Posted by Joseph Y. Calhoun, III

The Economist has published the latest version of the Big Mac index. Click here to read an explanation.

Asian currencies look generally undervalued while Europe looks overvalued. What are the chances that China will allow the Yuan to appreciate enough to bring it to parity? Pretty slim, I’d say, but imagine for a minute what would happen if China acceded to the demands of some of our politicians and let the Yuan rise (or more accurately, let the dollar fall) so that we achieved purchasing power parity. The dollar price of all those cheap Chinese goods at Walmart would rise in price by roughly 50%. Yes, it would also make US goods cheaper by the same amount which is what the politicians want since they believe that would allow China to buy more US goods, but what would the Chinese use to buy all those cheaper US goods? They wouldn’t have as many dollars anymore since we wouldn’t be buying as much of the now more expensive Chinese goods. Oh and they wouldn’t be buying US Treasury Notes either so good luck with interest rates and funding that deficit. And one last thing; the inflation rate in the US might be a bit higher than we’re accustomed to. It’s hard to say exactly how high, but I think double digits would be pretty much assured. Oh wait, one more….goods from almost every country would be more expensive as well since it will be pretty hard to just devalue the dollar against the Yuan. So, I hope you don’t want anything from anywhere else in the world. You know, like oil or gas or BMWs or Priuses or whatever. It’s okay though, we’ll have wind turbines, solar panels and Government Motors sub compacts manufactured by union workers. They won’t be cheap though because a Big Mac will probably cost $10 bucks and those union workers are gonna need a raise. Of course then we’ll need to get China to revalue the Yuan again…..