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Middle East Countries About To Abandon Sinking Dollar

John F. McManus
JBS
Monday, June 2, 2008

Kuwait de-pegged its currency from the dollar last year. Now Qatar and the United Arab Emirates are considering following suit.

Follow this link to the original source: "U.A.E., Qatar May Drop Dollar Pegs Within Months, National Says"

COMMENTARY:
Guess who wrote the following?

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving....

If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible....

The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit...

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes....

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.... The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Did you guess Ron Paul?

How about Ludvig von Mises? Or, what about Murray Rothbard? Milton Friedman?

Did you think of Alan Greenspan? You got it.

That was the Alan Greenspan from 40 years ago.

The recent pronouncements by the same man have been quite different, such as his suggestion to let more skilled workers in the U.S. As the Boston Globe reported it, Greenspan said: "Allowing more skilled workers into the country would bring down the salaries of top earners in the United States, easing tensions over the mounting wage gap."

With the middle class in America on the ropes, and our nation's currency in trouble — largely because of the greatest credit expansion in the history of the world presided over by Mr. Greenspan himself — now Greenspan has encouraged the Gulf countries to drop the dollar.

With the American dollar rapidly sinking in value as a result of inflation, several nations that have traditionally tied the value of their own currencies to the U.S. dollar will reportedly break free in the months ahead.

Kuwait parted company with the dollar last year. Now the United Arab Emirates and Qatar are making similar noises. And the area's six oil-rich nations that form the Gulf Cooperation Council are planning to form a monetary union in 2010. These are Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Oman, and Bahrain, which are collectively the producers of one-sixth of the world's oil.

Americans should care about such developments in far-off lands because their actions — along with signals that others will follow — send the message that these foreign nations, customarily comfortable with their ties to the dollar, have lost confidence in the depreciating U.S. currency. Continued attachment of their own currencies to the shrinking value of the dollar has brought America's economic woes right to their own doorsteps.

It would be easy for many in the U.S. to shrug this off and say, "Who cares what these Arabs do?" But that would show a willingness to ignore the reason why traditionally friendly nations are abandoning their long-standing economic relationship with the U.S. The clear message coming from the Middle East is that the flood of currency being injected into the American system here at home has lowered the dollar's value wherever dollars are in use. They are posing an important rhetorical question: Why should we sink along with America?

It is interesting to note that reports about these plans are not showing up in the U.S. mainstream media. The American people, already mired in what many have already termed a recession, aren't being informed about how much damage has been caused by years of deficit spending, unbalanced budgets, and enormous influxes of new currency. It’s almost as if no one wants to mention the cliff towards which the entire nation is about to plunge over.

Federal Reserve tinkering hasn't overcome huge unfunded spending programs. Nor can rebates for tens of millions of dollars derived either from additional borrowing or running printing presses overtime treat the fundamental problem.

What's needed are severe cuts in government programs — how about foreign aid for starters? — and a government committed to living within its means while paying off debt. If we don't, then America's economic woes will only deepen.

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