It might, but we aren't interested in how the individual PP components are performing--what we are interested in is how the portfolio performs as a whole.Lngtermer wrote: In periods when currency is loosing value wouldn't that make the cash portion an extra drag on the PP?
In reality, t-bills are going to track inflation (more or less), so if the dollar is losing value and this is manifested in rising prices, t-bill rates should reflect this dynamic.
Remember, too, that the dollar is the world's reserve currency, so there are many built-in checks against dramatic dollar devaluation (i.e., the dollar may decline 30% relative to other currencies during some periods, but it's unlikely to decline 60%). Important among these checks is the fact that the rest of the world isn't going to watch as the dollar declines in value and the U.S.'s exports begin to get much cheaper in foreign markets. There are way too many holders of dollars around the world for devaluation to get too much traction today, IMHO. Also note that the pertrodollar regime puts a hard floor under the value of the dollar and this arrangement is very unlikely to end any time soon (notwithstanding some high profile defections which will get media attention but won't undermine the arrangement in any structural way).
Even in what is remembered as the disastrous inflation/devaluation in the 1970s, if you actually look at the CPI figures, there were only a few quarters in which the CPI was even in the high single digits. In other words, what we remember as a high inflation period wasn't THAT high, certainly not anything resembling "hyperinflation." Hyperinflation is when prices are rising in an accelerating manner over an extended period (e.g., 10% this month, 12% the next, 19% the next, 24% the next, etc.).
Finally, note that there is no precedent for any world currency EVER experiencing anything remotely resembling hyperinflation. What is more likely to occur is a generational decline in the value of the dollar at some point, more or less coinciding with its orderly "decommissioning" as a reserve currency (this process unfolded in the UK over many decades).
There are many moving parts to this issue (many more than most pundits bother to cover).