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Government Green Lights Gulf Dollar Abandonment
Merrill Lynch report reveals U.S. Treasury ready to let
dollar-pegged exchange policies be changed
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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.
(Article continues below)
"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.
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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