Centerfield

The Dollar Aint Worth a Plug Nickel

There are still quite a few folks out there who don't know how much the dollar's decline has impacted oil prices. They've noticed that the oil bone is connected to the gas bone, thus $3+ per gallon for gas. And they're starting to notice that the gas bone is connected to the food bone, thus the reappearance of inflation in food costs at a newly troubling rate. But much of these troubles can be traced back to the dollar's steady and lengthening decline.

Larry Kudlow says it's time to resurrect King Dollar

Right now the greenback is in virtual freefall. It's a disorderly drop that's picking up speed. In the last month the dollar has fallen 5 percent. Over the past two years it has declined 30 percent against the euro. In the past six months it has dropped nearly 20 percent versus the yen. Measured in terms of a basket of industrial currencies, the dollar is now below its 1970's level.

Consequently, for the first time in a decade I've become genuinely worried about inflation. Over the last year and a half, consumer prices have climbed from 1.5 percent to nearly 4.5 percent. Prices are rising today faster than average hourly earnings for the non-management workforce. As real incomes go down, so goes the consumer.

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Inflation is the single biggest cause of recession, and it may well be tipping the U.S. economy into negative territory. It's also the cruelest tax of all. Inflation robs consumer and wage-earner purchasing power. It erodes business profits. It reduces the real worth of investor portfolios.

Think of this: The capital gains tax is not indexed for inflation. So the effective tax rate on real capital gains has jumped from 22 percent to 37 percent since September. This inflation-tax penalty has emerged despite the fact that no new tax legislation has been passed in Washington. It also has occurred exactly while the stock market has fallen about 15 percent. Coincidence? I think not.

Bringing back the value of the slumping dollar sounds like a swell idea. The $64 question: anyone know how we do this without effing up something else?