Will the dollar completely collapse? - Democratic Underground

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Wed Sep-19-07 11:18 PM
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Will the dollar completely collapse?

First, there is another discussion occuring here in GD about the affect of the Fed's rate cut on the dollar: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=1840269&mesg_id=1840269

Now the dollar disaster may be coming home to roost.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/19/bcnsaudi119.xml">Fears of dollar collapse as Saudis take fright

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 a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

-snip-

And China:

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=ZKR2ZCKB45XJNQFIQMFSFF4AVCBQ0IV0?xml=/money/2007/08/07/bcnchina107a.xml">China threatens 'nuclear option' of dollar sales

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

-snip-

Personally, I don't think there is any way that the dollar will collapse simply because it is just too entrenched and there is not really a viable replacement, including the Euro. But, if animosity toward the US is at a fever pitch, then it would not be complete impossible for the rest of the world to cripple us by destroying the dollar.

While this is going on, I am reminded of those mysterious SPY puts that were optioned for $7billion (give or take) and were set to pay off should the S & P drop to below 900 points (somebody correct me if my memory is off) by September 21. If I'm not mistaken, if this does not happen, the players will lose BIG time. But I digress because I'm a little fuzzy on such things.