Look at that! Doesn't it look like RMB and dollar held hands, ran as fast as they could, and then lept of a cliff? It makes me think about gravity models of trade...
Inflation in the U.S. has been kept at bay in part because of low tradable prices due to China holding the RMB-Dollar exchange rate constant (increasing the demand for dollars by buying up US treasuries and selling RMB), but it has been creeping up ever since China loosened its unofficial peg to the dollar. It's got a ways to go before RMB-dollar hits about 4-1 based on my own gut feelings of purchasing price parity. But if it keeps going -- the way it has for the last three years -- that'll come very soon. If I were a real estate broker in Malibu or NYC, I'd be learning Chinese or Russian.*
The devaluation of the Dollar also means we're going to be importing inflation (among other causes such as our loose monetary policy to save our banks and increases in commodity prices) and that's why I tell myself that I need my dollars in real assets like old motorcycles.
Also, I feel pretty good about what I said back in May, 2005.
* Because the Europeans are more better well-spoken than we is.