WASHINGTON — President Obama's effort to lead the world economic recovery by spending the U.S. out of its recession is undermining the dollar, triggering record commodities rallies as investors scour the globe for hard assets.

As threats of a financial meltdown fade, the currency is falling victim to an unprecedented budget deficit, near-zero interest rates and slow growth. The dollar has fallen 10 percent against six trading partners' legal tender in Treasury Secretary Timothy Geithner's first 81/2 months, the sharpest drop for a new occupant of that office since the Reagan administration's James Baker persuaded world leaders to boost the deutsche mark and yen by debasing the dollar in 1985. This year's drop followed its best two quarters in 16 years.

"The dollar had been strong because the U.S. was a haven in the storm, and now that the storm is abating, who needs the dollar?" said Edmund Phelps, who won the 2006 Nobel Prize in economics and teaches at Columbia University in New York. "People got exasperated with the tiny returns on safe assets."

The Dollar Index, which measures the currency against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, is at its lowest level since August 2008.

Investors are sating their renewed risk appetites with developing nations' stocks and currencies and the commodities some of them produce. Gold touched an all-time high of $1,069.70 an ounce on Oct. 13. Copper ended September with its biggest three-quarter rise in at least 21 years, while aluminum had its best two quarters in a dozen years or more. Crude oil finished the month in its steepest eight-month climb since 1999.

$1.4 TRILLION DEFICIT

The nonpartisan Congressional Budget Office estimates that the budget deficit for the fiscal year that ended Sept. 30, which included some of Obama's $787 billion stimulus package and the lowest tax revenue in more than 50 years, was $1.4 trillion, more than India's gross domestic product. The administration will announce the final figure by mid-October.

Faced with administration projections of shortfalls totaling $9.1 trillion over the next decade, Obama and Congress have pledged to restore discipline. Fed officials have discussed how — but not when — they plan to reduce the central bank's balance sheet, which has doubled to $2.1 trillion under emergency lending programs to unfreeze the credit markets.

"The most important thing coming from investors in Asia, where I am, is despite all these lofty assurances by U.S. officials that there's a credible exit strategy from both fiscal and monetary stimulus, they understandably don't believe it," said Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong.

Geithner has adopted the past two administrations' policy of publicly favoring a "strong dollar." It fell 24 percent in George W. Bush's first four-year term, which ended Jan. 20, 2005, and rose 1.3 percent in his second.

"We are going to do everything necessary to make sure we sustain confidence" in the U.S. economy, Geithner said Oct. 3 in Istanbul.

Lawrence Summers, director of the White House's National Economic Council, echoed Geithner's statement in an Oct. 8 interview. "He made it very clear that our commitment is to a strong dollar based on strong fundamentals," Summers said.

Those words may ring hollow without direct government action to support the dollar or more evidence that the fiscal and monetary stimulus will be short lived. The U.S. hasn't moved to shore up its currency by purchasing dollars since 1995. It intervened to weaken the dollar against the yen in 1998 and to support the euro in 2000.

"Currencies that have the lack of support of petroleum, metals, and have a liberal central bank posture toward printing money are currencies that will continue to be punished," said Peter Kenny, managing director in institutional sales at Knight Equity Markets in Jersey City, N.J. "The U.S. dollar is a classic example of that."

'THE TIPPING POINT'

Commodities "insist on validation and validity," while currencies "are subject to politics and perception," he said.

HSBC Holdings Plc economists Stephen King and Stuart Green said in a report this month that the end of U.S. economic supremacy is at hand.

Their report predicted the "demise of the West" amid "ongoing struggles in the developed world" and said that "emerging market nations are set to dominate world economic activity in the years ahead." Titled "The Tipping Point," the report said currencies will be weak in countries "still pondering exit strategies and faced with multiple years of debt repayment."

"The most obvious candidates are the U.S. dollar and sterling," they wrote. Emerging-market economies will expand 6 percent next year, more than three times the 1.8 percent growth in developed economies, they said.

China's 9.5 percent economic growth and India's 7.2 percent increase will lead all nations next year, the HSBC economists predicted. In contrast, GDP will expand 2.8 percent in the U.S., 1.2 percent in Japan and 0.7 percent in the 16-nation euro zone, they said.

"Asia is taking its place again on the world stage" and the wealth shift is occurring "more rapidly than anyone would have thought," said Stephen Green, HSBC group chairman, in an Oct. 6 interview in Istanbul.

As the dollar slips, silver and gold have outperformed all major currencies since the Sept. 15, 2008, announcement of Lehman Brothers Holdings Inc.'s collapse as investors favored the metals over legal tender.

"Gold serves as a hedge against inflation, and even though we are in the midst of a recession worldwide, the sniff of inflation is already in the air," said Richard O'Brien, chief executive officer of Newmont Mining Corp., the largest U.S. gold producer, on Oct. 2.