in a tizzy Monday morning.

Intoning the mantra that began when Robert Rubin became Treasury Secretary, Snow told Fox News: "We believe in a strong dollar." Which is nice. But straying a bit from the Rubin doctrine, he told ABC's 'This Week' that the weakened buck "helps exports and, I think, exports are getting stronger as a result."

Those comments sparked yet another round of dollar selling, as currency traders bet that Snow's belief in a strong dollar wasn't entirely sincere. The euro gained ground against the buck, fetching $1.159 versus Friday's New York close of $1.149. The dollar slipped to ¥116.5 from Friday's ¥117.4.

What Snow said about exporters was true enough. The dollar has fallen 6.7 percent against the world's other major currencies this year, and is down 17.3 percent from where it was a year ago. That means U.S. company products have become far more competitive abroad. The widget you sell in France for 100 converted into about $90 a year ago; now that's around $116. You can keep selling the widget at 100, or you can cut the price and be more competitive with European producers.

Snow didn't point it out, but the weak dollar also makes goods imported to the United States cost more. Not great for purchasers of those goods, but great for domestic producers that have foreign competition. They can sell more and, if they want to, more easily raise prices.

The weak dollar, in other words, is inflationary -- and of course it is inflation many observers feel the economy needs if it is ever going to, um, towel off and bask in the sun again. A whiff of inflation, and companies have better pricing power, which boosts margins and profits. It also gets savers off the fence, because the dollar they have in the bank today will be worth less tomorrow. And it helps debtors, because in an inflationary environment they will be making more dollars, making it easier to pay off their creditors.

Sounds wonderful, right? It probably is -- so long as the dollar decline is nice and soft. But the danger is that the buck's drop becomes much more precipitous. The current account deficit -- the amount of U.S. assets in foreign hands -- stands at about 6 percent of gross domestic product these days. The worry is that, with their U.S. holdings worth less and less in terms of their home currencies, foreigners may decide to bail. Then the dollar's slide wouldn't be nice and soft at all.

Could it happen? The current account imbalance has been there for a long time and, despite a lot of hand-wringing over the possibility of a rush for the exits, it hasn't happened yet. But Berkeley economics professor Brad DeLong recently pointed out that that the late economist Rudi Dornbusch -- best known for his work on exchange rates and overshooting -- "always said that currency value imbalances last much longer than anyone sane would believe possible, and then turn themselves around much more quickly than anyone lulled by the previous period had imagined possible."  

-- Justin Lahart is a senior writer at CNN/Money covering markets and investing.