the visible hand

it is the theory which decides what can be observed – einstein

Syria to end dollar peg

Posted by ecoshift on June 5, 2007

I don’t know if they read Peter Schiff in Syria, but they do think a declining currency leads to internal inflation. Therefore they want to uncouple the Syrian pound from the US dollar and peg it to a stronger currency. If it’s true that following the dollar down leads to internal inflation, then as various central banks begin to move to the euro rising import costs (raw materials and finished product) will have an effect in the US as well. This inflation won’t be a sign of an overheating economy, rising wages, etc. that needs to be slowed by increasing interest rates. It will instead contribute to the burden on US consumer spending which, at 70+% of GDP, is the mainstay of the US economy. Yet increasing rates will be necessary to stabilize the dollar’s fall and refinance the US national debt.

Could Peter be right? Do they dare to cut us off?

Syria to End Dollar Peg, 2nd Arab Country in 2 Weeks (Update3)
By Zainab Fattah and Matthew Brown
Bloomberg.com: Worldwide

June 4 (Bloomberg) — Syria became the second Middle Eastern nation in two weeks to say it will dump its currency’s peg to the dollar to curb rising import costs and inflation.

The country will link the Syrian pound to a broader range of currencies starting in the middle of July, central bank Governor Adib Mayaleh said.

“The decision is final,” he said in a phone interview from Abu Dhabi. “This will help stabilize the Syrian pound and bring down inflation.”

The shift away from the dollar among Middle East countries is a sign of the waning attraction of the currency for central banks around the world. The dollar made up 64.7 percent of global foreign-exchange reserves in the fourth quarter, down from 65.8 percent in the prior three months, International Monetary Fund data show. The euro’s share was 25.8 percent, the highest since its 1999 debut.

Syria is broadening its peg after the country’s currency was dragged lower against the euro by a 10 percent slide in the dollar last year, pushing up the cost of imports from Europe. Kuwait switched to a basket of currencies on May 20 because of gains in consumer prices, which are also accelerating in the United Arab Emirates and Qatar.

“The weaker dollar is fueling inflation,” said Dorothee Gasser, an analyst at ING Bank in London. “We see the U.A.E. as the next possible shifter.”

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2 Responses to “Syria to end dollar peg”

  1. Eric V. Kirk said

    Hot off my e-mail.

    Nations Abandoning Dollar, A Dangerous Sign

    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.”

    [Editor’s Note: Bernanke’s Inflation Lie: Discover the Real Truth]

    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.

    [Editor’s Note: 4 Foreign Currency Plays to Beat the Falling Dollar.]

    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.

    [Non-text portions of this message have been removed]

  2. ecoshift said

    It does seem that economic growth in the ROTW (Rest of the World) and relative weakness in the US retail market is leading the ROTW to risk abandoning a costly effort to subsidize US consumption to protect their own export markets. As the ROTW becomes a market for it’s own goods the US is increasingly vulnerable… at least economically.

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