The dollar is under siege. This time the assailants are not just currency traders. They are the likes of supermodel Gisele Bundchen, who prefers not to be paid with it, and rapper Jay-Z, who palms a wad of 500 euro notes in his latest video.
It may be easy to shrug this off. What lingerie models think about global economic trends might be even more insignificant than what movie stars think about presidential candidates. At last word, Bundchen’s boyfriend, New England Patriots quarterback Tom Brady, was still accepting his paychecks in dollars. And if Europeans want to circulate a 500 euro note that becomes international drug dealers’ currency of choice, so be it.
But when pop culture starts dissing the dollar, smug dismissal is not such a good idea. The falling buck ”” now worth less than the Canadian dollar and down 40% against the euro ”” hits middle America hard by making everything from steel to gasoline more expensive.
This is another McEditorial by USA Today, which is almost always wrong. May I suggest reading the “opposing view” by Dan Griswold (no relation to Frank) of the Cato Institute.
I do not think that the two articles are opposed to one another. Both writers are arguing for policy decisions that would create a stronger dollar (the second one is more focused on the plus ecomonic benefits though the increase in oil purchases in dollar terms probably have wiped out the net benefit)- I do not think the first was attempting to manipulate the currency. The massive slide of the US dollar means that relatively Americans are far less affluent than we were.
We have seen a huge devaluation of the dollar against the euro since 2001. It is only now beginning to seep into Americans’ awareness.
At this point we don’t know how much it will affect the dollar’s role as global reserve currency. But the combination of swollen federal debt, large fiscal deficits, and large and chronic trade deficits leaves us vulnerable. Foreign investors, who have been financing our deficits, may decide to rebalance their currency exposures. Of course, a falling dollar might reverse the trade deficit—or might rekindle inflation.
We don’t know. But only a fool would say All Is Well. We face greater risks to our international economic standing than at any time since the 1970s.
Daniel Griswold’s article essentially beats the dead horse of old-style officlal exchange rates such as prevailed before the 1970s. No serious policymakers believe that the U.S. government can set exchange rates by fiat or by chronic intervention in foreign exchange markets.
The real question should be WHY the dollar—after more than two decades of great strength—has fallen so far, so fast. Does the devaluation of the dollar reflect something awry in U.S. government policy. I believe it does, though others can reasonably reach different conclusions.
But that’s not what Griswold has done. He’s trying to change to subject.
For those who may be interested, here’s a 9-year chart of the dollar (in green) against the euro. The higher the green line, the more dollars you need to buy a euro. It’s not a pretty picture.
Here’s the chart referred to in comment 4:
http://en.wikipedia.org/wiki/Image:Euro_exchange_rate_to_USD,_JPY,_and_GBP.png
Trying again:
http://en.wikipedia.org/wiki/Euro#Against_other_major_currencies
The Bundchen thing is bogus.
What we’re seeing is a return to the status quo ante of 1913. Back before Europe destroyed itself in the two great bloodlettings we call the World Wars. We cannot expect the US to retain the financial position it held in the immediate postwar era when our GDP was about 50% of global GDP to hold as we hit about 20% global GDP, especially not when, for the first time since the demise of Sterling between the wars, there is a viable alternative currency. What we are seeing are the results of very long term trends. I’m sure economists can find some proximate cause(s) but it was bound to happen. I’ve been expecting it ever since the Euro was announced, as have most informed observers. And it is a decidedly mixed blessing. Yes, imports are more costly, but our exports are more competitive, a factor which has been cited to explain why we aren’t yet in a recession. We should try to get back to the grossly overvalued dollar of the recent past, but to adjust to a world with two major currencies. At least for the next few decades, before Europe’s demographic bomb goes off.
Bundchen’s boyfriend is the QB for New England. Between both they probably have a certain personal balance as between Euro and dollar.
Irenaeus, nice chart but way out of date, in fact. The chart takes you up to about $1.22 to the € a year ago (scary enough, after $0.75 just five years earlier), but in fact the current rate is $1.47. The American tourist and student in Europe has experienced 20% inflation *this year alone*, and the dollar is worth half what it was in 2002. In theory that’s great for exports if you’re an exporting economy, but despite all that the US still maintains a staggering (if marginally improving) trade deficit with the rest of the world. I’m not sure how serious the “reserve currency” issue is (the oil price wouldn’t spike just because you have to pay in euros); but on most other fronts it’s probably not a bad idea to fasten seat belts and brace ourselves.
I should have added: the USA Today chart topping that article is wildly out to lunch, both in terms of the cited exchange rate and the rate of the dollar’s decline. There was never a time when you got €5.66 to the dollar, and you certainly don’t get €3.40 now. Divide those figures by 4 and you’re a little closer to the truth. For reliable historic exchange rates see http://www.oanda.com/convert/fxhistory.
As another noted, when we start hearing supermodels give investment recommendations, it is a good sign that particular commodity (euro) is overbought.