Time to replace your potato peeler?

Note today's date: it may be seen as a very important moment in economic history. China has taken the first step toward "unpegging" the value of the Chinese yuan from that of the US dollar. It's now pegged to the average of several of strong currencies.

This will mean prices for Chinese goods here will go up as the international value of the US dollar declines, which it must do as long as the US runs a trade deficit with the rest of the world. And the US will, unfortunately, run that deficit as long as it pursues a policy of "guns and butter" -- high military spending that isn't financed by higher taxes.

This can only get worse, as China is currently rebuilding its major cities from a European model where people live downtown and walk to work, to the US model where people must commute to their downtown jobs from the suburbs. China sees this as progress and a good stimulus for its fledgling car industry, but it is a major reason why China recently overtook Japan as the second-largest importer of oil, having increased its oil imports by 30% in one year. China's appetite for oil is a major factor in the recent global oil price increases, and this price increase is a double-hit on Chinese export products because oil is both the feedstock for plastics manufacturers and the life-blood of the transportation industry.

These trends mean that fairly soon now, our local dollar stores will have to become a $1.25 stores or close down. Several dollar stores in our area recently went out of business, and I've already noticed that the rest no longer carry certain items that were once common there; those items now show up elsewhere at $2. If your potato peeler is on its last legs, now might be a good time to replace it.

Story: http://edition.cnn.com/2005/BUSINESS/07/21/china.yuan.reut/index.html

(2009 follow-up: Of the three major dollar store chains operating in our area - Dollar Giant, Everything For A Dollar Store, and Dollarama - the "new kid", Dollarama, was the first to crack; they now carry items priced $1.25, $1.50 and $2.00 in addition to their $1 items. Dollar Giant then raised everything in the store to $1.25. EFADS still charges $1, but it has registered a new name so it's ready for when everything is $2.)

(2010 follow-up: EFADS has now followed Dollarama in having multiple prices. And Dollar Giant, once "proudly Canadian", is now a subsidiary of the US chain Dollar Tree.)

(2012 follow-up: EFADS went bankrupt in October 2012. Dollarama's prices now go as high as $3. Dollar Tree is slowly converting its Dollar Giant stores into Dollar Trees and has stayed with the $1.25 price limit.