Ken asks:
But how is the change in the price of dollar compared to other currencies relate to inflation? The title talks about the currency exchange rates, while the article talks of inflation. Are we really left to assume that they are one and the same?
Yes, the shrinking dollar means that the dollar is suffering from more inflation than the currencies against which it is measured. The starkest way to show this is to examine the cost of intrinsically precious metals. In terms of gold, it has gone from 250 dollars per ounce to 1000 dollars per ounce. That doesn’t mean that gold has become that much more valuable, but that the dollar has become that much less valuable. Again, gas has gone from about $1 per gallon to $3 per gallon. This is not because OPEC has it out for us, though that is a problem, nor because China and India are increasing their demands, but primarily because the dollar is worth 1/3 the amount of oil it used to be worth.
The culprit is loose money, as determined by the Fed’s too low interest rates. The rates need to go up to stop US inflation and strengthen the dollar. The two things always happen in tandem. This will drive down the stock market and drive bonds upward, and it will not buoy up home prices, but it is necessary because otherwise we will see another 30% increase in the price of food from this year to next year, and even though food and energy prices aren’t included in the phony baloney inflation computation they are real costs, real big costs, and whether it is counted as “official inflation” or not a 30% increase in costs year after year is hyperinflation. Nobody wants to live in a place like that.
