Some Pretty Scary Stuff on the Dollar and the US

I've been reading a lot of UK articles lately. Here is a sample of a couple of fairly recent ones. Scary stuff.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/19/bcnsaudi119.xml

Fears of dollar collapse as Saudis take fright
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 10:35am BST 21/09/2007

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=4T0ZHDXYFPAYDQFIQMGSFF4AVCBQWIV0?xml=/money/2007/08/07/bcnchina107a.xml

China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 8:39pm BST 10/08/2007

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.

The Financial Big One Hit

This is one of the best explanations of why lowering the interest rate would be extremely bad for the United States. There are lots of technical articles, but this one is easily understood.

http://www.oftwominds.com/blog.html

The Big One Just Hit
September 8, 2007

Here in California we refer to the next catastrophic earthquake as The Big One--not a modest little 7.0 temblor like Loma Prieta in 1989, but a massive 8.0+ quake like the 1906 event which devastated San Francisco.

The financial Big One hit today. Though the markets are still standing, the apparently modest damage is illusory--deep inside, the supports have broken. Over the next few weeks, we will witness a seemingly sound structure start collapsing under its own weight--the global house of structured debt. Though to the naked eye it seemed to have survived today's modest financial quake, reverberating shock waves will soon bring it down.

Let's start with a chart of the U.S. dollar index. The mainstream media is full of stories about the Federal Reserve cutting rates, but the bigger story--the fall of the dollar below the multi-decade support level of 80--was barely mentioned.