Saudi Arabi doesn't match US interest cut

Post #293,213 by JayMehaffey 9/19/07 7:22:22 PM Reply	Saudi Arabi doesn't match US interest cut [link\|http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/19/bcnsaudi119.xml\|Telegraph UK] 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 big, because it means Middle East oil money now has a reason to flow from the US to Saudi Arabia. More over, as long as the riyal is pegged to the dollar, you can now make more money buying Saudi bonds then US bonds. This inflow of money is why breaking interest rate lockstep means that the riyal will have to revalue at some point. Jay
Post #293,227 by jake123 9/19/07 8:58:55 PM Reply	Wow, if that set off a run on the dollar the ramifications would be tremendous.
Post #293,275 by Andrew Grygus 9/20/07 2:27:28 AM Reply	If the dollar collapses . . . . . what will become of India if we can't afford to outsource our work? What will happen to China if we can't afford to pay for the goods we have made there? What will become of Russia where the people still have mattresses stuffed with Franklins? What becomes of Vietnam if we can't afford their shrimp and catfish? What will happen to Japan and Germany if we can't afford their luxury automobiles - or their cheap ones either? The world had better be praying to whatever gods they've got that the dollar doesn't collapse. [link\|http://www.aaxnet.com\|AAx]
Post #293,243 by Another Scott 9/19/07 9:57:18 PM Reply	Other news about interest rates in the Gulf aren't as shrill [link\|http://www.iht.com/articles/ap/2007/09/19/africa/ME-GEN-Gulf-Rate-Cut.php\|IHT] and [link\|http://www.dailytimes.com.pk/default.asp?page=2007%5C09%5C20%5Cstory_20-9-2007_pg5_17\|Daily Times]. Even if inflation weren't accelerating in the Gulf states, I don't think it necessarily follows that the dollar would collapse if SA ended its peg. While they have large dollar reserves, [link\|https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html\|their economy is small] in the greater scheme of things. What's happening in [link\|http://economictimes.indiatimes.com/Markets/Forex/Re_at_9-yr_high_on_fund_inflows/articleshow/2385179.cms\|India and China] may have eventually more of an impact on the dollar as a reserve currency. Cheers, Scott. (Who isn't an economist, either.)
Post #293,296 by JayMehaffey 9/20/07 10:13:22 AM Reply	It is one step in the chain The world is moving away from dollars as being the dominant international currency. Breaking the Saudi dollar peg will reduce the incentive to buy and sell oil in dollars, which will be one more step in moving away from it. What the governments and big banks are aiming for is a long slow let down. But it will be easy to botch, and once it goes into a sharp dive there will probably be nothing anyone can do. Jay
Post #293,300 by jake123 9/20/07 10:21:17 AM Reply	Plus, if the US does something really crazy some people might decide that a very fast dump (say, the Chinese, they can completely trash the dollar singlehandedly just by putting all their paper on the market at once) so as to immobilize the US military machine. Military machines run on oil, and if there's a run on the US dollar, they won't be able to buy it. That would be really bad for my country as they'd probably try to come here and take it by force, but for other actors that might be seen as a small price to pay for stopping the US after the strategic reserve runs out.

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