A weak dollar IS inflation. This article covers all the aspects of inflatiion without mentioning the cause,i.e. the creation of money/liquidity in greater amounts than the market needs it to maintain an even price level. Inflation, weakening the unit of currency is done to stiff a nation's creditors. They get repaid in cheaper dollars, thus they do not get back the value that they are due.That is why the dollar level of this deficit is trivial. We are inflating the debt away, making the fools who lent Americans money eat it. Of, course it will come back to bite as the cost of borrowing money will go up more than the actual rate of inflation as lenders take the heightened risk inot account.
And where is this inflation?? We have lower inflation than the Euro block! Using the Euro, we have deflation!! (the europeans can come here and buy goods a lot cheaper (in euros) than they did anytime in the past 3 years plus.
The reason we haven't seen it is that our biggest exporter, China, pegs its currency against the dollar, and the others (including the Euro) are not raising the price of their products in dollars, thus squeezing their profits. By all measures a base Mercedes and BMW should both start at $50K plus, but you can get them today for the essentially the same as when the euro-dollar were at parity.
Obiously this unstable situation can't continue just getting worse. There'll be a point of reckoning, where the chinese will be forced to revalue at a huge cost to them and higher prices for us. The european companies are handling their shrinking profit by moving more and more factories here.
My real interest in not wringing my hands, but rather how can we personally profit from this scenario? What investment strategy can we employ today to come out of it ahead of the game.
Any ideas would be appreciated and would make a great discussion.