Friday, November 16, 2007

Pop Culture Gives Weak Dollar a Bad Rap

It's too bad that I don't really follow the currency market aside from talking to friends who make the weakening dollar their concern. The US dollar isn't doing very well if even rap-moguls avoid it to spend on bling-bling. Here's more from Yahoo! Finance...

As the greenback recently hit historic lows against other major currencies, rap mogul Jay-Z released a new video in which he flashes euros, not dollars. It was also widely reported last week that one of the world's richest supermodels, Gisele Bundchen, opted to be paid in euros because of the dollar's weak outlook. Her spokeswoman has denied that the model was spurning the dollar, saying Bundchen is paid in the currency of a job's location.

Nevertheless, the euro bought an all-time record $1.4752 on Friday and the British pound has also been trading at its highest levels against the dollar since the early 1980s. The Canadian dollar, often called the "Loonie," reached parity with the dollar in September for the first time since 1976, and has climbed steadily since.

While investors, multinational businesses and travelers have been witnessing the dollar's slide for years, pop culture is new territory.

Jay-Z's "Blue Magic" video seems to have been an attempt to acknowledge the dollar's decline in an ironic way and to paint the artist as an international superstar who is smarter than those accepting greenbacks.

"It is probably a particularly good strategy as the 'image of the dollar' loses its 'currency' as an emblem of extravagance and success," Steven Tepper, associate director of Vanderbilt University's Curb Center for Art, Enterprise and Public Policy, said in an e-mail. "So, you have the combination of a weakening visual icon -- the dollar -- and a growing international audience that will understand and connect to the image of the euro."
You may want to know what does a weakend dollar mean?

The dollar's decline represents expectations the U.S. economy will slow relative to other economies. Recent cuts to the Federal Reserve's key interest rate have also weakened the dollar, as investors transferred funds to countries where they can earn higher returns.

A weaker dollar also makes U.S. goods cheaper and more competitive in foreign markets, tightening the trade deficit. It helps some U.S. companies with operations abroad whose profit is greater when converted into dollars. But at the same time, a cheaper dollar makes foreign goods and travel more expensive.

Although pop culture preferences are not the most important factors in the equation, some say they can have enough of an impact to support the dollar's decline.

"Obviously a supermodel changing preferences is not going to rock the markets overnight," said Axel Merk, manager of the Merk Hard Currency Fund. "This is just a symptom. But sure, yes, it does have an impact and that's going to happen more and more."
This reminds me I heard that Republican presidential candidate Rep. Ron Paul was in favor of abolishing the Federal Reserve, but I found this Wikipedia article about his political positions. I know, I know it's not the most reliable source but surely it gives a guide as to what his vision is as far as the dollar. Still let's take a look at his Debt and Taxes platform as it pertains to the dollar...

In addition, the Federal Reserve, our central bank, fosters runaway debt by increasing the money supply — making each dollar in your pocket worth less. The Fed is a private bank run by unelected officials who are not required to be open or accountable to “we the people.”

Worse, our economy and our very independence as a nation is increasingly in the hands of foreign governments such as China and Saudi Arabia, because their central banks also finance our runaway spending.

We cannot continue to allow private banks, wasteful agencies, lobbyists, corporations on welfare, and governments collecting foreign aid to dictate the size of our ballooning budget. We need a new method to prioritize our spending. It’s called the Constitution of the United States.
I'm disappointed. He could have had some more meat in the platform but I could understand if the platform had to be written to stir up the base without making it too hard to understand. The main thing that should be noted is that the dollar is fiat, it's not backed by a commodity which is usually a metal such as gold or silver. The only value it has it what the government determines it to be. If that value was attached to gold or silver that same currency would be worth something whether or not the government determined its value or not. Or at least that's the idea as I understand it.

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