Pay backs are gonna be hell.
Posted on 03/18/2006 4:01:21 AM PST by ex-Texan
The United Arab Emirates is planning to switch 10pc of its foreign reserves from dollars to euros in the first sign of fall-out from Washington's snub to Dubai Ports World last week.
Sultan bin Nasser Al Suwaidi, the governor of UAE's central bank, said the plan was designed to achieve a better balance in the $19.1bn reserves of the oil-rich Gulf federation, almost entirely held in dollars.
"This policy initiative has nothing to do with the controversy over DP World's bid for P&O operations in the US," he said. In the same breath, however, he denounced the move by the US Congress to block the Dubai group from taking control of six American ports on security grounds, warning it would drive capital away.
"It is against the principles of international trade. People will look at investment opportunities in the US through new binoculars," he said.
The UAE has been a close ally of Washington in the fight against terrorism, so the shrill tone on Capitol Hill - bordering on anti-Arab hysteria - has been deeply wounding. There are fears it could lead to a withdrawal of petrodollar funds from the US, much like the Saudi-driven capital flight after the terrorist attacks of 9/11.
"Dubai's difficulties are going to cause Arab countries to invest less in the United States," said Mohab Kamel, a trader at Kara Energy in Geneva. "The kick in the teeth by Washington is not reassuring for Kuwait and Saudi Arabia, which have a more fundamentalist attitude," he said.
The next move could be a decision by Emirates Airlines - the region's top carrier - to opt for Europe's Airbus A350 in a $7.5bn order for passenger jets expected next month instead of Boeing's 787 Dreamliner.
The IMF forecasts that the Gulf region will rack up a current account surplus of $275bn in 2006, giving it huge clout in the global capital markets.
By some estimates, the recycling of petrodollars has eclipsed the Asian central banks as the chief source of foreign financing for the US deficit, now over 7pc of GDP. Exact figures are elusive as Middle East holdings of US Treasury bonds are mostly disguised through purchases in London and the Caribbean.
David Lubin, an economist at HSBC and author of a report on Gulf petrodollars, said Washington could prove to be the victim of its recourse to "asset protectionism".
"It has been a particularly unpleasant incident and it may well have longer-term consequences since the US relies on foreign inflows to fund its current account deficit. This sort of move will make it even more dependent on easily-reversible portfolio flows," he said.
The IMF's Middle East director, Mohsin Khan, said that central banks in the Gulf region play a secondary role in recycling petrodollars.
What really matters is the investment strategy of the giant oil funds, such as the secretive Abu Dhabi Investment Trust now worth well over $200bn.
"They are still going into US-denominated assets, and the proportion of the assets held in dollars is not changing much - Gulf investors are not dumping dollars," he told the Middle East Economic Digest.
The moment they do, however, the long-awaited slide in the US dollar could start with a vengeance.
"What really matters is the investment strategy of the giant oil funds, such as the secretive Abu Dhabi Investment Trust now worth well over $200bn.
"They are still going into US-denominated assets, and the proportion of the assets held in dollars is not changing much - Gulf investors are not dumping dollars" . . . The moment they do, however, the long-awaited slide in the US dollar could start with a vengeance.
Let me see if I understand the full implications of UAE's economic policy: They are shifting 10% of their foreign reserves into Euros immediately. Iran is starting its oil bourse officially next week. The UAE is right next door to Iran. OPEC controls most of the oil money in the region. Abu Dhabi controls $ 200 billion worth of investments that are currently held in USD. Right now, Gulf investors are not dumping dollars for Euros.
If the U.S. dollar falls against the Euro it is a good thing for America, right? That means people will be buying more of our goods, right? Of course, Americans do not buy goods made here in the U.S. anymore. Because we are addicted to cheap foreign made goods as sold by companies like Wally World. What do we actually manufacture here in the U.S. today? Er, uh, televisions? Tires? Gasoline? More American companies have been sold to foreign corporate owners during the past six years than ever before. But my government is looking out for me.
Oh, dear me, is there something going on here that I do not understand? Sounds a bit like the early stages of a global trade war to me. [Learn more?] Anyway, I'm just a geezer.
carolyn
I recall a last year Warren Buffett shorted the dollar for the euro. He lost $1 billion.
Yes, Buffet lost $1 billion, but that was right on the heels of his shorting the dollar and making $3 billion.
So, he is still $2 billion ahead.
What really matters is the investment strategy of the giant oil funds, such as the secretive Abu Dhabi Investment Trust now worth well over $200bn.
maybe they realize there is an end in sight for oil (their sole income) as we have used it over the last century, and are getting nervous
Well I would guess people had better get a bike or a horse which ever one they have room for...LOL!
Yes. this is the opening salvo. Just waiting to see if Congress actually understands the implications of a truly global market driven economy with "REAL" free trade. This port deal indicates to me that congress/politicians (yet again) speak with forked-tongues.
Good idea! Kudos, Carolyn. There is so much disinformation out there. My b.s. meter goes into the danger zone every time I turn on the tube. Can you believe that Katy Couric is gonna be on CBS News? Guess we can all look forward to in depth interviews with Tom Cruise this year, huh?
The UAE is interested in making money.
They'll do what makes them the most money regardless of the petty politics going on.
Pay backs are gonna be hell.
Interesting interpretation from Norway, my FR friend. Kudos to you as well.
Keep in mind that the free traitors love cheap labor, since they perceive that one factor as the key to their God, "Lower Prices To Consumers". A declining dollar means that real wages (as opposed to nominal, unadjusted wage numbers) will decline in comparison to the rest of the world.
Of course, this means that the American middle class will be hurt, and badly. It may mean a certain amount of social upheaval, possibly including an H. Clinton Presidency in 2008.
But, what does that matter? Wages will have been forced lower.
Had we been wiser, and protected our domestic producers, we would not suffer what is surely to come. But the free traitors were at work, burrowing at the foundations of our economy, until we produce nothing. We'll pay a price. But better now than later, when it would be still worse.
I like economy. I studied economy in the US and have many good American friends that I still keep in touch with. My best friend from the college days is a good republican.
*PING* !
The "shrill tone" from Capitol Hill was only an echo of anti-Arab concern (not "hysteria") from the vast majority of Americans - and is well deserved.
UAE has been an ally ... but ONLY recently and ONLY in the WOT and the war in Iraq. They may be an "ally", only for now. They were not just a few years ago and they may not be tomorrow.
UAE and all of Islam are not an ally in defense of our ideals and values of freedom, liberty, democracy and religious tolerance.
Boo hoo hoo.
My heart bleeds for UAE.
I think the conventional wisdom is that if people don't want to be holding as many dollars or things that are more or less equivalent to dollars, such as Treasury Bonds, then there will be less demand for them; bond prices go down and interest rates go up.
If our government could make an honest and balanced budget then this wouldn't be as much of an issue.
We definitely have a winner for the best comment on this thread.
Well we just better invade them for 'regime change'. Instead of allowing the market and free trade to work, we have a reawakening of the mercantilist Amurica Firsters egged on by anti-Arabic sentiment. It will get much worse in the years to come. Thanks guys!!
Most Congress people are stupid, ignorant and incompetent. To expect wise decisions and intelligent programs is an OXYMORON.
Nations have no permanent friends or allies. They only have permanent interests.
Lord Palmerston, the 19th century British prime minister,
I'll read "learn more" later.
IIRC, OPEC has been threatening us for years regarding the price of oil. Now they are happy that they have the excuse to raise the price and punish the US. Even Clinton had to beg OPEC to keep the price down. Prior to the Iraq war, OPEC again threatened to use the Euro and many people thought the Euro was the real reason for the war.
Start to worry. This is only the begining of the dollar collapse. I hope you all have some gold!
Lower dollar helps us sell more stuff overseas.
Just because we have a dyfunctional public education system, that is no reason to prevent a depression. Or is it? We can't leave a Child Behind, can we?
The GOP Congress, led by the excreble Peter King, distinguished itself for its cowardice over the last two weeks.
Losing control of both houses in November would be a fitting reward.
Good, the deficit is out of control.
Nothing. If you call $3 trillion nothing.
Anyway, I'm just a geezer.
You're an economically illiterate geezer.
The GOP Congress, led by the excreble Peter King, distinguished itself for its cowardice over the last two weeks.The real issue is how we relinquished our money and therefore power to a pip-squeak nation no bigger than a state and now you clowns are cowering in fear of them.
United States a super power? HA! Thanks to phoney free trade policies that's a sick joke.
Of course, this means that the American middle class will be hurt, and badly.
The only people who'll be hurt are those who buy foreign goods. And you want to hurt them, don't you? This should make you happy.
Wait till monday - The Iranian Oil Bourse is scheduled to begin operation. Oil purchases in euros rather than dollars = the other shoe dropping!
Hunker down and hold on to your assets kids!
We didn't relinquish our money, we spent it. Would you prefer we bought no foreign oil? Gas would only go up to about $10 a gallon. But at least we wouldn't relinquish any power to the UAE. LOL!
If the dollar collapses then welcome to the global depression.
So let me see if I have this straight . . . China spends billions of dollars a year keeping its currency at an artificially low level, but if we allow the dollar to fall (and thus bringing the dollar-renminbi level to more realistic level, as well as costing the Chinese more money as a bonus), it's world depression time?
It pleases me on several levels - as 1rudeboy points out, the decline of the dollar should increase U.S. exports. And as you, Toddsterpatriot, mention, it will hurt those who purchase foreign goods. That brings an oscillation of cold glee to my core. And, too, this move helps my investments.
But whatever else you believe about me, I want America and Americans to prosper. In the short term, this will be painful to many. I hope it will cause people to turn their back on free traitin' - for, if they do not, the next cycle will bring even greater pain.
Yep.
Uhhuh! Sure they will.
And you believe exports are good and imports are bad. You also believe that trade deficits are bad while trade surpluses are good.
And as you, Toddsterpatriot, mention, it will hurt those who purchase foreign goods. That brings an oscillation of cold glee to my core.
Yes, all those Americans who insist on driving their cars and buying all that foreign oil. Stick it to those bastards.
And, too, this move helps my investments.
Interesting, you want Americans to be hurt so that you can personally benefit. I thought only free traiters were that greedy.
I'm not gonna worry until there's a reason to worry. I've heard for 30 years now about all these economic horrors, how we'd run out of oil by the mid-80s, how the earth couldn't last past the year 2000 due to "global warming," how houses were going to be selling for peanuts...
Y-A-W-N!!!
When there's a reason to worry, then we'll worry. There's little to do about it 'til then.
As well, if the US economy collapses, it ain't gonna do the world economy any favors. So any nations thinking that they're gonna bring down the US in this way are committing a degree of suicide themselves.
That will be a mistake .. they'll lose money in the long run
UAE going after our economy reads like a bin laden wet dream...he failed with the WTC and now his pals are trying another angle.
They will fail big time and they will loose big money if they continue to pursue our destruction.
The graph of GDP (post #34) is only manufactured goods. You were saying it didn't look so rosy?
Sly debating at its finest!
No - I want Americans to put up sufficient trade barriers, both tariff and non-tariff regulations that domestic industry will be protected. This will cause short term pain with a substantial long-term benefit.
That said, it will take some time before the lesson is learned. I intend to profit from it. I will gleefully rub the free traitors' noses in that fact in order to cause greater emotional distress - but it's for their own good, so they'll remember the evil of free traitin'. After the lesson has been well and truly learned, I'll invest in the future growth of America - which I'd rather be doing anyway.
And you mention oil - please note that we have made our enemies rich. Had we inconvenienced ourselves a bit, we would have been better off and our enemies would be far poorer. Iran would not be a dangerous enemy - instead, they would be too busy trying to eke out a pathetic living.
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