My Big Fat Rant: Saudi Arabia Set to ABANDON the U.S. Dollar.

(If you haven’t, you should read this. – promoted by ek hornbeck)

The title of this Essay is taken from one of the many private newsletters that folks like me (a currency trader) subscribe to. In the past three years of trading, however, I have never seen anything like the “Red Alerts” that have bombarded me this week.

International Investors Are Abandoning the Dollar, Driving It Toward  All-Time Lows Fast: The US Dollar Index has just fallen well below critical support levels – to within a fraction of a point of its lowest level in history. And it’s signaling even more dramatic declines ahead….

Do you have any idea how much this is going to impact your life before the end of the year?

Before things start to get worse…?

Investors Are Shunning U.S. Bonds, As Demand Sinks a Staggering 80% in One Month: The U.S. Treasury just reported that purchases of U.S. bonds collapsed from $97 billion to just $19 billion in July alone.

Do you know how this has already affected your life and the well-being of your family?

Read on. You haven’t even heard the bad news yet…

Bad news for the dollar is pouring in fast, but don’t turn on CNBC if you want to hear about it. NBCs corporate sponsors and owners will only allow discussions of how healthy the stock market is; how the Dow is soaring. That’s because NBCs corporate sponsors get rich (as individuals) when the investment money that’s pouring in continues to drive their stock prices up. They also want to keep consumer confidence up — so that the Sheeple keep spending the last of their wealth on widgets.

(Trust me when I tell you that the corporate fatcats are putting the investment money in their right pocket, selling their stock options out of their left pocket, and moving their profits into Euros, Yen, and Swiss Francs. They certainly aren’t dumb enough to denominate anything liquid in Dollars — or Dollar-based investments. You know, the kind of investments your pension fund and 401K are currently invested in?)

Now, let me explain why the Dow is going up:

Because on Wednesday, the day after Ben Bernanke cut interest rates on the Dollar (USD) — the trading floor was flooded with foreign investments. Between Tuesday and Wedesday — that dollar bill you have in your pocket right now dropped in value to only ninety cents. That made investors holding foreign currencies, like me, smile really, really big!

Stuff in the US is cheaper than Mexico now. In fact, the US is now the “new” Mexico — where foreigners can go on cheap vacations, eat really cheap food, and buy American-made trinkets for practically nothing. Remember when a pack of Chiclets sold by those tattered little Indian children was a nickel? This week, when I was tooling around Tijuana buying prescription drugs for my elderly neighbors, those children now want 50 cents (but first they asked for a dollar). Oh, and the drugs went up this week, as well. That is — unless you were lucky enough to hold your wealth in Pesos.

Our ONLY steadfast financial ally in the Middle East — Saudi Arabia — is abandoning the US Dollar.

This is deeply sinister.

For you, in particular.

Until now, Saudi Arabia’s currency – the riyal – was pegged to the value of the dollar. That meant every time our Federal Reserve cut interest rates, the Saudis cut their interest rates, too. And when the Fed inflated our currency, the Saudis had no choice but to inflate theirs as well.

But now, the Saudi money supply is exploding 22 percent per year and inflation is roaring at 4 percent per year — because the USD isn’t even worth the paper it’s printed on. So, Saudi government is refusing to destroy their own economy by lowering interest rates when the US does.

It seems the Saudis don’t want to commit economic suicide like the Bush administration did. This is going to be disastrous because it will trigger a stampede away from the dollar, throughout the Arab region.

Once all Arab currencies are no longer tied to the dollar (like next week, for instance), they’ll be dumping a big chunk of the $3.5 trillion they’re holding in order to protect themselves from the big losses that automatically come with a sinking greenback.

(Oh, and they might also do it because it’s a great way to destroy the American people without firing a single shot. Ah… sweet revenge.)

Okay, here’s what’s happening and how it’s going to unfold, told in excerpts from the Telegraph.

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 Fed’s dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

The danger is that this could now accelerate… leaving America starved of foreign capital flows needed to cover its current account deficit – expected to reach $850bn this year, or 6.5pc of GDP.

Foreigners have funded 25pc to 30pc of America’s credit and short-term paper markets over the last two years.

“They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008,” he said.

Let me stop here for a moment. A quote from the article:

“We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008,” he said.

Do you understand what this means?

It means that if you buy a Euro-based CD (or an ETF, if you know what that is) on Monday, you will have a lot on money in a couple on months with very little risk. (My plutocrat friends and I happen to know the Euro will be at $2.00 in a few months. You can make enough to send your kid to college and still keep your principal.)

Okay, back to the Telegraph:

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

“If Ben Bernanke starts running those printing presses even faster than he’s already doing, we are going to have a serious recession. The dollar’s going to collapse, the bond market’s going to collapse. There’s going to be a lot of problems,” he said.

Former Fed chief Alan Greenspan said this week that house prices may fall by “double digits” as the subprime crisis bites harder, prompting households to cut back sharply on spending.

The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.

Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.

The entire world is applauding. It takes a dangerous rogue nation (the United States) off the global radar and turns it in to Haiti. If that idea scares you, just repeat:
_________________________________________________________

  The Chant of the Sheeple

Hey, no nation wants to see the US economy hurt.
We own them too much money.
We’re the strongest economy in the world.
(Ignore the contradiction in the two sentences above.)
They would only be hurting themselves.
Whew! I was worried there for a minute.
I’m going back to sleep.

_________________________________________________________

Now, I’m going to end with my Usual Rant:

I’m expatriating because I don’t want to stick around for the revenge that is going to be heaped on the US — and individual Americans here and throughout the world — by its former allies along with the entire Muslim world. I don’t see why I should. I began applying for citizenship elsewhere when the US committed an atrocity even larger than Iraq — the American Sports Bar-driven bombing of dirt and people in Afganistan.

That aside, I want Democrats to know that the people who taught me to get rich and sovereign — the people who taught me to take the Sheeple’s money and expatriate — are the Republican plutocrats. This sucks because I’m stuck with them when I go off to my investment seminars and foreign-banking jaunts. Those motherfuckers are haters like you can’t believe.

I’m stuck choosing between the haters who have stashed their (your) cash and are blowing this joint — and the Democrats who believe it’s evil and cynical to become rich, and are going to be left holding the bag in this radioactive slave nation.

End Rant [gawd, I enjoyed that…]

So, why do Democrats so love their meme that “Wealth is Evil?”

Someone needs to take that meme and drown it in a bathtub.



80 comments

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    • Pluto on September 22, 2007 at 05:36
      Author

    Switch your 401K or IRA to a custodian who lets you self-trade. Put your money in a 3 month US Bank CD, demoninated in Euros. Keep rolling it over. And, for godsake, sell your house. It’s going to drop in value another 20 percent. Put that cash in your pocket instead. Save your life.

  1. I have already placed 75% of my small 401k into international funds.

    I wish I had a EURO salary.  I had planned to take my wife to a conference with me next Spring in Paris — the registration alone is 450 Euros!  At this rate, I won’t be able to attend by myself. Does anyone know a good movie my wife and I can rent for a fantasy trip to Paris?  We can toast the champagne (I love the way the French pronounce “champagne”) flutes right here in Minnesooooota.

  2. Just curious as to your destination. If you feel comfortable sharing.

    As for your suggestions, I don’t have much money so I suppose I’m not going to lose much 🙂  But I am curious about those Euro CDs…my bank doesn’t have them. Are they common?

    • ab ovo on September 22, 2007 at 07:08

    in about a month, where he plans to spend the winter.  I woke up this morning and the first think I thought of was – he needs to put all his money in euros to travel.  Now I have to figure out the best way to do it. I wish I could sell quick and pocket the rest in euros.

  3. …it’s not going to be haiti.  Hard to say what it’s going to be.  Worst case is Argentina.  Best case, maybe, Australia. 

    Lots of us are leaving if we can.  A hard thing to do.  J’adore francaise!  If I work very hard, maybe I’ll make it within the year.  On the other hand, a trashed dollar will be very, very good to my home state of Washington (one of the few places to already have a positive trade balance with China).  For exporting states with good education infractructure this will not necessarily suck.

    One thing to keep in mind is that the underlying pressures have more than a little to do with unsustainability in population and resources, and _nobody_ is going to lick that.  The Soviets had their turn; now it’s ours.  Canada and Europe will get theirs, as their better managed systems come up against the same shit a little further down the road in a generation or two.  There are places to flee in the short term; in the longer term, there are none.

  4. I’m old – almost 54 (or at least feeling that way!) I would like to be done with that for the rest of my life! I don’t have the energy anymore for the constant moving that seems to be the renters way of life. And we have greyhounds and cats – kinda tough to find a landlord who would permit.

    We live in Pittsburgh, where housing hasn’t been hit QUITE as hard, and have a fixed rate mortgage.  Even so, I wonder what the consequences of this market will be for folks like us.

    • KrisC on September 22, 2007 at 16:15

    I’m sooo glad you posted this here, I saw your post over at the big orange and I’ve been tossing and turning in bed all night-thinking about this……

    • banger on September 22, 2007 at 17:27

    but as for “wealth is evil” I don’t know anyone who thinks that. However concerning yourself with wealth and money does lead to a rather narrow view of life. I’ve been up and down (mainly down and never very up) the wealth ladder and I’ve certainly associated with (very) wealthy people and know what all that’s about, more or less and it doesn’t make for anything much really–doesn’t change the color of the sunset only where you view it (and I’ve viewed it from hovels to pee-in-your-pants mansions). Having said that, I prefer not to give money much thought as long as my needs are met and they are very lite. I prefer to smile in people’s eyes.

    • snud on September 22, 2007 at 20:11

    I’m a dumbass about many things, but at the top of the list is economics. I didn’t even stay at a Holiday Inn Express the other night but I did catch an interview with Alan Greenspan on the Diane Rehm Show the other day on NPR. If you’ve got plenty of caffeine (or maybe even meth) to stay awake through that droning voice, a radio archive of it can be found on this page – you can then select Windows Media Player or Real Audio. He talks about some of the topics broached here. I’m not saying he’s right – hell, I wouldn’t even know! But he knows more than I do – that’s for sure!

  5. …Reality often is…

    Question:  Can I get (IRA) ETF’s in foreign currency (Euro) by transferring money in a current Vanguard IRA money market fund?  Sorry if this is a “dumb” question–I’m an amateur at this, a retiree who has to do the best I can by reading the financial news (& between the lines) to manage my own limited funds. 

    First, I read this:  Are We Headed for an Epic Bear Market? and this:  House Prices to Drop Much Lower:  Greenspan– and I  thought it couldn’t get much worse, then I read your post…

  6. abandoning Saudi Arabia.  Friendships do get tested 😉

  7. …  just when it looked like the de-industrialization of America in support of corporate profits would be completed before policy could be reversed … we get a reprieve in the form of a competitive currency, just like the Chinese and Southeast Asians.

  8. compare this:

    I’m expatriating because I don’t want to stick around for the revenge that is going to be heaped on the US — and individual Americans here and throughout the world — by its former allies along with the entire Muslim world. I don’t see why I should. I began applying for citizenship elsewhere when the US committed an atrocity even larger than Iraq — the American Sports Bar-driven bombing of dirt and people in Afganistan.

    to

    “Behold, as for the proud one, His soul is not right within him; But the righteous will live by his faith.

    5 “Furthermore, wine betrays the haughty man, So that he does not stay at home. He enlarges his appetite like Sheol, And he is like death, never satisfied. He also gathers to himself all nations And collects to himself all peoples.

    “Will not all of these take up a taunt-song against him, Even mockery {and} insinuations against him And say, ‘ Woe to him who increases what is not his– For how long– And makes himself rich with loans?’

    “Will not your creditors rise up suddenly, And those who collect from you awaken? Indeed, you will become plunder for them.

    “Because you have looted many nations, All the remainder of the peoples will loot you– Because of human bloodshed and violence done to the land, To the town and all its inhabitants.

    “Woe to him who gets evil gain for his house To put his nest on high, To be delivered from the hand of calamity!

    “You have devised a shameful thing for your house By cutting off many peoples; So you are sinning against yourself.

    “Surely the stone will cry out from the wall, And the rafter will answer it from the framework.

    “Woe to him who builds a city with bloodshed And founds a town with violence!

    (…)

    “For the violence done to Lebanon will overwhelm you, And the devastation of {its} beasts by which you terrified them, Because of human bloodshed and violence done to the land, To the town and all its inhabitants.
    link

    Those who do not learn from history are doomed to repeat it.

    • byteb on September 24, 2007 at 17:18

    I know it was here…but I can’t find it. It was a comment recommending some funds, etc..MerkX was one of them. I was looking forward to it this morning and it’s gone. Was it deleted or am I finally losing it?

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