Look Who’s NOT Coming To Dinner!
George W. Bush likes to think of himself as a powerful and influential world leader, yet the evidence screams loudly in confirmation of the alternative.
On April 17, 2007, Bush was to host a formal state dinner in honor of Saudi Arabia’s King Abdullah. For reasons that were not evident at the time, Abdullah cancelled his appearance.
In addition, Jordan’s King Abdullah, a half-Brit who has an American-born step-mother, and who has spent more time in George W. Bush’s Washington than any other foreign leader, cancelled his own state visit planned for September.
The reason for Saudi King Abdullah’s cancellation is now revealed: Abdullah denounced the “illegitimate foreign occupation” of Iraq by the United States and declared independence from future American interference in Arab affairs, saying in an opening speech to the annual Arab summit in Riyadh that Arab nations would not allow any foreign force to decide the future of the region.
Isn’t that what Condoleeza Rice is now attempting to do? And failing miserably as an incompetent always does?
Much more important to the average American, however, is the growing distance between the world and the American dollar. As the world separates itself from the “traditional” use of the dollar as the fiat currency used for petroleum pricing, there will be less desire on the part of foreign exchanges and central banks to hold large sums of dollars in their reserves, weakening the value of the dollar in foreign markets and making the United States a less attractive investment opportunity. Rep. Ron Paul (R-TX) has some interesting comments concerning this topic here and here.
The conversion of international economies from being fiat subjects to free economic adults has already begun. Dubai International Financial Centre CEO Nasser al Shaali recently announced that Gulf economies will move away from a link to the dollar and convert their foreign exchange reserves to other currencies including the Chinese yuan. The United Arab Emirate central bank is already dumping dollars and buying euros as part of its strategy to move some 10% of its reserves into the euro before the end of 2007.
All OPEC nations are watching Iran converting its petroleum sales to non-dollar pricing. Iranian industry officials are making the unsubstantiated claim that 60% of Iran’s oil trade with other Opec members is now priced in non-dollar currencies, and the biggest buyer of Iranian crude worldwide, China’s state-run Zhuhai Zhenrong Trading, buys roughly 240,000 barrels per day paid with euros. Chairman Fukuaki Watari of Japan’s top refiner, Nippon Oil, said the Japanese companies had all received informal encouragement from Iran to pay for their 500,000 barrels per day of Iranian crude on non-dollar terms, but were awaiting an official request. “We are looking at it so that we can switch the currencies any time,” Watari told reporters last week.
The Japanese may well be about to be so asked, as the dollar slumped against the yen after Federal Reserve Chairman Ben Bernanke suggested a slowing housing market has made the U.S. economic outlook less rosy.
But hey, what does he know about economics? Not as much as some of my Blogcritic readers, I’ll wager! But I digress.
British economic observer Ned W. Schimdt believes that this trend away from the dollar will only increase as the US economy heads toward the dreaded “R” word:
U.S. monetary policy continues to be set as if the U.S. lives in economic isolation from rest of the world. Investors, consumers, governments outside the U.S. simply remain outside the analysis of the U.S. economic situation. This focus on solely domestic concerns means the Federal Reserve might attempt to lower interest rates.
[Bernanke told Congress on 3/27/07 that the Fed has not shifted away from battling inflation, which generally means interest rate cuts intended to stimulate the American economy.]
Schmidt continues:
Such an action would ignore the response of the forex market and foreign investors. Individuals around the world are shunning the U.S. dollar. The average person on the street around the world simply has less interest… to hold U.S. dollars. The values of Euros in circulation exceeds that of U.S. dollars…
The second major asset bubble bust in seven years is now about to crush the U.S. economy. Despite the downplay by many cable news gurus, the U.S. mortgage & housing bubble is pushing the U.S. economy into recession. An imploding mortgage & housing bubble pushing the U.S. economy into a recession along with declining preference for holding U.S. currency should send U.S. dollar much lower.
Many central banks may be worried about impact on their own economies of the U.S. dollar’s value declining as the U.S. economy enters a recession. Some of their citizens might not sell as many goods to U.S. consumers.
That commercial fact may be one reason why the Reserve Bank of India (RBI) didn’t step in to keep the Indian rupee from rising to a 7-yr high against the US dollar, which has “created nervousness” among exporters, because a stronger rupee will reduce their earnings on conversion of their dollars. They may also be harboring high hopes in a new trade agreement with the UAE, whose central bank is actively reducing its dollar holdings (as I pointed out above).
The only large nation that seems to really care about a weaker dollar is Russia, whose government officials fear is that a weaker U.S. dollar will have a negative impact on the Russian economy. This makes the focus on the international competition for Central Asian petroleum reserves all the more critical. Russia has concerns that its glowing opportunity for real economic hegemony is to be drowned in the bathtub before it can grow.
There are active moves by the EU - facing the stark reality of Hubbert’s Peak - to eliminate Russia as a source of their energy supplies, especially after seeing Putin’s heavy-handed energy policies aimed at “uncooperative” customers (a tactic learned from watching Enron, perhaps?). and the US is attempting to break up cooperation agreements between Russia and the Central Asian nations by reducing concerns for the improvement of human rights in these lands.
But in a starling echo of Ned W. Schmidt’s observation that US economic policy is ignoring international concerns, the international contest over Central Asia ignores local concerns. Some of these are expressed by local experts:
“These are very weak states that cannot provide social services or justice to their populations,” says Irina Zvigelskaya, a regional expert at the official Institute of Oriental Studies in Moscow. “The Islamists are moving into this vacuum, and creating a real long-term challenge to stability in Central Asia.”
Parviz Mullojanov, director of the Public Committee for Democratic Process, a Tajik NGO, says a combination of poverty, weak government, and huge numbers of young, jobless males in the Fergana have created a perfect storm for Islamist movements. “If economic conditions worsen, this could become the problem of our future.”
“People for whom Islam is the main source of identity find themselves fighting foreign invaders, and of course that strengthens their beliefs and encourages sympathy for them,” says Saimodin Dustov, director of the independent Information for Democracy and National Progress Center in Dushanbe.
“Islamists and drug traffickers are interested in each other’s support,” says Nur Omarov, a political expert at Bishkek’s Slavic University. “Both find it perfectly acceptable to use drugs as a weapon of jihad against the West.”
So as oil prices continue to climb above the 2007 high, don’t believe the claims that it’s “deteriorating relationship between Iran and the West” or “further declines in U.S. commercial oil inventories” that are responsible for highr pump prices.
It just might simply be that your dollars don’t buy as much international crude as it once did when the world liked us and felt secure investing in out economy. But it will certainly buy you more Afghanistan opium!