Government Green Lights Gulf Dollar Abandonment

Steve Watson
Infowars.net
Monday, May 26, 2008

A report from Merrill Lynch & Co has revealed that the government has effectively given Gulf Arab oil producers the go ahead to change their dollar-pegged foreign exchange policies, a move some experts fear will lead to a large scale abandonment of the greenback.

In a report entitled "U.S. Green Light for the Gulf Cooperation Council (GCC)", the U.S. investment bank said the United Arab Emirates and Qatar will probably move to a currency basket in the next few months, with their respective currencies appreciating 5 percent before the end of the year, reports Reuters.

This may spur a similar move by the Saudis some time next year.

Merrill Lynch referred to a report to Congress by the Treasury which states that the government believes the dollar is strong enough to thrive without Gulf support. Gulf countries have suffered record levels of inflation in tandem with the dollar’s decline and soaring energy and food prices.

"The US Treasury’s manipulation report has signaled a new phase of bringing the GCC currencies toward flexibility. We believe the addition of the GCC to the summary and expanded section in the report shows the US is comfortable with the US dollar effect of GCC forex regime change. We believe this gives an implicit US green light for change," the report said.

"The US Treasury specifically focuses on Saudi Arabia, and stresses that inflationary pressures have risen dramatically over the past two years. However, the report also notes that the real effective exchange rate continues to be relatively weak in Saudi Arabia, despite the rise in inflation. This suggests the Treasury thinks that inflationary pressures will likely persist in Saudi Arabia in the absence of an exchange rate adjustment," the report added.

Kuwait dropped its currency’s peg to the dollar last May, but the other five Gulf Cooperation Council countries have all kept their links, citing the need to keep currencies fixed until they form a monetary union in 2010, and the limited inflationary impact of the weak dollar.

• A d v e r t i s e m e n t

The six GCC states are Saudi Arabia, Kuwait, the U.A.E., Qatar, Oman and Bahrain.

The dollar peg mandates Gulf nations to price their assets in U.S. dollars and follow U.S. monetary policy at a time when the Fed is cutting interest rates, a system that has produced a boom in oil revenues but led to high inflation as the dollar weakens.

Many economists have previously predicted that a decision on behalf of the Gulf states to abandon the dollar peg would have disastrous consequences for the greenback and the American economy.

Moves by the likes of the United Arab Emirates and Saudi Arabia to diversify their foreign exchange holdings out of dollars would amount to a vote of "no confidence" in the dollar and may cause other countries with large dollar reserves, such as China and Japan, to follow suit and begin dumping the greenback en masse.

China has threatened repeatedly to use the "nuclear option" and liquidate its vast holding of US treasuries in response to continued pressure on the Communist state to force a yuan revaluation. According to a widely-read London Telegraph report, such an event "could trigger a dollar crash" and also "cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession."

Runaway inflation would also ensue, making the cost of living unaffordable to even middle class Americans as food prices skyrocket and international aid organizations like the World Food Programme predict rationing and food riots.

The dollar has held firm against the Euro and recovered some losses against Sterling over the past few months, but it has still lost 12 per cent of its value against the trade-weighted index over the last two years and has plunged by a whopping 60 per cent against the Euro since Bush entered the White House.

For the government to portend that the dollar is in a strong enough position to survive as the world’s currency without the backing of the oil rich Gulf nations, particularly with China also leaning towards abandonment, is patently ridiculous.

American’s living standards are teetering on the brink of meltdown. As the pioneer of Reaganomics and former Treasury Secretary Paul Craig Roberts has pointed out, "US living standards, which have been stagnant for years, will plummet once dollar decline forces China off the dollar peg."

While experts outside of government and establishment media desperately warn of the danger of a "dollar crash," hyperinflation and financial chaos, the press are busy aping the government’s ludicrous position in claiming that the dollar’s continued plunge is not something Americans should be concerned about.

The new Treasury report mirrors the rhetoric of former Fed chairman Alan Greenspan who once again exposed himself as a traitor working against the interests of the American people in February this year by urging Gulf states to abandon the dollar peg.

The Treasury also seems to be following the advice of the globalist controlled IMF, who in October of last year bizarrely slammed the dollar as "overvalued" at the same time the greenback hit its all time low against the Euro.

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This article was posted: Tuesday, May 27, 2008 at 6:04 am

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