Despite all the recent troubles in our economy, the dollar is actually getting strong. Stanley Reed explains why:

First, there's the fear factor. During tough economic times, investors often flee foreign currencies and other risky assets for safe havens like the U.S. dollar. The demand drives up the price relative to other currencies. In four of the past five recessions since the 1970s, the greenback finished the downturn higher than where it started.

The euro, the pound, and emerging-market currencies may also have been inflated after a six-year runup. A basket of foreign currencies, including the Brazilian real and the Chinese yuan, rose 25 percent between 2002 and mid-2008 vs. the dollar. The euro jumped 45 percent. But earlier this year some investors started betting the bubbles would burst, driving down the price of the currencies and conversely benefiting the dollar. "Since March, we were aggressively short the euro," says Colin Hart, director of currencies at Baring Asset Management.

US-based hedge funds and mutual funds that own international stocks have played a part as well. Both groups are getting hit with a wave of redemptions. Investors yanked $39 billion out of international stock funds run by US firms through the first nine months of the year, according to trade group Investment Company Institute. Without enough cash on hand to cover withdrawals, managers have had to dump foreign assets and buy US dollars to pay back investors. Those purchases boost the greenback.