Fears of dollar collapse ?
Saudi Arabia, who usually mimics every FOMC move, has refused to cut interest rates in lockstep with the US Federal Reserve for the first time., According to a UK Telegraph article (Fears of dollar collapse as Saudis take fright, September 2007), is signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg. This could potentially cause a cascading chain reaction across the Middle East -- setting off a stampede out of the dollar and towards either a basket of currency, or more likely the Euro.
Last month, this same author was expressing concern that the "Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation."
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels. It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds. (August 2007)
Before you dismiss the author of both of these pieces as a Dollar Bear, recognize what he has said in the past about the Greenback:
"Disregard all hysteria. The ailing Greenback will not collapse this year, not in ten years, not in twenty years, not in half a century. There is no credible currency against which it can collapse. (Unless you count gold). None of the world's rival power blocs have the economic and demographic depth to challenge American dominance." (July 2007)
That this is the same author suggests that something significant has changed recently . . .
>
UPDATE 2 September 21, 2007 4:35pm
We revisited this subject in some detail today
>
UPDATE September 21, 2007 2:04pm
My fishing buddy, David Kotok, does not think the Saudis will "decouple" from the US Dollar
The Euro, the Dollar & the Saudis
http://www.cumber.com/commentary.aspx?file=092107.asp&n=l_mc
>
Sources:
Fears of dollar collapse as Saudis take fright
Ambrose Evans-Pritchard
UK Telegraph, 8:39am BST 20/09/2007
http://tinyurl.com/yp7q5u
China threatens 'nuclear option' of dollar sales
Ambrose Evans-Pritchard
UK Telegraph, 8:39pm BST 10/08/2007
http://tinyurl.com/ysxlok
Dollar to collapse?
Ambrose Evans-Pritchard
UK Telegraph, 12 Jul 2007 at 16:48
http://tinyurl.com/2vjbj8
Thursday, September 20, 2007 | 10:30 AM | Permalink
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» More Reasons the Fed is Wrong! from Below The Crowd
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Tracked on Sep 20, 2007 6:51:55 PM
» Will the US dollar decline? from Public Opinion
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Tracked on Sep 23, 2007 1:09:05 AM
Comments
I am constantly amazed how the economic pundits seen on CNBC and Bloomberg (excluding Barry, of course) have forgotten Economics 101. You lower rates, demand for your bonds will decline, the dollar will fall. Maybe Ben should talk to the Grad Students who teach Econ 101 instead of listening to Kudlow and Crammer.
Posted by: edhopper | Sep 20, 2007 10:37:57 AM
Canadian Dollar to .9994 and climbing...
Gold to $737.00 and rising...
B'bye US$.
(waves as US$ sinks into the abyss)
Posted by: Pool Shark | Sep 20, 2007 10:38:48 AM
A bit off the mark but an old friend of mine, Dick Bove is on Bloomies this A.M. with views that echo my own and many of yours as well. Worth a looksee. Sorry I can't 'link'. Old dogs, new techs.......
Posted by: Ross | Sep 20, 2007 10:41:04 AM
Canadian Dollar to .9998 and rising...
(parity today?)
Posted by: Poll Shark | Sep 20, 2007 10:43:25 AM
"unless you count gold".
Smart man.
Posted by: Stuart | Sep 20, 2007 10:43:36 AM
Ambrose Evans-Pritchard is a hack journalist who is most famous for his series of articles in the '90s outlining Bill and Hillary Clinton's involvement in cocaine smuggling and their operation of hit squads that murdered anyone who stumbled upon their nefarious schemes.
He later claimed to have been suffering from a mental disorder exacerbated by alcohol and pill popping. I wouldn't take anything he writes seriously. The Telegraph has always been a conservative rag, but why they still employ this twit is beyond me.
Posted by: Gareth | Sep 20, 2007 10:55:44 AM
If not Evans-Pritchard then how about GulfNews:
http://www.gulfnews.com/business/Banking_and_Finance/10154897.html
" Saudi Arabia holds back from matching US rate cut
Reuters
Published: September 19, 2007, 23:21
Riyadh: Saudi Arabia, which pegs its currency to the dollar, said yesterday it will hold back from matching a US interest rate cut as the world's largest oil exporter seeks to tackle inflation at a seven-year high.
"After reviewing the situation of liquidity and the economic situation we feel there is no need for a change," Central Bank Governor Hamad Saud Al Sayyari said in Riyadh."
...
...
-K
Posted by: sk | Sep 20, 2007 11:01:14 AM
the author of the information may or may not be loopy. however, if you (foreigner) had billions at stake in u.s. dollars what would you do with your money? as has been pointed out countless times many foreign investors have not made any money in the usa in the past several years because of currency translations.
that said, is the situation in the usa set to improve any time soon?
Posted by: Bill | Sep 20, 2007 11:03:22 AM
Fear was like so last week Barry. It's a fact now that Benny and the FEDS have killed the Dollar with their assclown moves of two days ago. It's inflation folks, so cash is trash.
Posted by: SPECTRE of Deflation | Sep 20, 2007 11:03:59 AM
i was ready to pull the trigger on Gold at $666 (a nice ironic entry point) but decided to wait for more margin call shake-outs....
a bad move perhaps inn retrospect....
Posted by: brion | Sep 20, 2007 11:09:05 AM
Ambrose Evans-Pritchard is a hack journalist who is most famous for his series of articles in the '90s outlining Bill and Hillary Clinton's involvement in cocaine smuggling and their operation of hit squads that murdered anyone who stumbled upon their nefarious schemes.
He later claimed to have been suffering from a mental disorder exacerbated by alcohol and pill popping. I wouldn't take anything he writes seriously. The Telegraph has always been a conservative rag, but why they still employ this twit is beyond me.
Posted by: Gareth | Sep 20, 2007 10:55:44 AM
Who cares who you take seriously? THE MAN HAS BEEN RIGHT. PERIOD!
Posted by: SPECTRE of Deflation | Sep 20, 2007 11:14:44 AM
I may be remembering my macroeconomics wrong, and if so please correct me, but I was under the impression that China could not simply dump its dollar holdings because they need to keep purchasing dollars to maintain their currency exchange rate.
Posted by: lux | Sep 20, 2007 11:17:57 AM
Could someone please help me understand? For the longest time the US markets have been trading almost tick for tick with the USD/Yen. Now for the past two days it no longer matters? Am I missing something or are we setting up for something awful? Or was I just imagining the USD/Yen thing?
Posted by: Inferno | Sep 20, 2007 11:21:31 AM
Evans-Pritchard wrote false, defamatory stories about the Clintons and has admitted it. Surely there must be other, competent writers to quote in regard to the weakness of the dollar. I wouldn't trust Evans-Pritchard to count the toes on his feet and report an accurate number.
Posted by: Gareth | Sep 20, 2007 11:22:33 AM
Fear of a collapse??
It has collapsed........and as soon as whatever is propping here goes away it'll be down to the 76.50 level as soon as the Euro replaces the dollar.
Big question: How long does China wait to start selling?? after the Olympics is too long a time frame...$ could be worthless by then (if current trend is not reversed somehow) but I'm sure the gov't has some plan that involves GS for a "soft" landing...where have we heard that before?
Ciao
MS
Posted by: michael schumacher | Sep 20, 2007 11:35:01 AM
[i]I may be remembering my macroeconomics wrong, and if so please correct me, but I was under the impression that China could not simply dump its dollar holdings because they need to keep purchasing dollars to maintain their currency exchange rate.[/i]
True, but this is a political and economic calculation. They lose on their dollar holdings while gaining on their exports. If they think the factors are no longer favorable to prop up the dollar-if we impose tariffs or restrictions on the crap they sell us, or if our consumers no longer buy enough of their garbage- then they can dump their dollar holdings.
If they opt for a stronger yuan, we are toast.
Posted by: edhopper | Sep 20, 2007 11:36:24 AM
Just to put some numbers on it, I'm showing a decline in the DXY of about 1.05% right
now. That is the single-worst daily
decline since January 3, 2006 (-1.46%). In other words, this is a relatively infrequent move in terms of magnitude. All-time low for DXY is at 78.19 from September 4, 1992, for perspective's sake.
Posted by: Mike_in_FL | Sep 20, 2007 11:45:42 AM
THE NEW WORLD DISORDER
Goodbye U.S. dollar, hello global currency says Benn Steil, Director of international economics at the Council on Foreign Relations
http://worldnetdaily.com/news/article.asp?ARTICLE_ID=55595
"The dollar's privileged status as today's global money is not heaven-bestowed. The dollar is ultimately just another money supported only by faith that others will willingly accept it in the future in return for the same sort of valuable things it bought in the past."
In other words, if the institutions of the U.S. government fail to validate that faith, the dollar, too, merits being abandoned.
The case for a global currency
Robert H. Wade
http://www.iht.com/articles/2006...nion/ edwade.php
There is a rising tide of opposition around the world to America's unilateral assertion of its national interests. But few realize that for the United States to become a more responsible country, the world economy needs to move from the current U.S. dollar standard to a global currency.
U.S. dominance rests not only on military superiority and on the size and productivity of its economy, but also on the fact that most international transactions are denominated in U.S. dollars and more than 60 percent of world foreign exchange reserves are held in U.S.-denominated assets, like U.S. Treasury bills.
The problem for the rest of the world is that the U.S. dollar standard encourages the United States to be careless in its monetary and fiscal policies.
Yes indeed BIGTIME careless and reckless for past 6+ yrs. with full credit due to the policies of Greenspan, Bernanke, Paulson, and most of all Bushco - the absolute worst US admin in history !
Posted by: km4km4 | Sep 20, 2007 11:47:07 AM
What is also noteworthy about this part of the dollar decline is that long bonds are falling, too. In fact, every single maturity is getting hammered (2 yrs, 5 yrs. 10 yrs, 30 yrs) with long bonds taking the biggest price hit (26/32 on the continuous future). This is new -- for the past several weeks BEFORE the Fed meeting, the dollar decline was generally NOT accompanied by a bond market sell off. In other words, both the bond market and currency market are giving Bernanke's dramatic move a thumbs down.
Posted by: Mike_in_FL | Sep 20, 2007 11:49:34 AM
china will not dump its dollars....of course it will expect usa to stop complaining about currency peg too...since right now its a good thing for USD.
http://www.marketwatch.com/news/story/china-central-bank-expresses-confidence/story.aspx?guid=%7B15BC37A9-19AD-437A-81F6-C3D067CFAC68%7D
in my opinion dollar is not going to fall into abyss as many are fearing...
right now its just some panic selling going on.
very soon we will see intervention from all Central bankers....who will peg their currency at certain level....and from their it may even go up a bit.
china can never dump the dollar.....i am really suprised how can one even think of that......it will kill 60% of their industry....and it will destroy their economy.
so is india......i am surprised that they let the rupee appreciate by around 3% in the last 3-4 weeks....
i guess the same rule may apply to all emerging economies...
BTW i will be very happy if that dollar was to go to dogs....because 70% of my savings are in non USD.
Posted by: techy2468 | Sep 20, 2007 11:54:40 AM
>>china can never dump the dollar..>>
never is a long time
You think they are going to hold them regardless???
As it slides to all time lows I gather there will be a trip or two by Paulsen to make sure they don't.
They start selling them the day after the Olympics......
and yes I do understand the relationship there economy has to our consumers (because we don't have an economy any longer we are just consumers)one would think it (dollar) is safe from a wholesale selloff by the Chinese however the motivation they have to not do it goes away after next August...
Ciao
MS
Posted by: michael schumacher | Sep 20, 2007 12:09:51 PM
today the focus is on the u.s. dollar. her fundamentals are bad indeed.
however, the fundamentals equally are bad for the pound (public debt), euro (see lira, spanish dollar, ff; the euro is a dmark phenomenon), yen (demographics, banks, public debt), renimbi (inflation, unstable regime, empty buildings, riots) etc etc
look at almost all currencies south of the rio grande. in most cases they're not stable.
it's not exciting but keeping wealth in hard assets seems to be a winner at this point in time.
it's redundant to say but the data against fiat currencies seems strong.
in any event i believe in the usa. i really don't care about saudi arabia, mexico or europe. i support the home team.
just one man's view.
Posted by: Bill | Sep 20, 2007 12:10:15 PM
Folks, on the one hand, I read China keeps its currency "artificially low", which -- correct me if I'm wrong -- they do by buying our Treasuries. On the other hand, I read that the concept of China selling UST is "the nuclear option" and is a way for China to "destroy" the dollar. So, it seems China is, according to our leaders and business press, damned if they do and damned if they don't. This sounds like a way to villify foreigners and cheer on the home team. No?
Decades of communism and trade barriers kept the value of Chinese labor de-linked from the global marketplace. In other words, they weren't competing for our jobs for decades and now they are. End of story (until their wages rise). Their real wages will rise, either because the yuan appreciates and/or because their nominal wages rise. (If China stops their UST purchases, it will be more of the former. If they continue their UST purchases, it will be more of the latter.)
Are the criticisms of China just a way to appease a segment of the reading/viewing public who don't like the inconvenient truth that it's just cheaper to do business in China and to steer voters away from demanding tariffs (for better or for worse)?
What am I missing (or have wrong) on this issue?
Posted by: wunsacon | Sep 20, 2007 12:16:30 PM
I also don't understand why China would want to -- with its own money -- prop up the value of its treasury holdings. If indeed they believe those holdings will diminish in value, aren't further purchases "sending good money after bad"?
Posted by: wunsacon | Sep 20, 2007 12:20:20 PM
that would be called buying the dips.....LOL
since some artificial event will eventually bail them out of a poor decision.....oh wait we already had that....
Ciao
MS
Posted by: michael schumacher | Sep 20, 2007 12:25:28 PM
