It’s likely we’ll see articles claiming the severe decline of the dollar is good for the hotel industry because it’ll make travel to the U.S. cheap. That’s true; however, those commentators will be failing to understand the real impact of the declining dollar.
If the dollar continues to drop, inflation inevitably will follow at some point. Because most world trade, especially oil and other goods such as linens (including staff uniforms), is denominated in U.S. dollars, it means the cost of imports increases. Costs to operate a hotel can increase quicker than the time it takes to raise ADR in this difficult economic climate. But the longer-term issue of a falling dollar forcing the Fed to defend it, which means higher rates, is more important.
The continuing massive federal deficits created by the current administration will be exacerbated by:
• New stimulus programs;
• US$250 for every social security recipient;
• Health-care reform resulting in larger deficits; and
• Other spending programs passed to attempt to stop the rise of unemployment before the November 2010 elections.
Add these to the additional taxes you’ll be forced to pay for no health care for your staff, possibly some form of card check, new EPA rules for emissions, etc.
Offshore investors become reluctant to invest in the U.S. if they think the dollar is going to drop even more because whatever profit they might earn is eaten up by the dollar drop when reconverted to their currency. The more this occurs, the worse the balance of payments becomes and the more the dollar can decline.
Major trade partners already are moving to diversify their reserves into Japanese yen and British pounds to some degree. If this becomes a sustained situation, the dollar will drop further. Eventually, the dollar becomes devalued, which I’m not predicting.
The exchange rate doesn’t equate to just cheap travel. It’s a potential serious economic problem for the entire U.S., which is the last thing we need. Be careful what you wish for, and don’t fall for uninformed claims a cheap dollar is good for you.
