Saudi Minister Warns of Dollar Collapse

In today's Internet-connected world, it's hard to keep secrets.

 

Especially when you accidentally leave a microphone running in a private meeting, and broadcast your entire conversation to a room full of reporters.

 

That's what the Saudis did at the recent OPEC summit. Reporters listened as Iran and Venezuela demanded a change in OPEC pricing.

 

The idea was to remove dollar pricing from oil, and quote oil in other currencies instead. The Saudis rejected this proposal. As Prince Saud al-Faisal explained,

 

"The mere mention that the OPEC countries are studying the issue of the dollar is itself going to have an impact that endangers the interest of the countries...

 

"We don't want the dollar to collapse."

 

Is our currency really that weak? Is the greenback really so fragile that a mere expression of doubt can make it implode?

 

Unfortunately, yes.

 

The dollar is the world's reserve currency because of inertia. Back when the dollar was tied to gold—back when it was worth something—it became the international currency of choice.

 

Unfortunately, its tie to gold was whittled away, and then finally severed in 1971. By that time, though, the international financial structure was built around it. And so it remained.

 

Nevertheless, the dollar's fundamental advantage is now gone. Today, the only reason for other countries to use it is for convenience in trade. Especially in the oil markets.

 

Oil is a gargantuan market, with over 85 million barrels traded every day. Practically every country is forced to maintain some dollar reserves, just to participate in this market.

 

If the oil gets repriced into euros, then all those dollars won't be needed for trading it anymore. They'll be dumped into the currency markets, and poof. There goes the greenback's value.

 

Some analysts have estimated that if oil pricing were changed into dollars, our currency would plummet by 20-40 percent immediately.

 

The Saudis recognize this danger. So do most of the other OPEC countries which is why the repricing proposal was denied despite the urging of Iran's and Venezuela's Presidents.

 

Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."

 

His comments at the end of a rare summit of OPEC heads of state exposed fissures within the 13-member cartel - especially after U.S. ally Saudi Arabia was reluctant to mention concerns about the falling dollar in the summit's final declaration.

 

The hardline Iranian leader's comments also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within the Organization of Petroleum Exporting Countries.

 

"They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush's policies for the decline of the dollar and its negative effect on other countries.

 

The decision not to drop the U.S. Dollar is a short-term victory; I think it is only a temporary reprieve. As we've seen in the credit bubble this summer, the dollar doesn't need oil repricing in order to crumple and fall.

 

It can do that all on its own.

 

Congress Betrays Voters (Again)

 

In last year's elections, voters were promised a restoration of fiscal sanity and political integrity. Here we are, one year later. What did we actually get?

 

A bursting credit bubble, a weaker economy, and a crashing dollar. And judging by Congress' recent actions, it's only going to get worse from here.

 

We were promised tighter ethics rules. Greater transparency in spending. A clean-up of the pork-parties that result from 'earmarking.' A "pay as you go" approach to our national finances.

 

Unfortunately, Congress' new leaders have betrayed the voters in all these areas.

 

Their promises have turned into sick jokes. For example, earmarks are completely out of control. By one recent count, House and Senate appropriations bills for 2008 contain a staggering 11,351 pork projects.

 

And ethics and transparency? Forget about it.

 

The Congressional Research Service has announced it will no longer track earmarks. And don't expect the politicians themselves to do it—they're trying to hide their actions from us instead. As an example, House Appropriations Committee Chairman David Obey (D-WI) recently tried to conceal all earmarks until after most of the spending bills had passed the House of Representatives.

 

Congress' attitude towards voters was best summed up by Representative John Murtha (D-PA), a close personal friend of Speaker of the House Nancy Pelosi. Reporters had noticed that he was covering up earmark data in the Defense Appropriations Bill, which was a direct violation of his party's promises and ethics rules. His answer was:

 

"Tough [expletive]."

 

The hypocrisy in Washington is breathtaking. Our Representatives and Senators from BOTH POLITICAL PARTIES preach fiscal restraint while they ruin our national finances.

 

For example, the US Army Corps of Engineers asked Congress for $4.9 billion in funding for 2008. The Senate passed a pork-stuffed bill costing $14 billion instead. Not to be outdone, the House passed its own version at $15 billion.

 

When the two branches got together in conference to "compromise" their $1 billion difference, the end result cost $23.2 billion!

 

Oh, and this conference also included a $750 million "airdrop"—new spending added to the bill that no Representative or Senator had voted on.

 

Airdrops are specifically banned under the Democrat's new ethics rules. But apparently, those rules don't apply to Democrats. Senate Majority Leader Harry Reid ruled that these were "authorizations," not "appropriations." So they were allowed.

 

Incidentally, $685 million of that airdrop came from Senator Barbara Boxer of California. She truly has no shame. After all, as chairman of the Environmental and Public Works Committee, she was the one who put together the original legislation!

 

As for other areas of "fiscal discipline," they're just as bad. For example, Congress wants to add an additional $205 billion to President Bush's already-bloated five-year spending plan.

 

The first additional spending (a $22 billion binge) would occur next year. But we shouldn't worry. According to Harry Reid and Nancy Pelosi, this is a "relatively small" amount.

 

Congress is fouling up our finances in other ways, too. For example, Congress has promised to make major changes to the tax code, to defuse the Alternative Minimum Tax timebomb that's about to detonate upon millions of Americans next year.

 

However, as the IRS has warned, the deadline for printing next years' tax paperwork is approaching fast. If Congress doesn't act immediately (ha!), their changes won't make it into the IRS forms.

 

This will create a confusing snarl of redactions and retractions in our tax paperwork. Americans taxpayers will lose countless hours trying to figure it all out. Only the accountants can be happy about this mess.

 

And just in case you're happy about the potential removal of the AMT, think again. The Democrats are planning to jack up taxes in other areas. Their current budget proposals will raise taxes by $2.7 trillion over the next 10 years—that's an additional $2,000 per year in new taxes for your household.

 

Our new Congress is a disaster. No wonder it has the lowest approval rating of any Congress in history.

 

My predictions for higher taxes, higher spending, and (therefore) higher gold prices are looking valid for the foreseeable future. Folks were in serious economic trouble.

 

Best Wishes,

 

James Di Georgia

Publisher and Editor

 

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