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Russian Rouble to Attack the U.S.$? - Exchange Controls in the U.S.?
By: Julian D. W. Phillips, Gold Forecaster -

-- Posted Tuesday, 16 May 2006 | Digg This ArticleDigg It! | Source:

Excerpts From – “Gold Forecaster – Global Watch”  - week to 16th May 2006


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Russian Rouble to attack the $ - Exchange Controls in the U.S.?


Russian President Vladimir Putin called for work on making the national currency convertible to be completed, oil and gas to be traded in Roubles on a domestic exchange, and an innovation-based economy.  


In his annual state of the nation address before both houses of parliament, ministers and reporters, Putin said work on making the national currency fully convertible should be completed by July 1, almost six months ahead of the original January 1, 2007 deadline.


The president called for the establishment of a Rouble-denominated oil and natural gas stock exchange in Russia.   "The Rouble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in Roubles," he said.   Putin said this would be impossible without economic growth of over 7%, which, he said had been achieved in the past three years.


This is the second most significant step in removing the U.S.$ from the throne of sole global reserve and trading currency!   Should any more oil producers take this step, it will precede a U.S.$ crisis and create massive potential instability in the globe’s foreign exchanges.   Because this is so important to gold and to you the reader, we are going to turn this into a series of pieces detailing the way forward.    Needless to say, these moves are very, very positive for gold.   [If Putin keeps his word on the gold front, we should expect Russia to enter the gold market as a buyer soon too?]


Once Russia has completed these steps [July onwards], we expect to see the greatest bulk of Russia’s oil sold for Roubles.  


Following China’s valuation of its currency against a basket of currencies of the countries with which it trades and the proposal by Iran of a multi-currency Oil Bourse in Tehran, other than the U.S.$ as well, this move by Russia tolls the bell on oil being exclusively priced in the U.S.$.


With the oil comprising a huge portion of global trade, as part of the 86% of global trade denominated in the U.S.$, the impact of this change will be heavy on the value placed on the $.


So far, as the oil price rose, the demand for the U.S.$ grew heavily, in line with the rising price, giving it the stability it has maintained over the last few years, despite the series of record Trade Deficits.   The fact that this has been in effect a devaluation of the $ in terms of oil, is not yet deemed of consequence.  


But the rest of the globe doing trade with the U.S. is under no illusions that the sheer volume of dollars being printed to pay the bill for this Trade deficit has forced them to accept a suspect currency.   They have, of necessity, to hold these surpluses in U.S. assets.   Most have found their way into highly liquid U.S. Treasury Bonds and Bills.   Now is the time to attempt to slow the acquisition of new dollars into their reserves.   Clearly, a lowering of the demand for the U.S.$ in international trade will lower the demand for the $ and U.S. Treasury Bonds and Bills.   As the $’ role shrinks, so will the globe’s ability to absorb, not just the Trade deficit of the U.S. but also the growing volume of dollars surplus to requirements.  



Let’s make clear what this could mean eventually, with Russia supplying oil to the U.S., the U.S. will have to buy Roubles to pay for it just like other nations.


Many are the dollars held in reserves to buy oil with and many are the countries who need to change their currencies to the $ to pay for their oil with currently.   Where they can use their own or have to buy Roubles, the demand for the dollar will drop and significantly.   This will lead to a steady sale of $ assets, then the $s themselves with which to buy these Roubles [and Euros].


Eventual Crisis


This will precipitate, in time, upward pressure on interest rates.   We would expect this to start in the markets through sales at the long end of the Treasury Bonds, then as these are sold off, move down to the short end of the market until foreign investments are concentrated at the short-end [T-Bill] and at worst, held in ‘call’ money.   The liquidation of these assets and subsequent purchases of foreign currencies will pull the $ down and cause a heavy outflow of foreign capital.  


Before this happened, we would expect the Fed, as we mentioned in a previous issue, to heavily intervene in the foreign exchanges to defend the exchange rate of the $.   The Fed has already made preparations for such a defence.   Should this prove insufficient and we have no doubt they will, we expect the Fed to try to stem the capital outflow from the country with Exchange Controls from initially gentle to eventually harsh levels. [The writer has many years of experience in Exchange Controls in different countries].


Many of you readers may feel these prospects are impossible, but history has precedents.   At the turn of the century, the British Empire was in its heyday.   Seventy years later it had to impose Exchange Controls of its own to prevent the sudden exit of foreign investments from its shores.


Next week we will look at what happened and how it is pertinent to the U.S. today!   Later we will describe just how Exchange Controls work to protect a nation’s financial base and the benefits that can come with them to the U.S. but to the detriment of the global monetary system.


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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.   Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness.  Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.    Gold-Authentic Money / Julian D. W. Phillips assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

Disclosure: The owner, editor, writer and publisher and their associates are not responsible for errors or omissions.  The author of this report is not a registered financial advisor.  Readers should not view this material as offering investment related advice. Authors have taken precautions to ensure accuracy of information provided. Information collected and presented are from what is perceived as reliable sources, but since the information source(s) are beyond our control, no representation or guarantee is made that it is complete or accurate.  The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action.  Past results are not necessarily indicative of future results.  Any statements non-factual in nature constitute only current opinions, which are subject to change.  The information presented in stock reports are not a specific buy or sell recommendation and is presented solely for informational purposes only.  The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise outside of the trading timeframe listed above.  Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities & therefore information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein.  Investors are advised to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.  




-- Posted Tuesday, 16 May 2006 | Digg This Article

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