1. 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.The Saudis see a big recession coming in the USA and don't want to be dragged down with it.
2. 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.Same story: China is not going to take a hit to help keep the US afloat. As an official at the Chinese Academy of Social Sciences puts it:
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.
"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.The dollar is now at a record low against the euro. Oil is over $80 a barrel. Is anyone paying attention?
"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."
The irony is that one of the main reasons for invading Iraq was to stop Saddam dumping the US dollar oil peg.
