Well known fashion model Gisele Bundchen announced recently that she would no longer accept her day rate in U.S. dollars. Sounding like a currency trader, she preferred the euro.
Bundchen’s sister, who’s also her agent, quickly said the model’s comments were made as a joke during an off-the record exchange with a journalist. But the story “had legs” and stuck around for several news cycles.
Various media outlets compared the Brazilian Bundchen to the Nebraskan Warren Buffett and other financial manda- rins who are short the greenback.
So, joking or not, Bundchen made an impression. The response from mainstream U.S. media was quick – and angry. On his Fox News Channel television show, populist rabble-rouser Bill O’Reilly called her a “pinhead” for disrespecting the dollar. He predicted that the fat U.S. market for cosmetics would reject the leggy Brazilian for her rejection of its currency.
Like so much O’Reilly says, that seems like wishful think- ing. And vesting American power in its appetite for over- priced consumer goods is a pathetic thing.
The American consumer’s penchant for consuming isn’t a promising foundation for economic growth. In fact, it’s exactly the problem that worries Buffett and others who aren’t joking about the dollar. As a country, we borrow more than most and save less than many. This creates activity – but not necessar- ily wealth.
And, if models are joking about the dollar, it must be in trouble. Currency traders (better educated but usually less attractive than Brazilian blondes) seem to think so. They’ve trimmed the dollar of more than half its value against a basket of G-8 currencies between 2002 and the end of 2007.
According to Bill Gross, manager of the world’s biggest bond fund and the chief investment officer at California-based Pacific Investment Management Co.: “We’ve told all of our cli- ents that if you only had one idea, one investment, it would be to buy an investment in a non-dollar currency.”
Buffett, ranked by Forbes magazine as the world’s third- richest person, told reporters in South Korea recently that he is bearish on the U.S. currency: “We still are negative on the dollar relative to most major currencies, so we bought stocks in companies that earn their money in other currencies.”
In order to keep the U.s. out of recession, the Federal Reserve Board has consistently kept interest rates low. Of course, low rates have made yields on U.s. debt less attrac- tive, so fewer foreign investors are buying it. Recentl}!, U.S. two-year Treasuries yielded a third of a percentage point less than German government bonds of similar maturity. And the Germans have recently absorbed their economically dysfunc-
tional Eastern relatives.
The model and moguls see what ordinary Americans don’t – that the country is borrowing and manipulating its way to ruin. The piper must always be paid. Sometimes he’s paid in bankruptcy court, sometimes at the World Bank, sometimes in the currency trading pits. The U.S. has never had to beg the world’s help to support the dollar. But that time may be com- ing. And, when it does, remember that Gisele Bundchen was a canary in this particular coal mine.