The silence that has greeted the dollar's collapse is eerie. You don't have to be an old-timer to remember when such an event would have been news. Not any more, though. Maybe it's because no one really understands what a falling dollar means, other than that a hotel breakfast of juice, toast and eggs now costs upwards of fifty dollars in London and Paris. (Click on chart to enlarge) Conventional wisdom holds that a weak dollar contributes to inflation, but we believe this quaint notion is about to get turned on its head. That's because we only confront inflation when we buy things. However, push the price of those things high enough, and who will be able to afford them? Take that $50 breakfast at the Ritz. If the place has been crowded lately, you can bet it's not with American tourists or even expense-account travelers, since most of them will have long since discovered Frommer's Guide and buffet breakfasts, or opted for cheaper getaways in the Caribbean. So, if the price of an omelet reaches $100 at the Ritz, will that be 'inflationary' for Americans? In theory, yes; in practice, no. Not Good for Benz And that doesn't bode well for European car manufacturers such as BMW, Mercedes, Volkswagen and Volvo. For, let them dare raise their prices to fully reflect the dollar's decline vs. the euro, and exports will dry up quickly. Does that mean Americans would see the price of Fords and Chevys rise commensurately? Don't bet on it, not with Toyota and Honda more eager than ever to seize market share. So where looms the prospective inflation in a falling dollar? The answer is, nowhere. With real wages falling, just as they've been doing for decades, and household borrowing power plummeting along with the steep decline in
LATEST TRADES
