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    George Soros and dollar collapse

    Posted by Ivo Cerckel on December 8th, 2007

    1.
    Iran has stopped selling oil in US dollars. (1) (2)

    Robert Gates, US Secretary of Defense, knows that this decision will cause chaos in the US. (3)

    HENCE,
    Gates is looking for the support of the Gulf Cooperation Council (GCC),
    which decided to continue pegging five of its six currencies to the dollar,
    for his attack on Iran. (3)

    The GCC refuses to support Gates. (4)

    GCC-member, Qatar, is even insisting that the dollar peg is a sovereign decision (5) which can thus be overturned at will.

    2.
    In the 1990s, the Bank of England was trying to peg the weak pound sterling to the strong German mark.

    George Soros was able to take advantage of the facts that the United Kingdom (UK) was tied to the German mark and that there was a fundamental mismatch between the German economy and the UK economy. Soros thereby became known as the man who broke the Bank of England.

    These days, the Gulf countries, except Kuwait, are pegging their strong currencies to the weak US dollar. At the GCC-meeting at the beginning of this week, the other five GCC-members decided to continue pegging their currencies to the dollar.

    Later this week, on Thursday, the Bank of England cut interest rates, thereby following what the US Federal Reserve, the Bank of England and the Bank of Canada are doing to cushion a looming downturn.

    Also on Thursday, the European Central Bank (ECB) kept interest rates unchanged, thereby dashing hopes that the ECB would soon be following its said colleagues. The ECB proved itself the sternest of the world’s big central banks, defiantly resisting calls for a rate cut despite the super-strong euro and falling house prices in Ireland, Spain and France, said Ambrose Evans-Pritchard in The (London) Daily Telegraph (6).

    3.
    The recent slide in the dollar has put the Gulf currency pegs under strain. (7)

    The most respected analysts are therefore calling for the Middle East to loosen its ties to the dollar. (8)

    This seems to indicate that the political will to stabilize the dollar has evaporated.

    Hence,
    currency speculators are fulfilling their function of leveling the prices of the Gulf currencies off. Now that the prices of the Gulf currencies are low, the speculators are buying the currencies up and storing them causing them to rise. Once the dollar peg will have been loosened, and the prices of the Gulf currencies will be high, the speculators will sell off, thereby causing prices to fall. The effect on the speculators will be to earn profits. This is not villainous; on the contrary, the speculators perform a valuable service. (9)

    Some governments are nevertheless considering it necessary to clamp down on speculators. (10) (11)

    4.
    While the political will to stabilize the dollar has thus evaporated,
    the stability of the euro becomes more and more obvious.

    The outcome of the struggle between the dollar on the one hand and the euro and other stable currencies having a gold-wealth concept in parallel, on the other hand, is obvious.
    The latter will have the opportunity to claim victory over the colonial dollar-regime.

    Stable currencies are based on freegold purchasing power guarantees,
    whereas the dollar-regime is based upon a struggle with gold-price containment.

    As the battle between the dollar and euro is still going on,
    and as Asia has surpluses, while the US has deficits,
    Asian central banks have to accumulate dollars in order to prevent their currencies from going through the roof.

    Whereas reserves are normally held to prop up confidence in a currency, Asia is at present accumulating dollars in order to prop down its currencies.

    The December, 1st, 2007 The Economist reminded us that a distinction should be made between the dollar as an international means of exchange and the dollar as a reserve currency.
    Reserves are held to buttress confidence in a currency, not as a float to global trading. As a backstop, reserves need to be easily convertible (so they can be used as an emergency source of liquidity) and a store of value. The dollar, with its large and liquid capital markets, meets the first criterion even if it has failed the second – at least, recently. (12)

    The December 5, 2007, Trinidad and Tobago Express, which was also confusing this distinction between the dollar as an international means of exchange and the dollar as a reserve currency, reminded us that the US is only the reserve currency BY DEFAULT. (13)

    A challenger, the euro, has however arisen.

    5.
    Writing in the December 07, 2007, Financial Times, Samuel Britan says that
    the long-term stability of the late 19th century was not, of course, due to government measures but was the semi-automatic effect of the international gold standard. (14)

    After the GCC at its Summit earlier this week decided to keep the currencies of its members, except Kuwait, pegged to the US dollar, Gulf News newspaper said on Friday that the United Arab Emirates (UAE) Central Bank will continue to cut interest rates further, in line with the US Federal Reserve’s moves, following the latest rate cut. (15)

    “Is this commitment to the dollar peg a good or bad decision, keeping in mind the increased revenue from higher energy prices for the region?, Gulf News asked its readers earlier this week. (16)

    At that moment, the problem was that we didn’t know in what currency oil is being traded. We didn’t know the currency in which oil contracts say they should be settled.

    Now however, we know that Iran has stopped selling oil in US dollars. (1) (2)

    6.
    In such an environment, we have only two options.

    We can continue to follow the movements of the troika of euro/dollar, gold and oil to determine whether something has fundamentally changed (in fact) which, the change, would then be made official later.

    Or, we can wait for George Soros or somebody else to take the lead and to speculate away the dollar-peg of the Gulf currencies, thereby displaying to the world the stability of the euro and the evaporation of the political will to stabilize the dollar.

    This second option is the only way to prevent Asian central banks from continuing the perversion of accumulating dollar reserves to prop down the value of their currencies.

    Ivo Cerckel
    ivocerckel AT squijor DOT ws

    ENDNOTES

    (1)
    U.S. dollars not accepted for Iranian oil
    UPI: Dec. 8, 2007 at 4:24 PM
    http://www.upi.com/NewsTrack/Business/2007/12/08/us_dollars_not_accepted_for_iranian_oil/8683/
    TEHRAN, Dec. 8 (UPI) — The Iranian government reportedly is refusing U.S. dollars as payment for its oil, calling it an “unreliable currency.”

    (2)
    Iran has stopped selling oil in US dollars
    Agencies
    Gulf News December 08, 2007, 15:23
    http://www.gulfnews.com/business/Oil_and_Gas/10173345.html
    Tehran: Iran is no longer selling any of its oil for US dollars, an Iranian news agency reported on Saturday, citing the Iranian oil minister.
    The ISNA news agency did not give a direct quote from Oil Minister Gholamhossein Nozari but said the Iran has “completely eliminated” trading oil for US dollars.
    Nozari told ISNA: “In regards to the decrease in the dollar’s value and the loss exporters of crude oil have endured from this trend, the dollar is no longer a reliable currency.”
    A senior oil official last month said “nearly all” of Iran’s crude oil sales were now being paid for in non-US currencies.
    Iranian President Mahmoud Ahmadinejad has also called the US dollar a “worthless piece of paper.”

    (3)
    Gates Says Iran Seeks to Cause Chaos
    By LOLITA C. BALDOR – 2 hours ago
    http://ap.google.com/article/ALeqM5jATc3uwVfdP33zpLBLu-AXZ06bBAD8TDGP300

    (4)
    Gulf countries oppose military option againt Iran
    (AFP)
    8 December 2007  http://www.khaleejtimes.com/DisplayArticleNew.asp?xfile=data/middleeast/2007/December/middleeast_December128.xml&section=middleeast&col=
    MANAMA – Gulf countries, cautious about the nuclear standoff between the United States and Iran, signalled loudly at a regional security conference on Saturday their opposition to any military option against Teheran.

    (5)
    Gulf plans revaluation talks in days
    Manama: Sat, 08 Dec 2007
    http://www.tradearabia.com/NEWS/newsdetails.asp?Sn=ECO&artid=135414
    At the Gulf summit Qatar said currency reform was a ‘SOVEREIGN DECISION’ and that any country had the right to follow Kuwait’s example.

    (6)
    ECB hawks snub pleas for rate cut
    By Ambrose Evans-Pritchard
    Last Updated: 1:57am GMT 07/12/2007
    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/07/cnecb107.xml
    The European Central Bank has again proved itself the sternest of the world’s big central banks, defiantly resisting calls for a rate cut despite the super-strong euro and falling house prices in Ireland, Spain and France.

    (7)
    More currency pegs under strain
    By Peter Garnham, Financial Times
    Published: December 08, 2007, 00:12
    http://www.gulfnews.com/business/Economy/10173218.html
    The recent slide in the dollar has made life difficult for Asian countries that peg or tightly manage their currencies against the greenback.

    (8)
    Middle East must loosen ties to the dollar
    By Gerard Lyons
    Financial Times December 6 2007 19:25 |
    http://www.ft.com/cms/s/0/9864c5a8-a403-11dc-a28d-0000779fd2ac.html

    (9)
    Walter Block, “Defending the Undefendable”, New York, Fleet Press Corporation, 1976., p. 175

    (10)
    GCC decision will cool pressure on currency
    By Cleofe Maceda, Staff Reporter
    Gulf News December 05, 2007, 17:31
    http://archive.gulfnews.com/articles/07/12/05/10172591.html
    “The speculators have been speculating so far without any control and that is dangerous to the economy. If you give more power to the speculators, they will start undermining the confidence of the investors,” [Dr. Belaid] Rettab, [director of Dubai Chamber of Commerce and Industry’s (DCCI) Data Management and Business Research (DMRD)] added.

    (11)
    UAE clamps down on currency speculators
    Malaysia Sun
    Monday 3rd December, 2007
    http://story.malaysiasun.com/index.php/ct/9/cid/3a8a80d6f705f8cc/id/305982/cs/1/
    The UAE Central Bank has directed currency exchange operators to refund margins to clients who have had funds exchanged outside the official exchange rate.

    (12)
    “Losing faith in the greenback”, The Economist, December 01, 2007. 77, p. 78

    (13)
    Time to replace the US dollar as default reserve currency
    ..local consultant calls for new monetary standard
    By Raffiqe Shah
    Trinidad and Tobago Express
    Wednesday, December 5th 2007
    http://www.trinidadexpress.com/index.pl/article_business_mag?id=161245834

    (14)
    That old stagflation dilemma again
    By Samuel Brittan
    Financial Times, December 6 2007 19:33 | Last updated: December 6 2007 19:33
    http://www.ft.com/cms/s/0/b9f78190-a414-11dc-a28d-0000779fd2ac.html

    (15)
    UAE could cut rates further
    By Ahmed A. Elewa, Staff Reporter
    Gulf News: December 06, 2007, 21:21
    http://www.gulfnews.com/business/Banking_and_Finance/10172977.html
    Abu Dhabi: The UAE Central Bank will continue to cut interest rates further, in line with the US Federal Reserve’s moves, following the latest rate cut, a senior official said.

    (16)
    Peg will stay, but GCC leaves doors open
    By Barbara Bibbo
    Gulf News, December 05, 2007, 00:09
    http://archive.gulfnews.com/articles/07/12/05/10172504.html

    2 Responses to “George Soros and dollar collapse”

    1. ivo Says:

      ‘Depeg immediately’ urge UAE businesses
      Dubai Chronicle
      09 December, 2007
      http://www.dubaichronicle.com/2007/12/depeg-immediately-urge-uae-businesses.html
      UAE companies are pressuring the central bank to sever the dirham’s peg to the dollar or at least revalue the currency, claiming the tumbling value of the US currency is beginning hit business.

    2. ivo Says:

      Iranian oil no longer available for U.S. dollars
      20:43 | 11/ 12/ 2007

      http://en.rian.ru/analysis/20071211/91913059.html

      SNIP

      The British pound’s standing has also grown lately. It is the third most widely used currency for central banks’ reserves, and pound-denominated savings worldwide have increased from 2.8% to 4.2% between 2000 and 2007.

      It is obviously impossible to stop using the dollar altogether as a global reserve currency, because it might lead to a collapse of the global finance. But there are many indications that nations are willing to reform the dollar-based system. Countries which have grudges against the U.S., including Iran and Venezuela, were the first to push for the idea. Other countries, whose prosperity is directly dependent on the U.S. currency’s standing, will follow suit. They include the holder of the world’s largest foreign-exchange reserves (China), and oil and gas exporters (including the Arab states, Russia, Venezuela).