Nations Abandoning Dollar, A Dangerous Sign

News Max

June 7, 2007

More bad, bad news for the dollar.

The United Arab Emirates (UAE) is apparently moving away from the dollar.

Bloomberg reported that the UAE "may be the next Middle Eastern country to stop pegging its exchange rate to the U.S. dollar, according to trading in currency forwards."

This is indeed worrisome in light of the fact several other nations are severing their ties with the dollar.

Countries such as Iran and Venezuela have been joined recently by Syria and Kuwait (which switched its currency peg away from the U.S. dollar on May 20) in divorcing themselves from the dollar.

This move by the UAE should therefore not be confused and likened to the dollar-dumping moves by countries such as Iran and Venezuela who virulently hate America.

As our readers may know, the UAE (includes Dubai) is ruled by Sheikh Mohammed bin Rashid al Maktoum, the Prime Minister of the UAE. Like his late father, the legendary business entrepreneur, Sheikh Rashid, he is extremely pro-West and pro-capitalism.

Kuwait and the UAE make no bones why they are severing ties with the dollar. They say they are simply fighting inflation.

As we have said repeatedly here in MoneyNews and our sister publication Financial Intelligence Report, the dollar has been wildly inflated by the U.S. government - despite phony claims that official CPI is "low."

The rest of the world recognizes this inflation. That is why the dollar continues to tumble, despite Federal Reserve rate increases.

And it is also why the global cost of commodities measured in dollars continues upwards.

By turning away from the U.S. dollar, these nations are not just hurting its international value, they are also undermining the dollar's political power as the world's reserve currency.

This is a major threat to America's political "power multiplier" in the coming world struggle for power.

It is also a major threat to America's global economic strength, and most importantly your wealth as an American.

Our government has engaged in some of the most profligate spending yet known to man, encouraging the creation of an unprecedented level of falsely low cost liquidity, expanding our money supply at an alarming rate, running up huge debts and borrowing (off balance sheet obligations) against the earnings of future generations.

The sad thing is that this has been seen before - during the Roman empire!

In addition, it is our Congress that placed upon our Fed the uncompetitive "ball and chain" of a dual mandate: to control inflation and to encourage growth.

Today, both are mutually exclusive.

The Fed is unable to defend our dollar against the rising interest rates of other nations. If Bernanke and the Fed raise rates, the U.S. economy moves quickly into recession.

The bond markets appear to be indicating a 40 percent chance of a Fed rate increase in June, up from zero percent in the last quarter of 2006. Perhaps the markets recognize the Fed will have to raise rates to keep the dollar from collapsing.