The Big Mac’s Currency Lesson
This Wall Street Journal article (a very short read) has some interesting implications. Two key features: (1) McDonald’s there must import most, if not all, of its ingredients, and (2) the Icelandic currency crashed (rapidly depreciated). The cost of the ingredients skyrocketed, forcing the McDonald’s on the island to close.
The key lesson is this…what went on in Iceland can happen to us. First, we are increasingly dependent on imports, not just of energy, but of manufactured goods as well. We are pursuing policies such as cap-and-trade that are likely to exacerbate that problem and even spread the contagion of the movement of American industries across a broader set of products…yes, even into agriculture. Finally, we are debasing our currency at a fairly rapid clip, although we are not yet near historical lows in exchange rates.
Historically, a weaker currency favors agricultural imports. But, over time, if we become more reliant on imported agricultural products, basic services will be substantially impacted by currency depreciation. Bottom line…depreciating currencies make you poorer, not richer.