McDonald's closes shop?
Hey - it happened in Iceland.
We sort of assumed that McDonald's could be profitable almost anywhere — perhaps even the surface of the moon — but apparently Iceland's economic problems are too much for the world's largest fast food chain to handle.
Bloomberg is reporting that all of Iceland's McDonald's will close at the end of the month due to the collapse of the country's currency. In order to remain open, the restaurants would have had to start charging the equivalent of $6.36 for a Big Mac. According to the Economist's Big Mac Index, the world's most expensive Big Macs are currently located in Switzerland and Norway — where they cost about $5.75. [More]
The puny dollar strikes most farmers as a great thing, since our world trade is essential to profits. I agree, but with some caveats.
- No whining about oil prices as the buck plumments.
- There will be some inflation costs on the consumer level, but harder to see on the farm input scene other than...
- Fertilizer could become very painful again. In fact, I'd be putting more on right now it I had the umm, cash and it could actually be applied.
IN SHORT, the dollar-reserve system is already fraying. The question is, what will happen next? Economists are not good at predicting timing—when will all of this happen? And things don’t always move smoothly. During the crisis, the dollar actually strengthened. With the U.S. government providing guarantees on money markets and other deposits—and a U.S. government guarantee having more credibility than that of many developing countries—money sought a safe haven. America, from where the crisis originated, seemed safer than those countries that were the innocent victims.
And the dollar may continue to be strong for some time because what is happening elsewhere could be worse: worries about inflation are also arising in other countries. There may be even less confidence in, say, Europe’s ability to manage its affairs, and if so, the dollar may strengthen further, not because of confidence in the United States, but because of a lack of confidence in other markets. No wonder that, with all these uncertainties, almost the only thing we can be certain of is that markets will be marked with volatility.
As we move (hopefully) toward a global reserve currency, there will be inevitable bumps in the transition along the way. There are, of course, alternatives to the SDRS approach. We may create a multiple-exchange-rate system, in which countries diversify their reserve holdings between the dollar, euro and yen. Over the long run, this system could be highly unstable, as in one period the euro will appear stronger, and funds will shift there, weakening the dollar and strengthening the euro. In another, just the opposite may happen.
Or we may begin to form regional reserve systems. They also manage and dole out reserves for a group of countries but on a smaller scale (along the lines of the Chiang Mai Initiative in Asia, which has been greatly expanded during the crisis). Latin America is discussing doing something similar. One of the ways of creating the global reserve system is through developing and then interlinking these regional efforts.
Whichever path we take, like it or not, we will be moving away from current arrangements, the dollar-reserve system. There are only two questions: will the movement away be orderly or disorderly, and will America play a part in shaping the new system that will emerge? I believe that the transition to the new system will be smoother and that both the United States and the world will benefit if we stop putting our heads in the sand and help create the worldwide reserve system that the globalization of financial markets requires. Keynes recognized the need for such a global reserve currency seventy-five years ago. At the Bretton Woods meeting of 1944, in a costly act of self-interest, the United States blocked the full implementation of Keynes’s scheme. This is an old idea whose time has finally come. [More]
Compared to the 2009 harvest - a work still in progress - the strength of the dollar will remain further down my worry list.
[via free exchange]