In my weekly newsletter EPIC Insights I offer both technical and fundamental reasons for the weakness of the U.S. dollar. From a bottom in July 2008 until the top that was reached in February 2009, the dollar gained 25% as investors worldwide sought a safe haven amid the financial crisis. Over the past three months, the dollar has dropped 11% as fears of government intrusion and an over-compliant Federal Reserve (Fed) increase the possibility of high debt and higher inflation.

Deemed the world’s reserve currency, the dollar gives the United States great power. The U.S. has the ability to issue debt in its own currency—one that it alone can readily print. Not being forced to maintain any hard assets to support its debts, the United States has seen economic growth, worldwide power, and wealth increase due to its ability to dictate both the terms of its debts and how they may be repaid.

For years, many parties have complained about the power accorded to the United States by possessing a reserve currency, but few have challenged it. As the engine of global growth and the dominant military power, the United States has held a tight grasp on its role as leader of the free world, and other nations have been content to operate within a system that increased their own wealth. However, now the times are changing. Complicated military engagements in Afghanistan and Iraq have weakened our perceived dominance and a left-leaning government threatens our economic growth. Combine these factors with a Fed that answers every question with the decision to print more money and the groundwork is created for a steady devaluation of the dollar.

Countries from Russia to China to Brazil have started to chip away at the dollar system. Some have called for the creation of a world-reserve currency not controlled by one nation. Others have decided to stop transacting business in dollars. Currently, these actions are slowly weakening the dollar. A slow, predictable change in currency rates will not prove overly disruptive, but we must remain alert. The past year has shown that most damage is created by unintended consequences and unforeseen events. If the trickle away from dollars turns to a rush, the financial system could suffer another shock.

When Lehman Brothers collapsed into bankruptcy last September, an era ended. Within days Merrill Lynch was sold, Goldman Sachs and Morgan Stanley converted to commercial banks, and the days of modern Wall Street ended. With that, we closed the book on a period of free markets and have embarked upon one of heightened regulation and lower profitability. While the negatives of this event will be felt by investors years into the future, one benefit exists. Instead of seeing our best-educated people take jobs in the financial sector to earn great financial rewards, many will enter other sectors where their intellect can help create products that benefit society.

This transition will bring about a more balanced American economy that could become a world leader in emerging fields. However, the weakening of the dollar must be monitored. If the transition away from Wall Street does occur it will take time. As capital is invested and markets are created, stability is needed to allow for an orderly evolution. A dollar that is gradually weakened would allow inflation to create, deflation to cease, and the U.S. economy to evolve, but a dramatic move lower would be devastating. Interest rates would skyrocket, fiscal stimulus would cease, and our lives would be altered.

As the dollar appears poised to fall another 10% over the coming weeks, we must watch both the trajectory and the rate of decline. Orderly drops could support the economic transition, while steep losses point to a likely disaster.