Nations Abandoning Dollar
Nations Abandoning Dollar
06. June 2007
Nations Abandoning Dollar, A Dangerous Sign
More bad, bad news for the dollar.
The United Arab Emirates (UAE) is apparently moving away from the dollar. Bloomberg reported that the UAE "may be the next Middle Eastern country to stop pegging its exchange rate to the U.S. dollar, according to trading in currency forwards."
This is indeed worrisome in light of the fact several other nations are severing their ties with the dollar. Countries such as Iran and Venezuela have been joined recently by Syria and Kuwait (which switched its currency peg away from the U.S. dollar on May 20) in divorcing themselves from the dollar. This move by the UAE should therefore not be confused and likened to the dollar-dumping moves by countries such as Iran and Venezuela who virulently hate America. As our readers may know, the UAE (includes Dubai) is ruled by Sheikh Mohammed bin Rashid al Maktoum, the Prime Minister of the UAE. Like his late father, the legendary business entrepreneur, Sheikh Rashid, he is extremely pro-West and pro-capitalism. Kuwait and the UAE make no bones why they are severing ties with the dollar. They say they are simply fighting inflation. As we have said repeatedly here in MoneyNews and our sister publication Financial Intelligence Report, the dollar has been wildly inflated by the U.S. government - despite phony claims that official CPI is "low."
[Editor's Note: Bernanke's Inflation Lie: Discover the Real Truth] The rest of the world recognizes this inflation. That is why the dollar continues to tumble, despite Federal Reserve rate increases. And it is also why the global cost of commodities measured in dollars continues upwards. By turning away from the U.S. dollar, these nations are not just hurting its international value, they are also undermining the dollar's political power as the world's reserve currency. This is a major threat to America's political "power multiplier" in the coming world struggle for power. It is also a major threat to America's global economic strength, and most importantly your wealth as an American.
[Editor's Note: 4 Foreign Currency Plays to Beat the Falling Dollar.] Our government has engaged in some of the most profligate spending yet known to man, encouraging the creation of an unprecedented level of falsely low cost liquidity, expanding our money supply at an alarming rate, running up huge debts and borrowing (off balance sheet obligations) against the earnings of future generations. The sad thing is that this has been seen before - during the Roman empire! In addition, it is our Congress that placed upon our Fed the uncompetitive "ball and chain" of a dual mandate: to control inflation and to encourage growth. Today, both are mutually exclusive. The Fed is unable to defend our dollar against the rising interest rates of other nations. If Bernanke and the Fed raise rates, the U.S. economy moves quickly into recession. The bond markets appear to be indicating a 40 percent chance of a Fed rate increase in June, up from zero percent in the last quarter of 2006. Perhaps the markets recognize the Fed will have to raise rates to keep the dollar from collapsing.
Editor's Notes: 4 Foreign Currency Plays to Beat the Falling Dollar. Cash in on dollar slide. Make 25% to 50% in six months. Special Report: Bernanke's Inflation Lie: Discover the Real Truth
KUWAIT BREAKS THE PEG
by David Galland
Years ago, I recollect hearing a successful currency speculator say that if you wanted to know what a government is going to do with its currency, listen to what they say they aren't going to do... then expect the opposite.
On March 3, 2007, for instance, we had the following report out of Bloomberg: "Saudi Arabia, the United Arab Emirates and four other Persian Gulf nations will discuss revaluing their currencies' peg to the U.S. dollar before a proposed monetary union in the region in 2010.
"The states would only change the dollar peg simultaneously, U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi told reporters today. The six countries form the Gulf Cooperation Council and their central bank officials meet next in April. The other countries are Bahrain, Qatar, Oman and Kuwait. "'We will not act unilaterally,' al-Suwaidi said in Dubai, U.A.E."
On March 15, Bloomberg followed up with this... "The dollar may also be buoyed after the six Gulf Cooperation Council members, which include Saudi Arabia and Kuwait, agreed not to revalue their currencies against the U.S. currency.
"'We have no plans to revalue,' Hamad Saud al-Sayari, the governor of the Saudi Arabian Monetary Agency, told reporters in Dubai today. 'The U.S. dollar is still very important to us.'"
Apparently, someone forgot to copy the Saudis on the memo, because on March 20, Kuwait announced that it was tossing the dollar peg over the side and replacing it with a basket of currencies. This will almost certainly lead to a domino effect in the Middle East, a move that would likely be warmly welcomed by the local citizenry there, and not so warmly welcomed by those in the U.S. government charged with maintaining the U.S. dollar hegemony.
And then there's China...
On announcing last year that it was forming a new agency to help better manage its foreign reserves, China took pains to assure the markets that they were not doing so in order to begin unloading dollars. But then on May 18, it announced it was going to invest $3.3 billion in Blackstone, a private equity group. Now, you can be assured that Blackstone is going to go all out to impress their deep-pocketed new partner. And it won't impress them very much if they only buy U.S. stocks that have to then fight against the tide of a depreciating dollar.
In our view, this is just the beginning of a much larger strategy, the core of which will be trading out of U.S. treasury bills and into all manner of other investments... an international basket of stocks, natural resource deposits around the globe... pretty much anywhere and anything offers the prospect for a higher return with lower currency risk.
Or, if the currency risk is going to be taken, then the potential returns will have to offset those risks. Earning a 4.5% yield on a Treasury bond while taking a 10%, 20% or even 30% risk on the dollar doesn't make a lot of sense to us. And, we expect, neither does it to the Chinese.
There are some very interesting implications in all of this. For instance, if the Chinese slow down their buying of Treasuries in favour of other asset classes, who is going to step up to take their place? Of course, at the right interest rate, far higher than those on offer today, someone will. But then there's that whole collapsing housing bubble thing.
The U.S. continues to be trapped on the horns of a dilemma, wedged squarely between a rock and a hard place. Raise interest rates to head off a devastating mass exodus from the dollar and sink the economy... or, lower interest rates to keep the economy afloat and doom the dollar.
Or, simply continue printing money like there's no tomorrow, steadily devaluing the $6 trillion in the hands of foreigners, and hope no one will notice. There are times, like today, that any reasonably astute observer can look to the horizon and see what's coming. A monetary crisis is headed in our direction, and the pace of its arrival is, in our view, quickening.
Gold, and for more pep in your portfolio, gold stocks, are no longer an option but a prerogative - even for conservative investors.
Meanwhile, pay close attention to the comments of
high government officials about their intentions on
the dollar...
(yahoo.group)
06. June 2007
Nations Abandoning Dollar, A Dangerous Sign
More bad, bad news for the dollar.
The United Arab Emirates (UAE) is apparently moving away from the dollar. Bloomberg reported that the UAE "may be the next Middle Eastern country to stop pegging its exchange rate to the U.S. dollar, according to trading in currency forwards."
This is indeed worrisome in light of the fact several other nations are severing their ties with the dollar. Countries such as Iran and Venezuela have been joined recently by Syria and Kuwait (which switched its currency peg away from the U.S. dollar on May 20) in divorcing themselves from the dollar. This move by the UAE should therefore not be confused and likened to the dollar-dumping moves by countries such as Iran and Venezuela who virulently hate America. As our readers may know, the UAE (includes Dubai) is ruled by Sheikh Mohammed bin Rashid al Maktoum, the Prime Minister of the UAE. Like his late father, the legendary business entrepreneur, Sheikh Rashid, he is extremely pro-West and pro-capitalism. Kuwait and the UAE make no bones why they are severing ties with the dollar. They say they are simply fighting inflation. As we have said repeatedly here in MoneyNews and our sister publication Financial Intelligence Report, the dollar has been wildly inflated by the U.S. government - despite phony claims that official CPI is "low."
[Editor's Note: Bernanke's Inflation Lie: Discover the Real Truth] The rest of the world recognizes this inflation. That is why the dollar continues to tumble, despite Federal Reserve rate increases. And it is also why the global cost of commodities measured in dollars continues upwards. By turning away from the U.S. dollar, these nations are not just hurting its international value, they are also undermining the dollar's political power as the world's reserve currency. This is a major threat to America's political "power multiplier" in the coming world struggle for power. It is also a major threat to America's global economic strength, and most importantly your wealth as an American.
[Editor's Note: 4 Foreign Currency Plays to Beat the Falling Dollar.] Our government has engaged in some of the most profligate spending yet known to man, encouraging the creation of an unprecedented level of falsely low cost liquidity, expanding our money supply at an alarming rate, running up huge debts and borrowing (off balance sheet obligations) against the earnings of future generations. The sad thing is that this has been seen before - during the Roman empire! In addition, it is our Congress that placed upon our Fed the uncompetitive "ball and chain" of a dual mandate: to control inflation and to encourage growth. Today, both are mutually exclusive. The Fed is unable to defend our dollar against the rising interest rates of other nations. If Bernanke and the Fed raise rates, the U.S. economy moves quickly into recession. The bond markets appear to be indicating a 40 percent chance of a Fed rate increase in June, up from zero percent in the last quarter of 2006. Perhaps the markets recognize the Fed will have to raise rates to keep the dollar from collapsing.
Editor's Notes: 4 Foreign Currency Plays to Beat the Falling Dollar. Cash in on dollar slide. Make 25% to 50% in six months. Special Report: Bernanke's Inflation Lie: Discover the Real Truth
KUWAIT BREAKS THE PEG
by David Galland
Years ago, I recollect hearing a successful currency speculator say that if you wanted to know what a government is going to do with its currency, listen to what they say they aren't going to do... then expect the opposite.
On March 3, 2007, for instance, we had the following report out of Bloomberg: "Saudi Arabia, the United Arab Emirates and four other Persian Gulf nations will discuss revaluing their currencies' peg to the U.S. dollar before a proposed monetary union in the region in 2010.
"The states would only change the dollar peg simultaneously, U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi told reporters today. The six countries form the Gulf Cooperation Council and their central bank officials meet next in April. The other countries are Bahrain, Qatar, Oman and Kuwait. "'We will not act unilaterally,' al-Suwaidi said in Dubai, U.A.E."
On March 15, Bloomberg followed up with this... "The dollar may also be buoyed after the six Gulf Cooperation Council members, which include Saudi Arabia and Kuwait, agreed not to revalue their currencies against the U.S. currency.
"'We have no plans to revalue,' Hamad Saud al-Sayari, the governor of the Saudi Arabian Monetary Agency, told reporters in Dubai today. 'The U.S. dollar is still very important to us.'"
Apparently, someone forgot to copy the Saudis on the memo, because on March 20, Kuwait announced that it was tossing the dollar peg over the side and replacing it with a basket of currencies. This will almost certainly lead to a domino effect in the Middle East, a move that would likely be warmly welcomed by the local citizenry there, and not so warmly welcomed by those in the U.S. government charged with maintaining the U.S. dollar hegemony.
And then there's China...
On announcing last year that it was forming a new agency to help better manage its foreign reserves, China took pains to assure the markets that they were not doing so in order to begin unloading dollars. But then on May 18, it announced it was going to invest $3.3 billion in Blackstone, a private equity group. Now, you can be assured that Blackstone is going to go all out to impress their deep-pocketed new partner. And it won't impress them very much if they only buy U.S. stocks that have to then fight against the tide of a depreciating dollar.
In our view, this is just the beginning of a much larger strategy, the core of which will be trading out of U.S. treasury bills and into all manner of other investments... an international basket of stocks, natural resource deposits around the globe... pretty much anywhere and anything offers the prospect for a higher return with lower currency risk.
Or, if the currency risk is going to be taken, then the potential returns will have to offset those risks. Earning a 4.5% yield on a Treasury bond while taking a 10%, 20% or even 30% risk on the dollar doesn't make a lot of sense to us. And, we expect, neither does it to the Chinese.
There are some very interesting implications in all of this. For instance, if the Chinese slow down their buying of Treasuries in favour of other asset classes, who is going to step up to take their place? Of course, at the right interest rate, far higher than those on offer today, someone will. But then there's that whole collapsing housing bubble thing.
The U.S. continues to be trapped on the horns of a dilemma, wedged squarely between a rock and a hard place. Raise interest rates to head off a devastating mass exodus from the dollar and sink the economy... or, lower interest rates to keep the economy afloat and doom the dollar.
Or, simply continue printing money like there's no tomorrow, steadily devaluing the $6 trillion in the hands of foreigners, and hope no one will notice. There are times, like today, that any reasonably astute observer can look to the horizon and see what's coming. A monetary crisis is headed in our direction, and the pace of its arrival is, in our view, quickening.
Gold, and for more pep in your portfolio, gold stocks, are no longer an option but a prerogative - even for conservative investors.
Meanwhile, pay close attention to the comments of
high government officials about their intentions on
the dollar...
(yahoo.group)
bin66 - 7. Jun, 01:33
