Dollar peg 'is hurting GCC inflation fight'

JEDDAH: Former Federal Reserve chairman Alan Greenspan said yesterday near-record Gulf inflation would fall "significantly" if the oil producers drop their dollar pegs.
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
"In the short term free floating ... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan said.
Saudi and UAE central bank chiefs spoke in favour of retaining dollar pegs, while Qatar's prime minister advocated regional currency reform to avert possible unilateral revaluations designed to curb inflation.
Floating the Saudi riyal would not be appropriate for an economy that relies on oil exports, Saudi Central Bank Governor Hamad Saud Al Sayyari said in response to Greenspan's suggestion.
"Floating is beneficial when the economy and exports are diverse ... as for the kingdom it remains reliant on the export of a single commodity," Al Sayyari said.
Gulf states are experiencing high growth rates of between four and eight per cent because of rising oil revenues that have boosted liquidity to new levels. But inflation has also risen to double digits in some of them as a result.
Greenspan cautioned that although the Gulf economies are energy-based, they need to make a careful judgement before allowing their exchange rates to rise significantly, as this would put the competitive capability of their non-energy activity at a disadvantage in a global context.
l US economic growth has stalled and recovery may take longer than usual, Greenspan said.
"As of right now, US economic growth is at zero," Greenspan said
"We are at stall speed. Recovery might take longer to emerge than it usually does," he added.
The longer growth stays at zero, the more likely the world's largest economy would start to contract, he said, adding that globalisation of trade could ease some shocks.

More here:

http://www.reuters.com/article/businessNews/idUSL2515874520080225

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Bernanke Signals Rate Cut

By JEANNINE AVERSA – 5 hours ago
WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke has warned Congress that the country is in for a period of sluggish economic growth given the housing bust and credit crunch.
He sent a fresh signal Wednesday that the Fed will lower rates yet again to brace the teetering economy.
The Fed chief also told a House committee that the economic situation has become "distinctly less favorable" since last summer.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke is giving Congress a fresh assessment of the country's economic health, which has been pummeled by a housing bust, a credit crunch and soaring energy prices.
Back-to-back appearances on Capitol Hill were scheduled to begin Wednesday for Bernanke, who is facing his biggest challenges yet in his two years at the Fed's helm.
Bernanke, testifying before the House Financial Services Committee, was expected to signal another cut in a key interest rate, despite fresh evidence that inflation is picking up. Since September, the Fed has been lowering its key rate, which now stands at 3 percent. Economists are predicting another reduction at the Fed's next meeting, on March. 18.
The government reported Tuesday a sharp increase in wholesale prices. That followed a big increase in prices paid by consumers.
At the same time, the economy is losing speed, raising the specter that stagflation is brewing. That's a dreaded mix of stagnant economic activity, rising prices, lagging wages and higher unemployment — something the country hasn't seen since the 1970s.
The Fed's mission is to nurture economic growth, while keeping inflation under control. With fears growing that the economy is headed for a recession — if it hasn't toppled into one already, the Fed has been focusing on shoring up the economy through interest rate reductions.

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Traitor Greenspan Urges Gulf States To Abandon Dollar


Paul Joseph Watson
Prison Planet
Tuesday, February 26th, 2008
Alan Greenspan has again exposed himself as a traitor working against the interests of the American people by urging Gulf states to abandon the dollar peg, a move that could result in financial chaos and an economic depression in America.
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.
"It [de-pegging] is probably the most useful thing that can be done to stop the increasing influence of foreign assets on the monetary system and therefore the monetary base which is basically the major force in inflationary pressures," Greenspan told the Abu Dhabi Corporate Leadership Forum yesterday.
"In the short term free floating … will not fully dissipate inflationary pressure, although it would significantly do so," added Greenspan, giving a green light for Gulf states to drop the dollar peg.
According to Economist editor Pam Woodall, Greenspan’s comments heralded the beginning of the end for the US dollar as the currency of choice for foreign exchange reserves.
"If Asian central banks hold today more than 80 per cent of the global foreign exchange reserves, which indicates the shift of the global economy domination towards Asia, it seems quite awkward that the UAE still maintains the peg of its currency to the US dollar," she told Gulf News.
Greenspan’s zeal to destroy the dollar is evident in numerous public statements he has made predicting the replacement of the dollar with the Euro as the world reserve currency.
The former Fed chairman has repeatedly badmouthed the dollar and hyped the inevitability of economic chaos at a time when market confidence is in the toilet. Greenspan’s rhetoric matches that of the 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.
A decision on behalf of the Gulf states to abandon the dollar peg would have disastrous consequences for the greenback and the American economy.
Such a move could lead the likes of the United Arab Emirates and Saudi Arabia to diversify their foreign exchange holdings out of dollars. This 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 two 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.

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Nobody ready to tackle this one ... ?

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We're just taking our time translating our responses into Fedspeak before we post.

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Jason Priest
1999 E430
1995 E420 - retired
1986 420SEL - retired

DUBAI -The relentless decline of dollar over the past few months and Federal Reserve's interest rate cuts will force Gulf countries to revalue their currencies within months to stem spiralling inflation, currency analysts and experts said.

Speculation about a Gulf-wide revaluation is rising before a meeting between Saudi Arabia's advisory council, the Shura, and the finance ministry and central bank on February 17, according to Steve Barrow, currency strategist at Bear Stearns Co.


"It's going to be very difficult for central banks in the region to have adequate control of monetary policy, and hence inflation, when the Fed is slashing rates left, right and centre and the dollar is slumping,'' Barrow was quoted yesterday by Bloomberg. Inflation in the GCC has reached record high with Qatar reporting a record 14 per cent surge in Consumer Price Index, followed by the UAE, Kuwait and other countries. The regional average was 6.3 per cent in 2007, compared with 0.3 per cent in 2001, according to Merrill Lynch & Co.

Gulf-based analysts point out that most of the currencies of the GCC are undervalued against the dollar, based on their current-account balances, inflation and costs of goods and services. The UAE dirham was undervalued by 10-15 per cent and the Saudi riyal by 25-30 per cent, according to a report by Deutsche Bank AG.
"The dollar peg prevents nominal appreciation. Since the dollar itself has been falling, the result is rising domestic inflation. Some Gulf economies now have inflation rates of around 10 per cent," analysts said. Markets piled pressure on Gulf currencies last year as speculation mounted that more GCC countries would follow Kuwait and abandon links to the weak dollar partly to curb imported inflation.

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Let me help you ...

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Fixed exchange rate (pegged exchange rate)

"... A country that fixes its exchange rate surrenders control of its domestic monetary policy..."

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U.S. Dollar Index


"To those short the dollar, the trend remains your friend . . ."

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If all that is true, it sucks for us. I have no reason to disbelieve it.

Tom W

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[SIGPIC] Diesel loving autocrossing grandpa Architect. 08 Dodge 3/4 ton with Cummins & six speed; I have had about 35 benzes. I have a 39 Studebaker Coupe Express pickup in which I have had installed a 617 turbo and a five speed manual.[SIGPIC]

..I also have a 427 Cobra replica with an aluminum chassis.

If the oil producing countries (OPEC) is dumping the Dollar, as Greenspan suggests (to disconnect from the "fixed exchange rate") the Dollar gets F***ed worse than ever.

At the same time, the "Federal Reserve Bankers" aka International Banking Cartel is pushing for currency reform in the US ...

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