Memo to Hank Paulson on his visit to the UAE
Posted on 31 May 2008 with no comments from readers
US Treasury Secretary Hank Paulson arrives in the UAE today at the start of a tour of the Middle East. He is expected to reassure the government that investments from sovereign wealth funds are welcome and that the US dollar is coming off its lows.
Behind the scenes he could well be battling on two fronts: trying to secure additional oil supplies to keep the price of Black Gold down; and reassuring the government that a revaluation of the dirham is not required as the dollar is recovering.
The problem is that this is a case of the pot calling the kettle black. It is loose US monetary policy that is driving oil price inflation. US interest rates are being held below the level of inflation and this is pushing investment into an asset class that can hold its own against inflation: oil. This is a self-fulfilling investment cycle, and is a market phenomenon that has little to do with supply and demand.
It is the same loose monetary policy that is devaluing the US dollar to save the US financial sector from its bad lending practices, and pressuring the dirham downwards due to the fixed dollar-peg.
Now while it is possible that the US dollar could be short-term over-sold and due for a longer rally than the one seen over the past month, the longer term direction of the US currency is still down, with interest rates held low to support a flagging economy while the European Central Bank fights inflation alone. That will not sustain a dollar rally.
Ex-Goldman Sachs chief Paulson will need all his persuasive charm in the UAE capital to persuade leaders that black is white. The difficulty is that what is not true can not be re-stated as the truth. Fortunately for Paulson he has only another seven months in office and will not be there to be held accountable for what he says today. Heaven help President Obama!
But I suppose Middle East conspiracy theorists will also be working over time on this visit. Perhaps Paulson has a big strategy to get the world economy back on its feet by this autumn and needs the help of Abu Dhabi? The presidential election is a last stand for this generation of Republicans.
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no Comments posted by readers:
Perhaps Paulson has a big strategy to get the world economy back on its feet by this autumn and needs the help of Abu Dhabi?.
I like your style.
He’s running scared.
Maybe he needs another bail-out.
Father Xmas and the Tooth Fairy already told him where to go.
The $ rally is in the hope of a UK, or EU, interest rate cut.
Even if they do cut, the $ is ultimately toast.
OTOH, he may be making reassuring noises about the upcoming Iran bash.
Who knows?
My apologies for a government dedicated to lie to you as it does to us.
You seem to be lost yourself however regarding interest. Perhaps I can help. The cycle of devaluation of every currency subject to interest is the same. They all devalue perpetually, and they all generate ever greater sums of debt until they fail, because merely to maintain a circulation subject to interest, the subjects of the system must re-borrow what they are compelled to pay against principal and interest obligations as subsequent sums of debt, perpetually increased so much as periodic interest.
Thus the sum of debt multiplies at an ever escalating rate of ever greater sums of interest on an ever greater sum of debt. Ever more of the circulation is therefore dedicated to servicing the sum of debt, while ever less of the circulation remains to be dedicated to sustaining the very commerce which is obliged to service the debt.
Thus the costs of all impacted wealth increase perpetually with the imposed multiplication of debt, and the system ultimately fails when an eventual and inevitable sum of debt exceeds the capacity of sustainable commerce to service the sum of debt.
http://perfecteconomy.com/pg-about-interest.html