Bob Misko

Burgernomics: Profiting from the Big Mac Index

The "big mac index" is an interesting way to get a snapshot of comparative countries and their exchange rates. However, domestic prices (inflation) and the local domestic economy also play a big role in determining the prices.
Currencies typically face a crisis when the current account approach 6% of a countries GDP. Have a look at the U.S. merchandise trade deficit. This puts our Feds in a bind. High interest rates help prop up the dollar, while slowing the economy; low interest rates would have the inverse effect.
I'm a long term bear on the dollar. Also, if the war in Iraq is anything like the war in Vietnam, we will not know the total cost for quite a while. You might recall the inflation pressures following that war. Supply and demand are fundamental to determining the value of the dollar, and we simply have "too much money chasing too few goods".