Saudis’ Unprecedented Break with Washington over Egypt (Is that a Golden anvil around President Obama’s neck)?
We have seen so much news recently and many stories. When they are knitted together point to a picture where the dollar will be supplanted as the world’s reserve currency and where gold will play some sort of role. Even looking at the gold market from different angles gives you signs that something is definitely in the works.
I came across this article yesterday written by William F. Engdahl which has strangely gotten very little press considering the ramifications which are huge. Behind the scenes it appears that Saudi Arabia is backing away from the U.S. Our “partnership” goes all the way back to 1945 and was certainly reinforced in 1973 when they agreed to trade oil ONLY for dollars. Just after going off of the gold standard Henry Kissinger cut a deal which created instant and massive demand for dollars which allowed us the rope we have used to financially hang ourselves.
This “demand” for dollars to settle for Arab oil may now be ending because of foreign policy. You see, we have made a mess out of communicating to the world where it is that we exactly stand. Al Qaeda is our enemy? They are our ally? We fight against them? We support them with subsidies and arms? Which is it? Well, it depends. It depends on which country you are talking about and what particular political subject. In the current case, Saudi Arabia is supporting the military that has taken rule in Egypt. They are doing this financially at a time that it is unclear what our policy is and they don’t want what has happened in Egypt to happen to them. They have watched as leaders have been toppled like bowling pins and they are just plain scared and acting in what they perceive is their best interests.
The article ends with “to be continued.” I would like to ask a few questions as to what exactly “to be continued” might look like. If a BRICS currency is formed (which I fully believe is already close to being introduced), will Saudi Arabia (followed by other Middle East countries) accept the new currency in lieu of dollars? What if the BRICS demanded settlement in their new currency, would the Saudis refuse?
But wait, how about this one, What if the Saudis decided to accept another currency and our fearless leader got pissed at them? What if he started using language that could be considered “fightin” words?” What if the Saudis started to sell dollar assets? Like Treasury bonds? I wrote a piece yesterday entitled “How much is too much,” maybe I should have asked the question of “how much is too much” on the Fed’s BALANCE SHEET. Because they would be the ONLY ones buying dollar assets if the Saudis were selling…along with the Chinese, Japanese, South Koreans…heck, maybe even the Brits would be selling to meet margin calls.
I would like to remind you of a movie that came out back in 1980 called “Rollover.” This short trailer pretty much says it all. What if the above mentioned didn’t even “sell” (they will). What if they just didn’t “rollover” their maturing holdings? What would that look like? Yes the Fed can and would be buying anything and everything for sale, but what would their balance sheet look like? How big is too big? How “insolvent” is too insolvent? Just last month alone they lost more equity (if marked to true market) than they supposedly have, Can they go negative $1 trillion? $10 trillion? $100 trillion?
I will say this, when the BRICS introduce a new currency the demand for dollars will instantly implode. Will Saudi Arabia accept this new currency to pay for oil, all hell will break lose and dollars from all over the world will come back home to roost. The inflation that we have exported for all these years will all of a sudden come back home and hit all at once. You could very well see a doubling or more of the prices of many products as the dollar supply chases the products. Add to this economic scenario one where we are at war over oil in the Mideast and prices could simply explode to unaffordable levels that only the 1% could afford.
Like I said earlier, this has gotten VERY little press yet, but has the potential to be bigger than anything…going all the way back to 1973! A break with Saudi Arabia will be the last financial straw.