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   Daily Blog - Tiger Software

                            October 31, 2007

The Real Story Behind The
                  Run on The Dollar...

    Will OPEC, CHINA and JAPAN Keep
    Taking Dollars? 

     Petrodollar Currency Warfare

William Schmidt, - Tiger Software's Creator
      (C) 2007 William Schmidt, Ph. D.  - All Rights Reserved. 

      No reproductions of this blog or quoting from it
      without explicit written consent by its author is permitted.

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     Send any comments or questions
      to william_schmidt@hotmail.com



                                                      Madison's Timely Warning,        
                           "Of all the enemies to public liberty war is, perhaps, the most to be dreaded
                 because it comprises and develops the germ of every other. War is the parent of armies;
                 from these proceed debts and taxes...known instruments for bringing the many under the
                domination of the few…No nation could preserve its freedom in the midst of continual warfare."
                                                    -- James Madison, Political Observations, 1795
                                                        Petrodollar Vicious Circle
                         As the US Dollar goes down in price, OPEC which sells all oil only in US Dollars, naturally raises
                its price.  This increases the US Trade deficit.  And the Dollar goes down still more. So, OPEC raises
                the price of oil some more.  Eventually, oil prices will rise to a point where they slow down demand for
                oil, but bef before that point is reached, the stock market will turn down.
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        Lowering US Interest Rates Invites A 
Run on The Dollar...    
                Will OPEC, CHINA and JAPAN Keep Accepting US Dollars?
                         What The Media Isn't Saying
                                   This is a continuation of my Blogs  7/12/20077/23/2007  10/28/2007

                         Yes, the Dollar is going down much more.  Its fate is sealed by Bush's 2 trillion dollar blunder,
                    the Iraq occupation.  As I see it, the US will bleed billions and billions more dollars in its wasteful war of
                    occupation of Iraq, because Bush is a certifiable sadist with an absolute inability to admit a mistake and
                    the Democrats in Congress are playing it safe politically. They know they will win big in 2008, as long
                    as they stay just to the left of Bush. Not voting appropriations for Bush's is too much of a risk for them.

                        Of course, the dollar is weak for other reasons, too. The magnitude of the US trade deficit is quite
                    beyond normal powers of comprehension. Much of the world now sees that the US as an Empire
                    in decline, whose currency is pegged artificially high because most big Central banks don't want to rock
                    their financial boats. But not all of them. Russia, France, Iran and Venezuela would love to force Bush to
                    stop his aggressive blustering.  They see in the dollar's extreme weakness a way to do just that.  And
                    then there are the OPEC countries.  Their purchasing power is eroded by the deal they struck 30 years
                    ago with the US, that forces them to only take US dollars in exchange for their oil.   They want out. 
                    They have their own economies.  They do not want the monetary policy of the US foisted upon them,
                    as pegging their currency to the dollar tends to do. And now there is a currency alternative.   The
                    Euro is becoming big enough so that it can be used, instead of the US Dollar. 

                       So, we now have a game being played where each player will pretend it is loyal to the dollar, but
                   each player is watching the others from the corner of his eyes, knowing they are all tempted to dump
                   dollars before it is too late.  Add to that equation,  'Hellicopter' Ben Bernacke's cut in interest rates. This
                   is a man who thinks it was bad monetary policy that made the Great Depression, who plainly
                   fawns for Wall Street praise and wants to delay a stock market crash until after the 2008 elections, so
                   that a Democrat will be seen as responsible. 
Yes, I'm afraid the Dollar's fate is sealed. Its collapse
                   must be honestly and calmly faced without blinkers, blinders or partisian prejudice if we are
                   to profit from it.  My Blog will tell the real story, not the homogenized version the networks
  To see the story unfold, come back often to http://www.tigersoft.com/Tiger-Blogs/index.htm

                        The only question is will there be a swift, terrible panic or will the decline continue to be
                    gradual and steady.  When the chief economist at the International Monetary Fund warns
|                   about a possible "run on the dollar", as he did in January 2006, we should take note.   With
                    the dollar in a state of accelerating decline, we should be alarmed. 

                       We all know the US has a massive governemental debt and an equally massive trade deficit.
                    These have signicantly worsened since 2000, when VP Cheney, whose nearly every public
                    utterance is discovered to be untrue, told us that "Deficits don't matter."    And we all know
                    the Chinese own more than half of the US governmental debt.  In exchange for buying our
                    US Treasuries, they get to dominate much of the  US import market.  They have a tiger by the
                    tail.   They dare not stop buying US Treasury notes or the whole Dollar house of cards may come
                    down, and their massive holdings in US dollar debt will be halved in value, as the dollar collapses
                    and their export economy screeches to a halt. 

                      What is not widely known is that the dollar has been riding high for years because all oil
                    purchases made from OPEC nations must be made in US dollars.  Back in 1975, when
                    Saudi Arabia needed to buy US military hardware and protection, it got the other OPEC
                    nations to accept an unpublicized US demand that all future oil purchases from OPEC must
                    be made in US dollars.  This was monumnetal.  It meant that every country that wanted
                    to buy OPEC oil had to have large reserves of US dollars.  It also meant that OPEC nations
                    took their dollars and put many of them to buying US Treasury debt. 70% of all international
                    trade was in dollars. US bankers loved this dynamic. 

                         US Petrodollar exclusivity remained.unchallenged until November 2000.  "So long as the
                    dollar was the strongest currency, there was little reason to as well. But November was when
                    French and other Euroland members finally convinced Saddam Hussein to defy the United States
                    by selling Iraq’s  oil-for-food not in dollars, ‘the enemy currency’ as Iraq named it, but only
                    in euros
. The euros were (placed) on deposit in a special UN account of the leading French bank,
                    BNP Paribas. Radio Liberty of the U.S. State Department ran a short wire on the news and the
                    story was quickly hushed...
                        "This little-noted Iraq move to defy the dollar in favor of the euro, in itself, was insignificant. Yet, if it
                    were to spread, especially at a point the dollar was already weakening, it could create a
                    panic selloff of dollars by foreign central banks and OPEC oil producers..
                    hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. An Iranian OPEC
                    official, Javad Yarjani, delivered a detailed analysis of how OPEC at some future point might sell its oil
                    to the EU for euros not dollars. He spoke in April, 2002 in Oviedo Spain at the invitation of the EU.
All indications are that the Iraq war was seized on as the easiest way to deliver a deadly
                    pre-emptive warning to OPEC and others, not to flirt with abandoning the Petro-dollar system
                    in favor of one based on the euro." 
(Source: http://www.williambowles.info/guests/euro_dollar.html _ )
                    By June 2003, all Iraqi international oil sales were once again denominated in US Dollars, not Euros.
                    This has adversely impacted Iraq revenue, as the Euro has proven much stronger than the Dollar..

                    (Source: http://www.informationclearinghouse.info/article9698.htm )

                                        Iran's Oil Bourse and US Planning for An Attack on Iran.

There has been a complete absence of coverage of the following information in the
                     US national media.

                        "Beginning in March 2006, the Tehran government has plans to begin competing with
                     New York's NYMEX and London's IPE with respect to international oil trades – using a
                     euro-based international oil-trading mechanism.[7] The proposed Iranian oil bourse signifies
                     that without some sort of US intervention, the euro is going to establish a firm foothold in the
                     international oil trade. Given U.S. debt levels and the stated neoconservative project of
                     U.S. global domination, Tehran's objective constitutes an obvious encroachment on
                     dollar supremacy in the crucial international oil market...
From a purely economic and monetary perspective, a petroeuro system is a logical
                      development given that the European Union imports more oil from OPEC producers than
                      does the U.S., and the E.U. accounted for 45% of exports sold to the Middle East.

Vice President Dick Cheney's office wants the Pentagon to be prepared to launch a
                      potential tactical nuclear attack on Iran – even if the Iranian government was not involved
                      with any such terrorist attack against the U.S.

                        Why? World hegemony? Unwillingness to face the dislocations and changes brought
                       about by the sharp decline in Petrodollars: new taxation will be needed of the wealthy,
                       new energy policies and conservation will be needed and new trade policies will be

                     (Sources: http://www.williambowles.info/guests/euro_dollar.html _  
                       http://www.tacomapjh.org/petrodollartheories.htm    )

                                A Rogue Seller Could Precipate An Avalanche of Dollar Selling.

                             Foreign central bankers dominate currency trading.  They appreciate the need fragility
                      of trust when it comes to their own currencies.  They want their country to keep exporting
                      to the US market. This tends to lead them purchasing more dollar debt.  However, they
                      must fear big speculators shorting the dollar or a "rogue" central bank (like Russia or France)
                      trying to gett out of dollar assets ahead of others.  With the US Treasury virtually inviting
                      some defections among central bankers by lowering interest rates, some Central Bankers
                      are getting nervous.  They are looking around at each other and wondering if the others
                      can be trusted not to sell Dollars.
If not, they do not want to left holding a bag of depreciated
                      US Dollars.  They can't talk publicly much about these concerns for fear of making things
                      worse.   But this is what they are thinking.

                                Dollar's double blow from Vietnam and Qatar

                           "Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears
                       that Asian central banks with control over two thirds of the world's foreign reserves may soon join
                       the flight from US assets.   Vietnam is planning to cut its purchases of US Treasuries and other dollar
                       bonds, raising fears that Asian central banks with control over two thirds of the world's foreign
                       reserves may soon join the flight from US assets.  Vietnam, which has mid-sized reserves of $40bn,
                       iis seen as weather vane for the bigger Asian powers.  Together they hold $3,575bn of foreign
, over 65pc of the world's total. China leads with $1,340bn, but South Korea, Taiwan,
                       Singapore, and even Thailand all built up massive holdings. Separately, the gas-rich Gulf state of Qatar
                       announced that it had cut the dollar holdings of its $50bn sovereign wealth fund from 99pc to 40pc,
                        switching into investments in China, Japan, and emerging Asia."
                        (Source: October 4, 1907: http://sufiy.blogspot.com/2007/10/end-of-us-dollar-as-reserve-currency-of.html )

                               Reuters reported, October 29, 2007   that OPEC will discuss the prospect of switching to
                       pricing its oil in US dollars to pricing in a basket of currencies.   The suggestion came from
                       Venezuela's energy minister, and Venezuela has been considered one of America's George Bush's enemies.
                       But it's not just America's enemies who are concerned about the US dollar steep decline.   Inflation in
                       Saudi Arabia and the Gulf states is running rampant, and now the US is looking at lowering its interest rate
                       yet again. Most Gulf states have their currencies pegged to the US dollar, which in turn implies interest
                       rates must move accordingly as well. But the Gulf states should be putting up their rates, not lowering them.
                       Reuters reports regional finance ministers and central bankers have met to review their intentions to
                       create a monetary union and a single currency by 2010. The problem is some in the region are unsure
                       how now to proceed given the impact a sliding US dollar is having on currency pegs. Each country
                       has its own economic situation.
http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=E92D539F-17A4-1130-F5904C1416839340 )
                               Saudi Arabia "usually mimics every FOMC move.  This time it has refused to cut interest rates
                       in lockstep with the US Federal Reserve for the first time.    According to a UK Telegraph article
                       (Fears of dollar collapse as Saudis take fright, September 2007), is  signalling that the oil-rich
                       Gulf kingdom is preparing to break the dollar currency peg. This could potentially cause a cascading
                       chain reaction across the Middle East -- setting off a stampede out of the dollar and towards either a
                       basket of currency, or more likely the Euro.
                       (Source: http://bigpicture.typepad.com/comments/2007/09/fears-of-dollar.html _

                                        An excellent way to stay in touch with the news that affects the US Dollar is to visit:

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                                                  For your Information:

"US economy's net foreign indebtedness--the accumulation of two decades of running larger and larger trade deficits--will reach nearly 25 percent of US GDP this year, or roughly $2.5 trillion. Fifteen years ago, it was zero. Before America's net balance of foreign assets turned negative, in 1988, the United States was a creditor nation itself, investing and lending vast capital to others, always more than it borrowed. Now the trend line looks most alarming. If the deficits persist around the current level of $400 billion a year or grow larger, the total US indebtedness should reach $3.5 trillion in three years
or so. Within a decade, it would total 50 percent of GDP."

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                                                            Take Our Dollars, or Else!

                     Washington is of course aware of these problems, and believes that overwhelming military strength
                  and the will to use it supply the answer, persuading or forcing other countries to support the dollar
                  at its artificial level as the key to their own security. In an article entitled "Asia: the Military-Market Link,"
                  and published by the U.S. Naval Institute in January 2002, Professor Thomas Barnett of the US Naval
                  War College, wrote: "We trade little pieces of paper (our currency, in the form of a trade deficit) for
                  Asia's amazing array of products and services. We are smart enough to know this is a patently unfair
                  deal unless we offer something of great value along with those little pieces of paper. That product is a
                  strong US Pacific Fleet, which squares the transaction nicely."

                  Consequenes of A Dollar Collapse:
                                Think of Weimar Germany.  Think of Argentina.

So what happens if OPEC as a group decides to follow Iraq's lead and suddenly begins trading oil
                on the euro standard? Economic meltdown. Oil-consuming nations would have to flush dollars out of their
                central bank reserves and replace them with euros. The dollar would crash in value and the consequences
                would be those one could expect from any currency collapse and massive inflation (think of Argentina for an
                easy example)

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China threatens 'nuclear option' of dollar sales
      By Ambrose Evans-Pritchard

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.

  • Blog - Dollar to collapse?
  • Fistful of dollars - China threatens 'nuclear option' of dollar sales

    Fistful of dollars - China's trade surplus reached $26.9bn in June

    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.

    It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

    Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

    "Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

    He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

    "China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

    "China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.


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              Setember 12, 2007:   
               Report: Greenspan says euro could replace U.S. dollar as reserve currency of choice

     =========================== Grin and Bear It ============================
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    "You're like a bunch of... of... of... CAPITALISTS!"
                                          Dennis Renault, Sacramento Bee, 1974

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