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The demise of the dollar
Old 10-05-2009, 17:26   #1
nmap
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The demise of the dollar

It appears that life is about to get still more interesting.

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In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

By Robert Fisk

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
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Old 10-05-2009, 17:52   #2
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Quote:
Originally Posted by nmap View Post

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.
Fixing the economy is too much credit. It is more like President Barack Obama is too busy jet setting, too busy doing photo ops, too busy with the Olympics, too busy pressing health care reform etc.....he is too busy with nonsense.

Rant off..


NMAP this could be very bad news, and it is just before the Holiday shopping seasons.....the retailers worse nightmare could come true.
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Old 10-05-2009, 18:19   #3
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NMAP this could be very bad news, and it is just before the Holiday shopping seasons.....the retailers worse nightmare could come true.
Truly. If the USD ceases to be the world's reserve currency, then we can either defend the dollar or face massive inflation on everything we buy.

But to defend the dollar, we need to stop borrowing - which will be a wrenching change. We might need to crank up interest rates too - say, to 10% mortgages. Or higher.
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Old 10-05-2009, 18:56   #4
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But to defend the dollar, we need to stop borrowing - which will be a wrenching change. We might need to crank up interest rates too - say, to 10% mortgages. Or higher.
Just like old times, like the 1970's if I remember correctly......you got a decent return on your savings account back then as well and home loans were 10 to 12 percent.
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Old 10-05-2009, 19:16   #5
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Here's something from CNBC suggesting a 50% decline in the dollar.

LINK

Video Length: 6:32

In essence, the U.S. will no longer have the global reserve currency. This will weaken the U.S. as compared to other nations.
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Old 10-05-2009, 19:41   #6
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Where is the upside for the Chinese in reducing the value of their dollar holdings, and increasing the cost of their products to their largest market, while they are having serious employment issues of their own?

Isn't this a better threat, for now, rather than an actual policy?

TR
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Old 10-05-2009, 19:58   #7
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Concerning the oil/energy side, this will make domestic production more profitable.
We have plenty of oil, it's just not quite as cheap as their oil.
A few minor changes in domestic law would further increase self-reliance.

As a percentage of the overall economy, energy has been getting less important.
http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf
We've got breathing room.

What are all those countries going to do with all those devalued dollars?
Seems like they'd be cutting off their nose to spite their face.
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Demise of the Dollar!
Old 10-05-2009, 20:08   #8
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Demise of the Dollar!

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading...

http://www.independent.co.uk/news/bu...r-1798175.html
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Old 10-05-2009, 20:48   #9
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Quote:
Originally Posted by The Reaper View Post
Where is the upside for the Chinese in reducing the value of their dollar holdings, and increasing the cost of their products to their largest market, while they are having serious employment issues of their own?

Isn't this a better threat, for now, rather than an actual policy?

TR
They can trade in their dollar holdings for IMF SDR's (due to our unconstitutional IMF vote allowing it ) and by securing oil, gold, silver, copper and land - all of which makes their currency viable as a reserve currency (or large portion there of) - the importance of which cannot be overstated.

They want sales to their own citizens to be a heavily weighted aspect of their future economy. They are doing the same things that we did to be a superpower.

They are not looking at the US as their only road to prosperity through sales as it is the quality of our jobs and the respectability of our currency which was the platform for this in the 1st place...

Just my .000002 - hopefully someone "in the know" will PM you and CC me
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Old 10-06-2009, 07:27   #10
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Take a look at the gold and silver prices.
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Old 10-06-2009, 07:34   #11
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Silver is up significantly since last week, but stocks are up as well.

TR
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Old 10-06-2009, 09:32   #12
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Originally Posted by GratefulCitizen View Post
Concerning the oil/energy side, this will make domestic production more profitable.
We have plenty of oil, it's just not quite as cheap as their oil.
A few minor changes in domestic law would further increase self-reliance.

As a percentage of the overall economy, energy has been getting less important.
http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf
We've got breathing room.

What are all those countries going to do with all those devalued dollars?
Seems like they'd be cutting off their nose to spite their face.
Interesting take, as well as that of TR, and I agree. It looks as if a lot of folks are looking to try and prove a point that they can live without the dollar. May prove to make this nation stronger, as I think it will quickly become evident that it is going to cause a great deal of harm to them domestically. When things at Walmart become more expensive than things at say Sears, and we start shopping at mom and pop stores more, and Target/Kmart/Walmart less, then we will see how these nations like it.

I would be interested to see which nations in the world have more disposable income than the US does. It seems to me that even though folks here in the states live below the poverty line, they can still find a way to purchase a tv, cellphones, nike sneakers. Do the working class of these other nations have the same kind of disposable income? Can they support this kind of change in international currency?

Honestly, could this be one of the better things to happen to us in while? What if Congress was forced to approve the drilling of oil off our own shores? What if we started getting oil from the shale in ND/SD/WY, that presumably has more oil that some of the middle eastern nations combined? What if we were able to say thanks but no thanks to the likes of Hugo Cahvez, the Saudi Princes, etc... because we can support ourselves?

My belief is what this may force us to become more isolationist, which at this point in time I don't think is a bad thing. Sorry Egypt, you aren't going to get your Aid this year. Sorry Palestinians, you aren't getting yours either. China and Russia, we are no longer going to "buy" your votes at the Security Counsil by turning against our friends. We are going to do what is best for us, and no one else. Let's see how the rest of the world reacts when we finally start putting ourselves first.
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Old 10-06-2009, 09:36   #13
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History has taught me that that actions like this always have unintended consequences.

I hope that the Arab states and China are very happy together. I will be nothing but happy to see the day that none of our money or sons and daughters are going to the Mideast.

It is going to suck for many Americans as we get our country back into fighting trim, and that is exactly what something like this will do. The USA is not going to sink beneath the waves like Atlantis nor are we are going to split into 50 separate countries. We will be forced to remember how to do it for ourselves as we trim the fat.

We will survive this and emerge stronger and better for it. Many people have gone broke and more then a few have actually died betting against America I for one will never say we as a country can not do what it takes when the chips are down.
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Dow Will Fall to 6,300 by Year End: Portfolio Manager
Old 10-06-2009, 20:05   #14
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Dow Will Fall to 6,300 by Year End: Portfolio Manager

Dow Will Fall to 6,300 by Year End: Portfolio Manager

Posted By: JeeYeon Park | CNBC News Associate
CNBC.com
| 05 Oct 2009 | 06:29 PM ET

With the prospect of higher unemployment hanging over the markets, some experts expect a correction. So are they right? Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds, and John Lekas, CEO and portfolio manager at Leader Capital, shared their insights. (See their recommendations, below.)

“I think we go below the double dip,” Lekas told CNBC. “By year-end, we drop below 6,300 on the Dow and by 2011, we’re at 4,200.”

Lekas said although Monday's ISM services index was “neutral,” the unemployment number was at 785,000 last month and that number is expected to worsen.

“So 26 to 27 million people who are out of work isn’t going to help the economy,” he said. “And until that number gets better, we will not see a recovery.”

Lekas told investors to sell equities, buy short-term fixed income, stay with high quality names and stay safe.

In the meantime, Cuggino said although there are risk factors and uncertainty in the markets, earnings are going to continue to improve.

“There’s also a tremendous amount of liquidity out there that will be used to prime economic growth going forward,” he said.

Cuggino recommended sticking with equities—“especially U.S. multinationals who take advantage of worldwide growth.” He also likes the financial services, biotechnology, pharmaceuticals and technology sectors.
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Old 10-06-2009, 20:48   #15
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Quote:
Originally Posted by The Reaper View Post
Where is the upside for the Chinese in reducing the value of their dollar holdings, and increasing the cost of their products to their largest market, while they are having serious employment issues of their own?

Isn't this a better threat, for now, rather than an actual policy?

TR
While its true that their dollar-denominated debt will decline, their cost for imported commodities will also go down. China imports a great deal - oil, for example. If they force the costs down, their cost structure for production also improves. In addition, China seems to already be moving out of U.S. debt instruments and into commodities. There is no rush - the switch, according to the article, will take place over 9 years.

China and Commodities in Forbes



In addition, China is working to increase domestic consumption.

China's premier

U.S. urges China to increase domestic consumption

Given the size of the market and the pent-up demand, they might be able to do well with that strategy.

I suspect it is partly a threat to prevent the U.S. from weakening the dollar as much (and as quickly) as we would like. And its partly a warning that China is gaining economic power. Lastly, implemented carefully and over time, it could put China in a stronger position while permanently constraining U.S. spending - thus weakening the U.S.

I suspect the moves in precious metals are a sign that more traders expect declines in the dollar. However, the real problems start to hit when food and energy go up in price for us. This may be where the Chinese engage in collection efforts - through pressure to modify our foreign and even domestic policy. Rhetorical question: How many dollars would it be worth to get a U.S. president to agree that Taiwan really ought to be a part of mainland China? Second rhetorical question: How much more would U.S. consumers be willing to pay for gas in order to keep Taiwan secure?
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